ASIC's Enforcement Update (Report 688), for the period between July and December 2020, is now available. Despite the impact that the COVID-19 pandemic has had on Australia's economy, unsurprisingly ASIC continues to take action against misconduct that threatens the integrity of Australia's financial system and markets.
For the second half of 2020, ASIC continued to prioritise the following issues:
- 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 processes;
- opportunistic conduct, such as scams, unlicensed conduct, and misleading and deceptive advertising;
- failure to disclose materially negative information;
- opportunistic and misleading market announcements; and
- egregious governance failures within corporations, schemes and superannuation funds.
Looking forward, and building on its enforcement priorities and focus areas for the 2019-21 period, ASIC is now developing new priorities for the 2021-22 financial year to ensure that significant areas of need are addressed including new or emerging issues.
Record-breaking penalties
This period saw civil penalties totalling $159.8 million imposed by the courts which included two record-breaking penalties:
- A penalty of $57.5 million, imposed on two NAB subsidiaries (within their wealth management division) for making false and misleading representations to superannuation members about their plan service fees. Due to the severity of the misconduct, and being the first enforcement action brought by ASIC concerning fee-for-no-service activity, it is the largest penalty imposed in a matter referred to ASIC by the Financial Services Royal Commission.
- A penalty of $75 million imposed on OTC derivatives provider AGM Markets Pty Ltd and two of its authorised representatives for systemic unconscionable conduct. Justice Beach in the same proceedings also ordered that refunds be paid to approximately 10,000 former clients.
These two penalties highlight ASIC's enforcement priorities of addressing both Royal Commission referrals and case studies as well as misconduct that involves a high risk of significant consumer harm.
Report 688 also notes that there were 14 civil penalty cases commenced during the period, with 18 civil penalty cases currently before the courts. The 2020 calendar year saw a 64% increase in civil penalty proceedings brought by ASIC as compared to the 2018 calendar year. Such a significant increase in proceedings brought by ASIC, combined with the record-breaking penalties that courts are now empowered to impose on financial services entities given legislative amendments to penalty provisions in the Corporations Act and ASIC Act, are indicative of the current regulatory focus and approach to consumer protection in the financial services industry.
Report 688 also summarises ASIC's enforcement results in four key market segments:
- Financial Services: During the period between July and December 2020, ASIC obtained 37 enforcement results which spanned misconduct concerning credit, financial advice, insurance, investment management and superannuation. As at 1 January 2021, ASIC had 16 criminal and 61 civil financial services-related matters still before the courts.
- Markets: ASIC recorded 12 market-related results during this period in relation to insider trading, continuous disclosure obligations, emerging misconduct (cyber, crypto etc) and other market misconduct. ASIC had 10 criminal and five civil market-related matters still before the courts, as at 1 January 2021.
- Corporate Governance: ASIC recorded only one civil corporate governance-related result. This case resulted in a penalty of $90,000 being imposed on Tennis Australia's director for failing to properly discharge his directors' duties under s 180(1) of the Corporations Act 2001 (Cth). As at 1 January 2021, ASIC had 12 criminal and three civil corporate governance-related matters still before the courts.
- Small Business: Similarly to the last period, ASIC recorded 129 small business-related results. Majority of these results (98) were criminal in nature, the rest being administrative (31). As at 1 January 2021, ASIC had 149 small business-related criminal matters still before the courts.