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Thursday 28 June 2012

12-144 ASIC updates policy on administrative action against financial services providers

ASIC has today released a revised version of Regulatory Guide 98 Licensing: Administrative action against financial services providers (RG 98) to assist participants in the financial services industry understand when and how ASIC may take administrative action such as a banning action.

The revised policy reflects amendments to ASIC’s administrative powers under the Corporations Act (the Act), introduced as part of the Future of Financial Advice (FoFA) reforms which are due to commence on 1 July 2012. Other revisions ensure consistency between RG 98 and Information Sheet 151 ASIC's approach to enforcement (INFO 151), which sets out how ASIC exercises its enforcement powers.

ASIC Commissioner, John Price said ‘ASIC’s amended powers will provide greater certainty about our ability to take administrative action against financial services providers who are likely to breach the law. These changes are intended to make it easier for ASIC to remove unscrupulous operators from the industry, improve overall industry standards and promote broader consumer and investor confidence in financial services’.

The main changes to RG 98 relate to ASIC’s power to suspend or cancel an Australian financial services (AFS) licence or to make an order banning a person from providing a financial service on the basis of anticipated future conduct, that is, where ASIC has reason to believe that the licensee is likely to contravene their AFS obligations or that a person is likely to contravene their legal obligations.

In addition, we have clarified the sorts of factors ASIC may consider when deciding whether to take administrative action and updated examples of conduct relating to specific periods of banning.

Table 1 in RG 98, which sets out key factors we consider in deciding to take administrative action, has been updated to clarify the sorts of factors ASIC may consider in deciding whether to take administrative action, consistent with the factors set out in INFO 151.

Table 2 in RG 98, which sets out factors and examples of conduct relating to specific periods of banning, has been updated to place a stronger emphasis on underlying conduct, in particular conduct involving dishonesty, rather than the amount of loss (if any) resulting from the licensee or person’s actions or the absence of prior contraventions by them.

Changes to ASIC’s power to suspend or cancel an AFS licence

Amendments to the Act mean that ASIC may suspend or cancel an AFS licence on the basis of anticipated future conduct if ASIC has reason to believe that the licensee is likely to contravene their AFS obligations. Previously, ASIC could only suspend or cancel an AFS licence if we had reason to believe that the licensee will not comply with a financial services law.

The new test makes it clear that a likelihood of a future breach is sufficient grounds to cancel or suspend an AFS licence.

Changes to ASIC’s power to make a banning order

Other legislative amendments mean that ASIC may make an order banning a person from providing financial services if we have reason to believe that the person is likely to contravene their legal obligations. The former provisions required ASIC to have reason to believe that the person will not comply with those obligations. The changes clarify the test in the same way as the test for suspending or cancelling a licence.

ASIC has also been given the power to make a banning order if we have reason to believe that a person is not of good fame or character. The legislation sets out a range of factors ASIC must consider in deciding whether to make a banning order on this ground. This change is consistent with existing arrangements under the legislation where a person is disqualified from managing corporations if they are convicted of an offence that involves dishonesty and is punishable by imprisonment for at least three months.

Background

The FoFA reforms are contained in two separate but related Bills: the Corporations Amendment (Future of Financial Advice Measures) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012.

The reforms cover a range of subject matter including the best interests duty, ban on conflicted forms of remuneration, opt-in and changes to ASIC’s licensing and banning powers. The changes to ASIC’s powers in respect of licensing and banning are set out in the Corporations Amendment (Future of Financial Advice Measures) Bill 2012.

The FoFA reforms commenced on 1 July 2012, however, compliance with the reforms is not mandatory until 1 July 2013. Licensees can choose to comply with the FoFA reforms from 1 July 2012.

Download:

  • Regulatory Guide 98 Licensing: Administrative action against financial services providers (RG 98)

  • Information Sheet 151 ASIC's approach to enforcement (INFO 151)

  • ASIC’s FoFA webpage

Last updated: 28/06/2012 12:00