I am pleased to appear before the Committee once more and welcome Senator O’Neill as the new Committee Chair. I am joined today by Deputy Chairs Sarah Court and Karen Chester, Commissioner Sean Hughes, Chief Operating Officer Warren Day, Executive Director of Strategy Greg Kirk, Executive Director of Markets Greg Yanco and our General Counsel Chris Savundra. Commissioner Danielle Press is unable to join us today, so I have asked Senior Executive Leaders Leah Sciacca and Jane Eccleston from our Financial Advisers and Superannuation areas to join us. Jane will join us after the break, so perhaps we could have your questions about superannuation then.
ASIC values the PJC as an important component of our oversight and we look forward to answering your questions about our work.
For the benefit of several new members of the Committee, I'd like to take a few minutes to provide an overview of ASIC’s remit, functions and work.
ASIC’s remit is the broadest of similar regulators around the world. In essence, ASIC’s function is to monitor and promote market integrity and consumer protection in the Australian financial system. To do this, we regulate corporations, markets, financial services and consumer credit, and this seems to be expanding as markets and services evolve. Our responsibilities are set to expand further as law reform is enacted and new products come into financial services and the regulatory regime.
ASIC’s functions complement those of other regulators such as the prudential work of APRA and the competition and consumer work of the ACCC. We also refer matters to the Commonwealth Director of Public Prosecutions where our criminal investigations indicate there is sufficient evidence - for the CDPP to decide whether to commence a criminal prosecution.
Over the past few months, we have launched our strategic and enforcement priorities, which reflect our clear purpose. We considered these carefully to ensure we are able to deliver on our very broad remit. It is important for Australia’s financial system and the community as a whole that ASIC’s resources are directed to achieving strong outcomes that address the greatest consumer and investor harms. We will continue to deliver on our priorities with this in mind.
We will shortly be releasing our quarterly update, setting out regulatory and enforcement actions we took between July and September to deliver strong regulatory outcomes in line with our priorities. Our enforcement and regulatory action spanned the insurance, credit, superannuation, financial advice, managed investments, markets and auditing sectors. The update reflects our sharp focus on consumer protection, including significant outcomes that address poor sales practices, inappropriate charging of fees, and breaches of best interest obligations. We called on superannuation trustees to review their internal dispute resolution arrangements. We took action on misconduct by firms and individuals and stepped up our activity to prevent inappropriate targeting of investors in the design and distribution of financial products … We have been busy!
As I and other Commissioners have stated before, ASIC continues to be deeply committed to enforcement. With our enforcement once again in the public eye, I’ll again reiterate that there has been no lessening of ASIC’s enforcement activity in the last twelve months.
Through our enforcement work, we hold to account those who contravene the law, and we do this using a broad regulatory toolkit. We continue to actively target cases of high deterrent value and those involving egregious harm or misconduct. In the last financial year alone, ASIC completed more than 1,000 surveillances and commenced more than 100 investigations.
In some cases, the appropriate path to take is to litigate and apply substantive penalties. Although this can be costly and take time, ASIC’s litigated outcomes serve to send a strong message about the importance of complying with the law and allow the law to be clarified by the courts. In the last financial year, we completed 61 civil litigation actions, secured $229.9 million in civil penalties and commenced another 75 civil litigation actions. ASIC secured criminal convictions against 33 individuals and commenced another 50 criminal actions.
Litigation will always be an important part of ASIC’s regulatory toolkit.
In other cases, it may be more appropriate for ASIC to take non-court-based enforcement action. This type of action is often protective and is an important part of ASIC’s role to deter and prevent serious misconduct from occurring in the first place. In appropriate circumstances, this type of action can achieve the greatest investor and consumer benefit. It can also be undertaken alongside litigation to send an even stronger message about the concerning conduct.
Non-court-based enforcement includes disqualifying and banning people from directing companies, issuing stop orders and product intervention orders, issuing infringement notices and accepting enforceable undertakings by organisations to improve practices. In the last financial year, for example, we took corrective action to address more than 60 instances of potentially misleading or deceptive conduct. We disqualified or removed 58 people from directing companies and have banned or removed 39 providers of financial services and 18 providers of credit services.
So far, we have issued 21 stop orders under our new design and distribution obligations (DDO) power, and we have 10 targeted surveillance projects on foot, focused on sectors where we are seeing consumer harm from poor design or distribution practices. We are encouraged that entities have taken action to address our concerns, and we have lifted nine stop orders once the poor practices were addressed, or where the products were withdrawn. 12 stop orders remain in place.
We become aware of concerning conduct in a range of ways – for example through our extensive surveillance work, through reports of misconduct and through reportable situations reporting – and we take the intelligence we gather seriously. Reports of misconduct are an important source of information for our enforcement work. We combine these reports with the much larger internal dispute resolution and AFCA data sets to identify patterns and trends and broader systemic problems that may require ASIC intervention. We are administering a new reportable situations regime which commenced on 1 October 2021. This will further complement the intelligence we are able to consider in delivering on our regulatory and enforcement priorities. ASIC’s first report under that regime, published late October, shows that some improvements are needed and that more work needs to be done to appropriately identify and report on the root cause of breaches.
No regulator can be resourced to do everything. As I’ve said before, ASIC cannot be everywhere and we need to think very carefully about our choices and how we use our resources.
Deciding what enforcement action to take in each circumstance is not always easy. Our published guidance sets out a range of considerations which may be relevant. For example, the nature and seriousness of the suspected conduct, the level of transparency and cooperation with our processes, the strength of the evidence and the public benefit in taking the enforcement action. We have qualified professionals looking at reports, conducting investigations and seeking evidence. And our weekly Enforcement Committee meetings are attended by every Commissioner to ensure the direction of our enforcement work is supported at the highest levels.
To complement ASIC’s strong regulatory and enforcement focus, there is a framework set up by Parliament to ensure consumers have access to an efficient and accessible redress system for individual complaints. The vast majority of complaints about financial services are dealt with through internal dispute resolution mechanisms that financial services are required to have in place. Those that are not resolved this way are escalated to the Australian Financial Complaints Authority, which handles approximately 70,000 complaints annually.
I know many of you are interested in our work on greenwashing. We are actively targeting misrepresentations based on greenwashing claims. At the end of October, we took our first action against a listed energy company, issuing infringement notices about misleading sustainability-related claims. And greenwashing is not just about environmental claims — it also includes statements about the extent to which products are sustainable or ethical. For example, last Friday we issued three infringement notices against an investment manager for misleading statements about the extent to which their funds applied investment exclusions for tobacco-related investments. We have published guidance on what entities can do to avoid greenwashing, and we expect entities to take measures to ensure they are not misleading consumers and investors. We are also working with our national and international colleagues to establish consistent sustainability disclosure standards.
Our work towards crypto regulation continues to be topical, with a high-profile crypto collapse once again in the news over the past fortnight. Promotion of crypto assets through popular and viral channels can make them appealing to investors, but there continues to be lack of public awareness of their highly volatile, risky and complex nature. I’ve made ASIC’s views on this public many times over the past year, and we are continuing to shine a light on the inherent risks of crypto assets. Where conduct causing consumer harm is within our existing remit, we will take appropriate action. The week before last, we commenced civil penalty proceedings against a crypto provider for offering products without an AFS licence that we believe are financial products under the financial services law. Just because a product has an underlying crypto asset, we don’t believe it should fall outside regulation. We think it’s important to test this position in the court, as the financial services law provides important protections for consumers. We are supportive of the government’s action to establish a regulatory framework in this space and will continue to work with Treasury and other stakeholders.
The work of the ASX to introduce a new clearing and settlement system, known as the CHESS Replacement project, has again been in the news over the past fortnight. We released a joint statement with the Reserve Bank of Australia about the ASX’s decision to pause the replacement program while it revisits the technology design following the release of Accenture’s independent report. The independent report found significant gaps and deficiencies in the program, and it is critical to get the design technology right. That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory. Together with the RBA, we will continue to closely supervise to ensure the ASX continues to deliver a secure settlement and clearance system that has longevity.
I note that our regulatory powers in relation to the ASX are limited, such as imposing licence conditions and cancelling the licence, which would, as you know, have significant ramifications across the economy. ASIC, with the Council of Financial Regulators, have advised Government on much needed reforms to ensure a fit for purpose regulatory regime for the ASX and to enhance Australia’s market infrastructure more broadly. We encourage consideration of the previously announced Government reforms on Competition in Clearing and Settlement (proposed in 2016) and the Financial Market Infrastructure reforms (proposed in 2021). These would provide much needed powers to ensure ASX’s compliance with the regulators’ expectations. We stand ready to work with Government to implement these reforms.
Our people are dedicated and highly skilled. We are committed to using the breadth of ASIC’s regulatory toolkit to address consumer and investor harms and promote trust and confidence in Australia’s financial system.
We look forward to answering the Committee’s questions.
