- ASIC is one of the most active enforcement agencies in the country. Its enforcement approach is proactive, strategic and bold.
- ASIC successfully delivered against its 2023 enforcement priorities and has set new priorities for 2024.
- These priorities communicate our intent to industry and our stakeholders, and give a clear indication of where we will direct our resources and expertise. The public announcement of areas for enforcement can also have a compliance effect in and of itself.
Check against delivery
Good morning to you all.
I’ll commence my remarks by observing that ASIC’s approach to enforcement appears to be the subject of considerable public scrutiny and comment.
Last year, at this forum, we deliberately and transparently outlined areas where we had resolved to increase our enforcement focus. We determined those areas after considerable analysis of the external environment, and following engagement with industry and stakeholders, including consumer groups, small business representatives, industry associations and our several consultative panels. We also reviewed the issues and areas of focus by our international peers, and reflected on global emerging themes and the domestic economy.
Today, I will outline the progress and outcomes ASIC has achieved against our 2023 priority areas. I will also announce our 2024 enforcement priorities.
Proactive, strategic and bold approach to enforcement
Before I turn to the 2023 outcomes let me make some high-level observations in response to commentary about ASIC’s enforcement record:
- ASIC is, without doubt, one of the most active enforcement agencies in the country.
- It is no exaggeration to say that we are before courts across the country pretty much every business day.
- Over the three years to 30 June, we commenced more than 100 civil actions in relation to 220 defendants.
- More than 100 criminal actions were prosecuted by the CDPP following an ASIC investigation, and as a result of those actions, nearly 100 convictions were imposed of which 44 attracted a custodial sentence.
- This is in addition to the more than 600 prosecutions undertaken by ASIC for strict liability offences.
- More than $600 million in criminal and civil penalties has been imposed by the courts across that period.
Over just the past couple of months, we have commenced significant actions against major entities across our remit.
- ANZ has been penalised $15 million for misleading consumers about available funds in their accounts.
- NAB has been found by the Court to have engaged in unconscionable conduct.
- Westpac has been sued for alleged breaches of its financial hardship obligations.
- Important cases have been filed against AustralianSuper, Telstra Super and PayPal to name but a few.
On the criminal side:
- We have seen the former CEO of BBY charged with aiding and abetting financial fraud;
- The former managing director of companies in the Ralan Group has pleaded guilty to six offences relating to deception; and
- In the culmination of a long-running and difficult investigation, three men now face multiple criminal charges following ASIC’s investigation into the collapse of the Sterling First group of companies.
These outcomes are a tiny fraction of our overall enforcement work.
Despite this compelling record we continue to receive, from some quarters, ill-informed commentary to the effect that we have not changed our approach to enforcement since the days pre-dating the Royal Commission.
Our enforcement approach of today is fundamentally different to that which pre-dated the Royal Commission. In those days ASIC negotiated outcomes, accepted undertakings from large financial institutions and – in those matters that did go to court – penalties were relatively low.
Our enforcement approach of today, by contrast, is proactive, strategic and bold.
Proactive, in that we identify our priorities and set about conducting our surveillance and enforcement work to address those issues.
Strategic, in that we are not resourced to investigate all potential breaches of the law, so we make careful choices about the matters we take on. We select matters with the broadest possible reach, such that our work will have a deterrent effect well beyond the particular matter we are prosecuting.
In practice, this means that we inevitably take more civil actions against what might be called the ‘big end of town’. We make no apology for this. Misconduct by large firms inevitably causes the widest consumer and investor detriment.
And we are bold, in that we are not conservative in the cases we take on. Where we consider there to be harm, or potential harm, we take cases where the outcome is not guaranteed. This year, we have tested the laws Parliament has enacted to make sure they have broad protective application.
To put it another way, we are not doing our job properly if we are only seeking to second guess what the court will say in an area where the law is complex or open to interpretation. Where we consider there to be consumer or investor detriment, or damage to market integrity, we are comfortable in testing the limits of the law. We have done this most strikingly in recent times in the area of the design and distribution laws, and I will return to these in a moment.
Where we think the court may have got the law wrong, while acknowledging we must be thoughtful in our decision-making, we have also not been conservative in deliberating on what decisions to appeal.
Delivering against the 2023 enforcement priorities
Our 2023 enforcement priorities included poor product design and distribution; sustainable finance including greenwashing; crypto; predatory lending practices and high-cost credit; misleading conduct and poor governance in the superannuation sector; and failures to deliver on insurance pricing promises. We were also concerned about unfair contract terms and governance and directors’ duties failures.
By any measure we successfully delivered against the targets we set ourselves this time last year.
Design and distribution obligations
I’ll start with the design and distribution obligations. These significant new laws were introduced in late 2021 and we have moved quickly to maximise their protective impact. We have now issued more than 80 stop orders to prevent the distribution of products we considered were either unfit for consumers or investors, or were distributed outside of their appropriate target markets.
We have also commenced four civil penalty proceedings alleging breaches of the design and distribution obligations. These important laws break new ground for ASIC, the regulated community and our courts alike.
We have been deliberate in our choice of matter. We have taken proceedings alleging design and distribution obligations breaches:
- Against an issuer of a credit product in proceedings against American Express Australia;
- Against a financial product distributor in FirstMac;
- Against an online investment platform, eToro, regarding its contract for difference product; and
- Most recently, against Bit Trade, provider of the Kraken crypto exchange.
We have several other investigations underway and our enforcement focus on design and distribution obligations will continue. To date, our focus has been predominantly on product design and target market determinations. The next phase of our compliance work will focus on distribution – that is, on the reasonable steps taken by product issuers to ensure their products are distributed to the relevant target market.
Sustainable finance and greenwashing
Turning to greenwashing, I have heard ASIC referred to, in other forums, as a ‘world-leading’ enforcement agency in this area. We have issued guidance, conducted extensive surveillance, and instituted proceedings in three critical Federal Court cases against Mercer Superannuation, Vanguard Investments Australia and the Trustee of Active Super. These cases all remain before the court and I will therefore say little about them, suffice to note that each case alleges, in broad terms, breaches of consumer laws as the result of alleged misleading statements about exclusions and screens purported to apply to various investment funds - an area we know is of rapidly growing interest to investors.
At the same time, we have taken a proportionate approach to the misconduct identified in this area, issuing multiple infringement notices across several matters in addition to taking court action in those matters we considered most serious. Infringement notice outcomes are public and therefore, as with court outcomes, have a deterrent and educative effect. They also allow us to achieve timely and proportionate outcomes for less serious matters, enabling efficient use of our resources and minimising the burden on notice recipients should they elect to pay them.
Our greenwashing work demonstrates the strategic, proactive and bold approach I outlined earlier. It will surprise no-one that greenwashing and sustainable finance remain a key enforcement priority for us. Going forward our focus will be on net zero statements and targets made without a reasonable basis; the use of terms like ‘carbon neutral’, ‘clean’ or ‘green’ that are not founded on reasonable grounds; and the use of inaccurate labelling or vague terms in sustainability-related funds.
Protection of vulnerable consumers
Last year we identified the protection of vulnerable consumers as an enduring enforcement priority. This year we elected to focus specifically on predatory lending and high-cost credit. Our work has included cases that test fundamental protections provided by the credit legislation, in relation to business models we allege have been designed to get around them.
Nowhere has our resolve on these issues been more evident than in our work against Cigno and BHF Solutions and their related companies.
For those unfamiliar with this issue, these companies do not and never have held a credit licence. They and their related companies have however operated various lending models that purport to rely on certain statutory exemptions. One of the companies provides a loan and charges no or low fees, and the other, under a so-called ‘services agreement’, separately charges high fees for arranging and managing the credit. The combined fees well exceed the prescribed maximum charge allowed to be exempt from holding a credit licence.
We commenced our first proceedings against these companies in September 2020. After losing at first instance, we won on appeal and the companies each then lodged applications to the High Court. These were ultimately unsuccessful and judgment was finally delivered in ASIC’s favour in July 2023, nearly three years after proceedings were commenced. The judge found, as we had alleged, that the objective purpose of the lending model implemented by these companies was to avoid the provisions of the credit legislation.
Notwithstanding this outcome, related entities of the same companies set up another lending model. More than 100,000 consumers, many vulnerable and in financial distress, were provided loans of more than $34 million and charged over $70 million in fees. Some people, we allege, paid fees of more than 600% of their loan amount. ASIC has taken further court action in relation to this conduct, and the matter remains before the court.
Despite this work, we continue to receive multiple complaints from consumer agencies about similar conduct by yet more related entities of these companies.
It is symbolic of the regulatory and enforcement challenge in this area, and one that we will not back down from. While we have a number of other matters in court in this area, high-cost credit and predatory lending practices will remain a priority through 2024.
We are adding two new enforcement areas particularly relevant to vulnerable consumers. The first is the provision of used car finance to vulnerable consumers which includes misconduct by brokers, car dealers and finance companies.
Following the court action we took against Westpac earlier this year alleging breaches of financial hardship obligations, we are increasing our work in this area.
This is because we recognise the continuing pressure on consumers in response to cost of living pressures, and in a round table with consumer advocates just last week, ASIC Commissioners heard firsthand of the growing demand for financial counselling services and the poor approach of some lenders to engagement with consumers in financial hardship. We have added compliance with financial hardship obligations as an enforcement priority for 2024.
Turning now to superannuation. You have already heard from the Chair this morning of the importance of ASIC’s work to protect members’ super balances and enhance retirement outcomes. It is worth remembering that ASIC’s expanded civil penalty role in superannuation is still relatively recent.
This year we have taken a number of proceedings including against AustralianSuper, Mercer Australia, Active Super and Telstra Super.
Our action against AustralianSuper alleges failures across almost 10 years to have in place adequate policies and procedures to identify members with multiple accounts, and to merge them, where merger was in the member’s best interests.
In our recent proceedings against Telstra Super we allege, for the first time, failures to comply with internal dispute resolution requirements.
In the coming year we will maintain our enforcement focus in the superannuation area, focusing both on member service failures and misconduct that results in the systemic erosion of superannuation balances.
Turning now to insurance.
We have been active in relation to failures by insurers to deliver on their pricing promises. Earlier this year the court imposed the highest ever penalty on an insurer awarding $40 million against IAG. We have subsequently taken new action against IAG-subsidiaries, alleging they misled customers about loyalty discounts for certain types of home insurance, and commenced court action against RACQ for allegedly misleading statements regarding price discounts on certain optional insurance covers.
In 2024, we are turning our attention to failures in insurance claims handling. For consumers in the unfortunate situation of needing to claim on their insurance policy, timely and fair claims handling is crucial. We will focus on delays in claims handling, poor communication and record keeping, and inappropriate use of exclusions.
Let me turn, in conclusion, to some new areas of focus for 2024. These include conduct impacting small business including small business creditors, compliance with the reportable situation regime; and action against gatekeepers that engage in misconduct. Let me outline each area briefly in turn.
Approximately 96% of all Australian companies registered with ASIC are small businesses. These businesses face distinct issues and challenges in the current economic climate, and ASIC undertakes a range of activities to assist, engage and protect small business from harm.
This year, we propose to focus on misconduct by financial services and credit providers who engage in misconduct in their dealings with small business, including unlawful credit activity, unfair contract terms and insurance claims handling misconduct.
Our enforcement activities in the small business sector also include taking action to address misconduct related to company failures. Failed companies often have extensive liabilities to small businesses. ASIC’s actions include disqualifying directors who have a history of involvement in failed companies, and prosecuting directors for offences such as breaching directors’ duties, concealing company assets and failing to comply with obligations to assist liquidators.
The reportable situations regime is a cornerstone of the financial services regulatory structure and reports by licensees are a critical source of regulatory intelligence. These new obligations arose out of the Financial Services Royal Commission, and allow for early detection of significant non-compliant behaviour.
Our work in this area suggests that compliance with the new regime is low – with a disappointing 89% of licensees not reporting against this regime at all. These reporting rates suggest we need a stronger approach to compliance in this area, and we have recently commenced a targeted surveillance of those licensees who are not reporting to us as we would expect.
Turning then to gatekeepers – these include auditors, registered liquidators and financial services and credit licensees, all of whom have a critical role to play in preventing corporate misconduct. Gatekeepers are often in a unique position to identify and limit misconduct in the entities they advise or authorise. Where gatekeepers fail to meet the standards required of them, it can have serious consequences for investors, consumers and small businesses alike.
Finally – to markets. You may have observed that many of our priorities have a consumer or retail investor focus. This should not signal any lessening in our recognition that our enforcement work is critical to maintaining properly functioning markets. Our enduring priorities – those forms of misconduct that we will always prioritise given the potential harm that arises from them – continue to include insider trading, market manipulation and continuous disclosure.
For example, this year we have seen:
- Former Tesla Australia director Kurt Schlosser sentenced to two and half years’ imprisonment after pleading guilty to insider trading;
- Gabriel Govinda, a so-called social media ‘finluencer’, sentenced to two and a half years’ imprisonment and fined for market manipulation (to be released immediately on a five year recognisance);
- A record breaking $4.5 million penalty imposed by the Markets Disciplinary Panel against OpenMarkets for a number of Market Integrity Rule breaches including supervisory failures dealing with suspicious trading; and
- The highest ever penalty for a continuous disclosure contravention in the GetSwift matter, with a penalty of $15 million imposed on the company and significant penalties and lengthy disqualification orders against two of the directors.
In 2024 we will specifically focus on technology and operational resilience for market operators and market participants, including compliance with the new market integrity rules.
Finally, we have done considerable work in relation to the enforcement of directors’ duties this year, and in recognition that ASIC will always prioritise corporate governance issues we have recognised this as an enduring priority going forward.
This time last year we released our enforcement priorities in the first instance, at least in part in response to industry calling for transparency as to our key areas of focus. Communication with regulated entities and industry is an important part of our approach, but there are other benefits too.
The public announcement of areas for enforcement can have a compliance effect in and of itself. Those in the sectors we have called out, or who are engaged in conduct about which we have signalled concern, regularly review their practices in those areas, to ensure that they do not become the recipient of regulatory attention.
It also holds us accountable – if we say certain areas are enforcement priorities, we should be held accountable for our delivery against those priorities. We are determined to be a regulator that says what it is going to do – and then does what is says.
We have done that this year. We will do it next year.
I look forward to the panel discussion.