ASIC Reforms: Regulatory Changes On The Way | imac legal & compliance


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ASIC Reforms: More Regulatory Changes on the Way

April 21, 2016 imaclegal 1 Comment

Sweeping ASIC reforms and other regulatory changes affecting the financial services sector were announced by the Treasurer and Assistant Treasurer, in a joint media release and joint press conference, on 20 April 2016 along with additional government funding of ASIC of $127.2 million and a new levy on the banks to pay for the regulator’s enforcement activities.

Together the changes, which fall out of the Financial System Inquiry and a recent Expert Panel’s ASIC Capability Review, add up to a massive change to the regulatory system for financial services providers.

Overall, the reforms equip ASIC with stronger powers and more funding to enhance surveillance capabilities.

Here, imac legal summarises the announcements and changes. However, bear in mind that, while the changes reflect the government’s current intentions the caveat is that there is a Federal election between now and the proposed implementation of many of the reforms.

Some changes will be more material than others to small-to-medium financial services businesses. Watch out for imac legal’s further in-depth articles on those issues in the coming days.

The Announced Changes

Industry Funding Model

The proposed industry funding model will have the most obvious and ongoing impact on licensees. The industry funding requirements will be in addition to the new levy on the banks.

The final components and pricing of the funding model have not been announced but the government’s August 2015 Consultation Paper set out the government’s thoughts and proposed price points. From 2017/18, ASIC’s costs will be recovered from all industry sectors regulated by ASIC with the goal being that the costs of regulation will be borne by those entities that have created the need for it, rather than by the Australian public.

The proposed funding model includes:

  • annual supervisory levies; and
  • fees for service.

It will be more expensive to both obtain and maintain an AFSL. imac legal will publish a more in-depth look at how the industry funding model will work in the coming days.

Increased surveillance

ASIC will have an extra $57M to enable increased surveillance and enforcement in financial advice, responsible lending, life insurance and breach reporting.

Enhanced Data Analysis

Shadowing the industry’s increased reliance on data analysis, ASIC will receive an extra $61.1M from the government to improve its data analytics, surveillance capabilities and information management systems. The objective is to ensure ASIC has best practice analytical techniques to detect misconduct.

Product Intervention Powers

The government has announced they will push ahead with giving ASIC product intervention powers so that ASIC can either stop certain high-risk products being marketed or intervene by requiring changes to product design or disclosures.

In addition, the government stated that it would introduce some product distribution obligations on product distributors as well.

The announcement made clear that industry will need to be consulted to ensure workable, principles-based powers are developed. According to the government’s own timetable in its official response to the Financial System Inquiry, mid-2016 is the deadline only to ‘consult on’ development of accountabilities for issuers and distributors of financial products and ASIC product intervention powers. Potentially, every licensee that advises on and arranges a financial product for a client will be caught by the product distribution obligations.

However, at this stage it is not clear what either of these powers will look like, how broad or restrictive they may be. It will be necessary to keep a close eye on these developments.

FOS Jurisdiction To Be Reviewed – EDR Schemes To Be Consolidated?

The government proposes reviewing and extending FOS’s jurisdiction to include a wider range of small business loans as well as reviewing monetary limits and compensation caps. A review of FOSs Terms of Reference will start immediately.

Additional funding will be provided to the Superannuation Complaints Tribunal to help with legacy complaints and to improve internal processes.

In addition, a new panel is proposed to review the role, powers and governance of all the financial system’s external dispute resolution and complaints schemes. Such a review will assess the merits of better integrating these schemes to improve the handling of consumer complaints. The government expressly stated they will look at the possibility of having a one-stop-shop for disputes and complaints.

Penalties To Be Reviewed

ASICs enforcement regime, including penalties, is to be reviewed to ensure it can effectively deter misconduct.

Stronger Consumer Protections in the ePayment Code

The consumer protection provisions in the ePayments Code, which regulates consumer electronic payments, will be strengthened.

ASIC Appointments

The government announced that incumbent ASIC Chairman, Greg Medcraft, will have his soon-to-expire term extended by 18 months to ensure smooth implementation of the proposed reforms.

ASIC will also have an additional Commissioner appointed. This new Commissioner will have experience in the prosecution of crimes in financial services.

Finally, the government proposed to remove ASIC from the operation of the Public Service Act in order to help it attract and retain better industry talent.

ASIC Internal Changes

The Expert Panel review of ASIC made 34 recommendations in total. It found there were aspects of ASIC’s strategy, governance, IT, data infrastructure, management information systems and approach to stakeholder engagement that could be improved. The government is progressing five recommendations addressed to it and looks to ASIC to address the remaining 29 recommendations through its Implementation Plan.

One Comment

    Avatar for imaclegal
    April 21, 2016 REPLY

    The ABA has come out with a barrage of initiatives which were instantly lampooned by Labor. Surely a Royal Commission is receding now as an option…

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