Market Integrity Update - Issue 82 - May 2017
Issue 82, May 2017
- Former Perth managing director sentenced to 18 months’ jail for insider trading
- ASX 100 cyber health check
- Indigenous awareness and action at ASIC
- Treasury consults on draft regulations to support ASIC’s industry funding model
- ASIC signs agreement with Indonesian regulator to promote innovation
- Stories from the beat
Former Perth managing director sentenced to 18 months’ jail for insider trading
Steven Robert Noske has been sentenced to 18 months’ imprisonment and fined $20,000 after being found guilty of insider trading by a jury in the Supreme Court of WA.
Mr Noske purchased shares in a target company while he was being consulted by the Managing Director of LNG Limited on aspects of that company’s proposed takeover of ASX-listed WestSide Corporation Limited. The price of WestSide Corporation shares increased by nearly 60% following the announcement of the proposed takeover.
Mr Noske’s trading resulted in a profit of $51,246.34. His profit would have been significantly higher had he sold his entire holding shortly after the announcement.
The court ordered Mr Noske be released after serving nine months of his sentence on a recognisance of $10,000, subject to good behaviour for the balance of the term. He is also automatically disqualified from managing corporations for five years.
In delivering his sentence, Justice Hall said that Mr Noske had abused his position of trust and confidence.
We began an investigation into Mr Noske’s share trading in 2012, following a referral from ASIC’s market surveillance team, and charged him with insider trading in 2015.
The sentence is a confirmation of the seriousness with which insider trading is viewed. It is also a reminder of the significant obligations on those with access to market-sensitive information in the course of their work.
Our surveillance of the market – aided by sophisticated analysis and improved technology – means that anyone who attempts to profit from insider information runs a very real risk of being convicted and jailed.
Since 2009, we have brought 41 insider trading actions before the courts and achieved either a conviction, guilty plea or guilty finding before a jury in 33 of these matters.
ASX 100 cyber health check
The average cost of cyber crime to Australian companies is now estimated to be over $5.6 million. The increasing incidence, complexity and reach of cyber crime can destroy a company’s value overnight – dragging its share price and reputation down with it.
Late last month, ASIC Commissioner Cathie Armour helped launch the ASX 100 Cyber Health Check report (PDF 5.2 MB). The report examines the cyber security risk-awareness of Australia’s top-100 listed companies. It also looks at their cyber risk prevention and response measures.
The health check is one of the initiatives of Government’s Cyber Security Strategy; and was a joint collaboration by ASX, ASIC, Government and industry. Companies in the ASX 100 were invited to participate in the survey, which explored their level of cyber awareness, preparedness and resilience.
The survey identified a number of key trends:
- cyber security is a major and growing risk
- tackling cyber risk requires a culture of collaboration
- while companies are managing cyber risk better, there’s still more to do
- companies that manage cyber risk effectively define and analyse their exposure.
Building cyber resilience is crucial to the integrity of our financial markets. Cyber risk is not an issue boards can leave to their IT departments. It must be addressed by all levels of an organisation, and should form an integral part of your governance and risk management frameworks.
The report also provides organisations with a framework to evaluate their own cyber effectiveness and identify opportunities for improvement.
Indigenous awareness and action at ASIC
ASIC is committed to providing services to Aboriginal and Torres Strait Islander consumers in a way that is equitable, responsive and relevant to their needs.
Because indigenous consumers are particularly vulnerable to exploitation, our Indigenous Outreach Program (IOP) ensures problems are detected at an early stage and investigations occur in a culturally appropriate way.
The work of ASIC’s IOP recently led to a decision by the Federal Court to fine Cairns-based lender, Channic Pty Ltd (Channic), broker Cash Brokers Pty Ltd (Cash Brokers) and the sole director of both companies, Mr Colin William Hulbert, over $1.2 million for breaching consumer credit laws.
Channic and Cash Brokers both operated from Supercheap, a used car dealership in Cairns that was owned by Mr Hulbert. ASIC brought civil penalty proceedings after the Indigenous Consumer Assistance Network reported that Channic and Cash Brokers were dealing unjustly with vulnerable indigenous consumers from the remote community of Yarrabah.
The misconduct involved Cash Brokers assisting consumers to obtain loans from Channic at 48% interest to purchase vehicles from Supercheap, while charging brokerage fees of either $550 or $990, also financed under the loans. Channic did not assess whether the loans were suited to the consumers’ requirements, and the income and expenditure in the consumers’ bank statements would have made it clear that they would not be able to meet the loan repayments.
On 23 March 2017, the court also awarded a total of $47,699 in compensation to affected consumers.
ASIC Deputy Chairman Peter Kell said, ‘The penalty awarded by the Federal Court is not just condemnation of this misconduct, but is a warning to other lenders who might consider pursuing profits at the expense of their obligations to consumers.’
‘This outcome represents ASIC’s continuing commitment to pursue those who take advantage of vulnerable consumers.’
Other outcomes affecting indigenous consumers coming as a result of work by ASIC and the IOP include:
Treasury consults on draft regulations to support ASIC’s industry funding model
Earlier this month, Government began consultation on draft regulations to support ASIC’s industry funding model. This signals the next phase in meeting their commitment to have an industry funding model in place from 1 July 2017.
Industry funding is part of Government’s plan to improve consumer outcomes in the financial system. The $127.2 million boost in funding will be used to improve our data analytics, surveillance and enforcement capabilities. It will also accelerate the implementation of a number of consumer protection measures.
Industry funding will make sure that the costs of regulation are recovered from the organisations that create the need for regulation – making industry more accountable and increasing the transparency of our costs and activities.
Submissions close on 26 May 2017.
ASIC signs agreement with Indonesian regulator to promote innovation
ASIC and Indonesia’s Otoritas Jasa Keuangan (OJK) have entered a cooperation agreement to promote innovation in financial services in their respective markets.
The agreement establishes a framework for cooperation between OJK and ASIC to share information on emerging market trends and regulatory issues arising from growth in innovation. Both parties believe that, through cooperation with each other, they will be able to further the promotion of innovation in their respective markets.
This agreement is a positive confirmation of the strong and longstanding relationship between the two regulators.
Indonesia, with the largest economy in south-east Asia, hosts a fast-growing financial technology sector. Fintechs are transforming areas such as payments and transfers, financial management, insurance, lending and finance, retail banking and markets, exchanges and supporting services. Providers are offering services, including insurance, investment, financing, peer-to-peer lending and crowd funding.
Chairman of the OJK, Pak Muliaman said: ‘I hope this further collaboration will be able to promote innovation in our financial service markets and to deepen engagement that can be used for financial sector development in both countries.’
John Price, ASIC Commissioner said: ‘Many fintechs are not constrained by national borders and it is fundamental that we leverage this to share views, exchange information and to discuss some of the challenges that this can create for fintech businesses and the community.’
‘This agreement is also a further reflection of the deep ties between ASIC and OJK. We look forward to working more closely with OJK on the exciting fintech developments in both our countries,’ he said.
Stories from the beat
We recently conducted a general compliance review of one of our market participants with encouraging results. The participant offers general and personal advice to retail clients, and services sophisticated and professional clients.
The scope of our review included the participant’s supervision and risk management framework, complaints handling processes, breach reporting and responsible executive obligations.
We found that the documented compliance and risk management processes and procedures – together with the compliance plan – were comprehensive and tailored appropriately to the business model.
We discovered the participant conducts regular reviews of its branches and advisers, including:
- annual branch manager reviews of each adviser
- a regular independent compliance review program of branch managers and advisers
- annual independent compliance reviews for each line of its business, and
- ad hoc reviews of topical business-related matters by compliance.
The reviews were fully documented and discussed in weekly risk committee meetings. And a compliance manager’s report is drafted monthly and discussed with the compliance committee. There was evidence of outstanding items being escalated appropriately and not closed off until satisfactorily resolved.
It was clear that training was completed on an annual basis by all representatives and that training obligations are monitored by branch managers and the compliance team.
The participant's complaints register indicated that complaints received by the participant are immediately escalated to compliance. We found the register to be comprehensive, with complaints resolved in an appropriate manner and in accordance with the participant's policies and procedures, market integrity rules and Australian financial services licence obligations.
We reviewed the participant’s breach register along with its processes and found identified breaches are immediately escalated to compliance to determine whether the event is significant. The participant’s processes captured the relevant requirements in accordance with ASIC’s regulatory guidance and the Corporations Act 2001.
Responsible executives are reviewed in accordance with the participant’s internal supervision and control checklist to ensure they are discharging their supervisory obligations.
Although we had some technical recommendations, we found the participant had a strong compliance culture and appropriate escalation and follow-up processes.