ASIC continues with its enforcement agenda but is conscious of COVID-19's impact on the Australian financial system

By Ross McInnes, Katie Wood and RJ Silk
01 Oct 2020
ASIC continues to progress its enforcement agenda and remains committed to its enforcement work despite the delays and challenges caused by the COVID-19 Pandemic.

ASIC has released its most recent Enforcement Update (Report 666) which outlines the enforcement activities it has undertaken between January and June 2020. In its report, ASIC acknowledges that the COVID-19 pandemic has had a significant impact upon the Australian financial system and that few participants have been unaffected by it – however, notes that it remains important to report on its continued progress in enforcement matters.

ASIC has continued to progress both its general and Financial Services Royal Commission related enforcement objectives. In our previous report on this topic, we referred to ASIC's enforcement priorities and focus areas for the 2019-21 period, born from ASIC's Enforcement Update covering the period July to December 2019. The strategies and focus areas in relation to ASIC's enforcement priorities remained consistent in the period January to June 2020. However, we observe a notable addition to ASIC's priority focus areas – its pandemic-related enforcement priorities. These priorities address:

  • misconduct arising from behaviour seeking to exploit the pandemic environment, including predatory lending practices, mis-selling of unsuitable insurance or investment products and poor claims handling;
  • opportunistic conduct, such as scams, unlicensed conduct, and misleading and deceptive advertising;
  • failures to disclose materially negative information;
  • opportunistic and misleading market announcements made to the ASX; and
  • egregious governance failures within corporations, schemes and superannuation funds.

In relation to Royal Commission-related enforcement work and as a result of the extensive investigative work undertaken by ASIC since its completion, ASIC commenced four civil penalty cases against large financial institutions during the period.

Additionally, in the six months to June 2020, ASIC announced that it was able to enforce a total of $12 million in civil penalties imposed by the Federal Court. Report 666 indicates that there are 23 civil penalty cases currently before the Courts.

Although not mentioned in the Report, there have been two recent Court rulings about compliance with statutory notices issued in accordance with ASIC's compulsory information-gathering powers.

In relation to other areas of focus, ASIC provides a summary of enforcement outcomes and “results” across the market segments detailed below. In Report 666, ASIC identifies “results” by reference to the number of respondents by misconduct and remedy type (criminal, civil, administrative, court enforceable undertaking or remediation outcome). The market segments include:

  • Corporate Governance: ASIC recorded 23 corporate governance related results including in relation to auditor, liquidator, director and insolvency misconduct. As at 1 July 2020, there were 17 criminal and 11 civil corporate governance related matters still before the Courts.
  • Financial Services: ASIC recorded:
    • 54 financial services related results during the period – based on ASIC's Report, "results" relates to individual respondents and includes: criminal and civil determinations; administrative remedies (the majority of matters); and remediation outcomes; and
    • 11 criminal and 49 civil financial services actions before the Courts as at 1 July 2020. The conduct subject to this action includes credit misconduct, dishonest conduct including misleading statements (the majority of matters), misappropriation, theft, fraud and unlicensed conduct.
  • Markets: ASIC recorded 11 market-related results and had 11 criminal and 6 civil market-related matters before the Courts.
  • Small Business: ASIC recorded 130 small business-related results for the period 1 January to 30 June 2020 comprised of criminal and administrative actions, identifying a further 168 criminal actions against either persons or companies before the Courts as at 1 July 2020. As part of their regulation of this segment, ASIC noted that it sometimes takes administrative, civil or criminal action against companies, directors and other officeholders who don’t meet their obligations and duties.

Pandemic-related priorities and strategies

The pandemic related priorities outlined above follow the release of ASIC's interim corporate plan in June 2020. The corporate plan established five strategic priorities to address the challenges presented by COVID-19. In summary, they were:

  • protecting consumers from harm at a time of heightened vulnerability: ASIC's approach to this achieving this priority includes taking action against predatory lending, harmful sales practices, provision of poor advice and action to ensure appropriate support and services are offered to consumers where required;
  • maintaining financial system resilience and stability: responding to market disorder, supervising market infrastructure providers and participants and monitoring and enforcing adherence to continuous disclosure obligations are examples of how ASIC plans to maintain this commitment;
  • supporting Australian businesses to respond to the effects of COVID-19: ASIC mentioned that it has deferred non-time critical work to help businesses respond to the pandemic and took steps to provide various forms of relief to facilitate business operations at times of potential financial stress in areas relating to capital raising, shareholder meetings and lodgement of financial reports;
  • continuing to identify, disrupt and take enforcement action against the most harmful conduct: ASIC will continue to use available regulatory tools to identify misconduct and remains committed to its Why not litigate discipline to seek court-based outcomes. ASIC's focus will relate to the most egregious misconduct and conduct that harms vulnerable consumers, as described above; and
  • continuing to build our organisational capacity in challenging times: like most organisations at present, ASIC is not immune from the operational challenges associated with COVID-19 and are working to ensure that they can continue to meet operational demands.

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