Update on ASIC activities

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This article was written by Miriam Kleiner

Report 585: ASIC enforcement outcomes – January to June 2018

ASIC recently released its report on enforcement outcomes for the 6 months ended June 2018. In summary, ASIC reported that it had:

  • Commenced 67 investigations;
  • Completed 73 investigations;
  • Removed or restricted 68 people/entities from providing financial services or credit;
  • Disqualified or removed 20 people as directors;
  • Laid 210 criminal charges;
  • Collected $20.44 million in civil penalties and $256.69 million in compensation and remediation for investors and consumers;
  • Issued 16 infringement notices and collected $213,200 in infringement notices paid; and
  • Obtained 12 enforceable undertakings.

In particular, ASIC reported that it had taken 11 criminal actions and 22 civil actions against directors for "corporate governance misconduct".

Focus on financial reporting

ASIC has announced that it will be focussed on appropriate disclosure in financial reports in relation to the new accounting standards for the year ending 30 June 2018. ASIC is concerned that companies "have not adequately prepared for the impact of new accounting standards".

The new accounting standards may affect a number of items in financial reports including how and when revenue can be recognised, the values of financial instruments, reported assets and liabilities relating to leases and the general identification and recognition of assets, liabilities, income and expenses.

ASIC expects that companies:

  • will be able to quantify and disclose the impact of the new accounting standards on their business;
  • will disclose sources of estimation uncertainty and any significant judgement used in applying the accounting standards; and
  • will disclose key assumptions and a sensitivity analysis.

Embedded supervisors

In August 2018, the (then) Federal Treasurer Scott Morrison announced a major boost of $70.1 million for ASIC broken down as follows:

  • $26.2 million to accelerate and increase the capacity and intensity of enforcement activities for serious misconduct against well-funded litigants;
  • $8 million to embed supervisors within the big four banks and AMP to monitor governance and compliance actions;
  • $9.4 million to strengthen audit and enforcement action in the superannuation sector;
  • $6.8 million to establish a dedicated taskforce to conduct a "proactive, targeted and thematic" review into corporate governance to identify and pursue failings in large listed companies;
  • $6.6 million to implement the Government's reforms to whistleblower protection laws;
  • $6 million to promote Australia as a world leader in regulatory technology solutions for the financial services industry; and
  • $7.1 million to enhance ASIC's enforcement work on unfair contract terms protections for small businesses, ensure compliance with the Future of Financial Advice, and improve consumer access to the Financial Advisers Register.

On 17 August 2018, ASIC announced that it will "embed dedicated supervisory staff within the big four banks and AMP to monitor their governance and compliance with laws". Whilst there are not many details available in relation to ASIC's proposal, Mr Shipton has indicated that the proposal will involve:

  • embedding teams of up to 20 agents for weeks at a time to sit with bank staff;
  • dropping into meetings; and
  • trailing the CEO, executives and directors to identify misconduct before it arises.

It will be interesting to see the protocols that ASIC proposes for these arrangements, and whether ASIC will seek to attend and observe Board meetings and breach committee meetings. 

It is difficult to see how Boards and breach committees could possibly discharge their duties and fulfil their purposes properly if an ASIC representative was in attendance. Debate would be stifled, privileged advice could be compromised, and compliance matters could not be properly considered. 

ASIC has commented that its supervisory plan does not need legislative approval to be implemented. Conceptually this may be correct, and ASIC is likely to rely on its broad powers under s912E, but we assume that the existing limits on ASIC powers of search, production of information, and examination of individuals must continue to apply.

In our view, existing limits on ASIC's powers mean that there is currently no legislative basis on which ASIC can require that entities permit ASIC supervisors to attend breach committee meetings or Board meetings.  Time will tell if ASIC will take a different view.

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