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ASIC isn’t just about enforcement

Last week, Australian Securities and Investments Commission (ASIC) Deputy Chair Karen Chester spoke at the FINSIA Conference on the Australian Securities and Investments Commission’s role in the financial system.

Chester took the time to remind attendees that ASIC is not just about enforcement but stressed it also plays an advisory role.

“But with this comes the misrepresentation of our ‘Why not litigate?’ approach to enforcement. Some wrongly and persistently portray it as ‘litigate first’. Yet, nothing could be further from regulatory logic—or indeed the evidence,” Chester said.

Chester then shared what she called ASIC’s ‘non-enforcement activity’ conducted over the last nine months:

  • issued 29 reports, covering a range of topics, from consumer awareness and understanding of financial advice, to a review of TPD insurance claims.

  • issued 17 consultation papers, from regulatory guidance on responsible lending, to complaints handling (or internal dispute resolution) requirements, to three proposed uses of a new product intervention power.

  • advanced a new, strengthened supervisory initiative with its Close and Continuous Monitoring (CCM) program (at latest count 205 days onsite and 713 meetings with banking staff at all levels) and Corporate Governance Taskforce (CGTF), the first tranche of findings of which were published in October.

  • remediation across just three streams (consumer credit insurance, add on insurance products in the car dealer distribution channel and fee for no service) has collectively seen more than 1.2 million consumers remediated more than $660 million.

Why Not Litigate?

The ‘Why not litigate’ approach was, largely, in response to criticisms raised by the Royal Commission into the financial sector, which suggested there was not enough enforcement action being undertaken and that there were ‘overuses’ of enforceable undertakings (EU), portrayed in the mainstream media as an ‘easy way out’ of avoiding the consequences of a regulatory breach.

While it is true that major question marks have been raised around whether or not enforceable court undertakings are actually effective, in July of last year, Peter Whyntie, from Whyntie & Associates told the GRC Professional that EU’s could be effective, but that there may have been times the corporate regulator had not used them effectively.

“Perhaps there were specific situations where that may be valid,” said Whyntie, at the time. “However, my reading of much of the criticism is that there is not a great deal of detailed appreciation of the impact on an organisation of an EU, nor of the long-term benefits.”

Whyntie suggested that what is not often taken into consideration when it comes to EU’s is the cost of what he referred to as ‘hidden fees’. These include:

  • Product development

  • Marketing being cancelled or deferred, and

  • Distraction to management and the board.

At the Royal Commission hearings last year, ASIC Chairman James Shipton said, “We are reviewing our approach to enforcement, with particular emphasis on what our approach is to litigation. While that review is occurring, we have put in place some interim initiatives that raise questions about how matters addressed actually come up to the Commission.”

Speaking in the context of NAB and their association with the fee-for-no-services issue, Shipton said, “We now have issued guidance that would mean the decision like the one in CCI or the discussion related to NAB yesterday would have a very different starting point. The starting point today would be to answer the question and then turn our minds to ‘why not litigate’ this demonstrable breach?”

This was interpreted as ‘fighting language’ from the regulator and a direct warning to industry.

Earlier this year saw the passage of amendments to the Corporation Act, the National Consumer Protection Act and Insurance Contracts Act, based on recommendations from the ASIC Review Taskforce.

ASIC Commissioner Daniel Crennan said, at the time, that, “Without this bill, very significant aspects of the law lacked sufficient penalties to properly punish corporate wrongdoing in Australia. In part, the core obligations owed by banks and other financial services licensees to the citizens of Australia did not carry any penalties.”

It was not until the Meet the Commissioners panel at the ASIC Conference earlier this year that the ominous quote would be properly clarified to reiterate ASIC’s stance that it did not intend to ‘litigate first’; instead, it would be selective of its choice to litigate to ensure any action would then have the maximum impact.

Ultimately, however, even if ASIC is ‘not just’ about enforcement, it is still the regulator’s expanded tool kit that is expected to have a major impact on culture and conduct amongst their regulated entities.

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