Draft Commonwealth Bills Released in Response to ASIC Enforcement Review Taskforce Recommendations

Monday 14 October 2019 @ 11.52 a.m. | Corporate & Regulatory | Legal Research

On 19 October 2016, then Minister for Revenue and Financial Services Kelly O’Dwyer, announced a taskforce in order to review the enforcement regime of the Australian Securities and Investments Commission (“ASIC”). The ASIC Enforcement Review Taskforce (“the Taskforce”) assessed the suitability of existing regulatory tools and included an examination of legislation dealing with corporations, financial services, credit and insurance.

The Taskforce was established in response to a recommendation made in the Financial System Inquiry’s final report, which was released on 7 December 2014. The Financial System Inquiry report was discussed in a previous TimeBase article, and the Government’s subsequent response to this report was discussed in another earlier TimeBase article.

Recommendations made by the Taskforce

In December 2017, the Taskforce provided its final report to the Government, making 50 recommendations in relation to several matters. These matters and recommendations were grouped into 8 main themes:

  1. Self-reporting by financial services and credit licensees in regards to contraventions
  2. The need to harmonise and enhance search warrant powers
  3. ASIC’s access to telecommunications intercept material
  4. Financial sector industry codes
  5. ASIC’s licensing powers
  6. ASIC’s power to ban individuals in the financial sector
  7. The need to strengthen penalties for corporate and financial sector misconduct
  8. ASIC’s directions powers

These recommendations sought to address the gaps and deficiencies in the current regulatory scheme and to foster better consumer confidence in the financial system. Furthermore, the Taskforce proposed changes in order to promote engagement and cooperation between ASIC and the businesses under its jurisdiction, whilst being mindful of the regulatory burden being imposed on these businesses.

The Taskforce’s recommendation in regards to stronger penalties for corporate and financial sector misconduct was discussed in a previous TimeBase article, and the Government's response to this recommendation was discussed in another earlier TimeBase article.

Government Response to the Taskforce’s Recommendations

In April 2018, the Government released its response to the Taskforce’s report in which they agreed or agreed-in-principle to all recommendations made by the Taskforce. On 11 September 2019, the Government released the draft legislation to implement these recommendations for public consultation.

The released drafts include:

  • The Draft Financial Regulator Reform (No. 1) Bill 2019: Access to telecommunications interception information (Cth) (“the Draft Telecommunications Bill”)
  • The Draft Financial Regulator Reform (No. 1) Bill 2019: Banning orders (Cth) (“the Draft Banning Orders Bill”)
  • The Draft Financial Regulator Reform (No. 1) Bill 2019: ASIC search warrant powers (Cth) (“the Draft Warrant Powers Bill”)
  • The Draft Financial Regulator Reform (No. 1) Bill 2019: (Licensing) (Cth) (“the Draft Licensing Bill”)
  • The Draft Financial Regulator Reform (No. 1) Bill 2019: (Penalties) (Cth) (“the Draft Penalties Bill”)

The consultation on these drafts closed on 9 October 2019.

ASIC Access to Intercepted Telecommunications Information

The Telecommunications (Interception and Access) Act 1979 (Cth) (“the TIA Act”) provides a framework which enables certain agencies to access telecommunication information in investigating serious offences. The regime has staggered levels of access and allows agencies that are designated interception agencies to apply for warrants in order to intercept telecommunications for the investigation of serious offences. Interception agencies may also share information with recipient agencies if the information pertains to a matter that could be investigated by the recipient agency.

Various offences under the Corporations Act 2001 (Cth) (“the Corporations Act”) commonly investigated and prosecuted by ASIC fall under the definition of a serious offence in the TIA Act. However, ASIC is neither an interception agency nor a recipient agency and has no access to intercepted telecommunication information.

The Draft Telecommunications Bill proposes to amend the TIA Act in order to allow ASIC to obtain and use intercepted information for its own investigations and prosecutions of serious offences, addressing one of the Taskforce’s recommendations. The proposed amendments under the Draft Telecommunication Bill would:

  • Allow interception agencies to provide information about interception warrants or lawfully intercepted information to ASIC for any serious offence that ASIC can investigate or prosecute; and
  • ASIC staff members will also be allowed to provide the received information to another individual where the information relates to a serious offence that ASIC can investigate or prosecute.

ASIC’s Banning Powers

Under Division 8 of Part 7.6 of the Corporations Act, ASIC has the power to ban individuals from providing financial services. Part 2-4 of the National Consumer Credit Protection Act 2009 (Cth) (“the Credit Act”) contains equivalent provisions for ASIC to ban persons from engaging in credit activities.

The Taskforce identified two deficiencies with ASIC’s banning powers in its final report. Firstly, whilst ASIC can ban a person from providing a financial service or engaging in credit activities, these powers do not authorise ASIC to ban a person from controlling or managing a financial services firm or credit business. Secondly, a banning order can only be made where there has been poor conduct in the provision of financial services or engagement in credit activities. However, it does not authorise ASIC to ban a director or senior manager who has demonstrated to be unfit to fulfil their role or who has a culture of non-compliance with financial services laws.

The Draft Banning Orders Bill proposes the expansion of ASIC’s powers to ban a person’s continual involvement in the financial sector. These changes would expand the grounds on which ASIC can issue banning order, allowing ASIC to take into account a person’s continued non-compliance with financial service laws and the person’s management of a financial services or credit business. Furthermore, the changes would empower ASIC to make additional types of banning order to prohibit a person from controlling or performing any or particular functions in relation to a financial services or credit business.

ASIC’s Search Warrant Powers

ASIC currently has a range of search warrant powers under the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”), the Credit Act, the Retirement Savings Accounts Act 1997 (Cth), and the Superannuation Industry (Supervisions) Act 1993 (Cth). Additionally, ASIC can also obtain a search warrant by applying to a magistrate under the Crimes Act 1914 (Cth) for execution by the federal and/or state police.

The Taskforce recommended harmonisation and enhancement of ASIC’s search warrant powers in order to bridge gaps and deficiencies that currently exist between the powers afforded by the different acts. Under the Draft Warrant Powers Bill, ASIC is proposed to be given additional powers to:

  • Apply for a search warrant in circumstances where the contravention would be an indictable offence under the ASIC Act, the Corporations Act, the Credit Act, the Retirement Savings Accounts Act 1997 (Cth), and the Superannuation Industry (Supervisions) Act 1993 (Cth);
  • Apply for a search warrant where a federal, state or territory law has been contravened in concern to the management of corporation or managed investment scheme or involved fraud or dishonesty and relates to a corporation, managed investment scheme or financial product, and where the contravention would be an indictable offence;
  • Search and seize evidential material; and
  • Use the evidential material to perform its function and exercise its powers, including investigating breaches of ASIC administered legislation, prosecuting breaches, and taking administrative action.

Licensing

Part 7.6 of the Corporations Act governs the licensing of financial services providers. An individual who carries on a financial services business in Australia must hold an Australian financial services licence (“AFS license”), subject to exemptions. These applications are submitted to, assessed, and granted by ASIC. ASIC is also responsible for credit licenses under Part 2-2 of the Credit Act.

The Financial System Inquiry identified a number of gaps in the current licensing framework and gave recommendations for its improvement. The Taskforce also made additional recommendations in its final report. In particular, ASIC was found to be limited in regards to:

  • Its ability to assess suitability of applicants;
  • Their consideration of previous conduct in other businesses in determining whether an applicant will satisfy the fit and proper test; and
  • Its ability to impose conditions on firms in order to address concerns about internal serious or systemic misconduct.

The amendments proposed by the Draft Licensing Bill seek to improve the current licensing regimes by replacing the requirement that an applicant be of ‘good fame and character’ with the requirement that they be a ‘fit and proper person’ to provide the financial service covered by the licence. Furthermore, this test will also extend to a person’s controllers, officers, partners and trustees. The requirements under this test must also be satisfied on an ongoing basis.

Other additional amendments under the Draft Licensing Bill also ensure that ASIC can refuse to grant a licence where material provided in an application is false or misleading. A licence may also be suspended or revoked in circumstances where financial services authorised under the licence have not been provided within 6 months of the licence being granted.

Penalties

Currently, the AFS licence and credit licence regimes contain different obligations in ensuring that documents provided to ASIC do not contain false or misleading statements. Therefore, the penalties associated to breaching these obligations also differ. The amendments to the Corporations Act and Credit Act proposed by the Draft Penalties Bill aims to strengthen and harmonise the penalty provisions and additionally provide ASIC with a broader range of enforcement tools in addressing non-compliance.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Sources:

[Draft] Financial Regulator Reform (No. 1) Bill 2019: Access to telecommunications interception information (Cth)

[Draft] Financial Regulator Reform (No. 1) Bill 2019: Banning orders (Cth)

[Draft] Financial Regulator Reform (No. 1) Bill 2019: ASIC search warrant powers (Cth)

[Draft] Financial Regulator Reform (No. 1) Bill 2019: (Licensing) (Cth)

[Draft] Financial Regulator Reform (No. 1) Bill 2019: (Penalties) (Cth)

 - all available from TimeBase's LawOne service

Consultation: ASIC Enforcement Review Taskforce (The Treasury, Australian Government)

ASIC Enforcement Review Taskforce Report (Australian Government, December 2017)

Financial System Inquiry: Final Report (December 2014)

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