I am pleased to appear before the Committee today. I am joined today by Deputy Chairs Sarah Court and Karen Chester, Commissioner Danielle Press, Chief Operating Officer Warren Day and our General Counsel Chris Savundra. Also here today for questioning relating to CHESS are Executive Director of Markets, Greg Yanco and Senior Executive Leader of Market Infrastructure Nathan Bourne.
We value the opportunity to appear before this Committee. As I said last week at the Senate Economics Legislation Committee, ASIC takes its accountability to the Parliament and people very seriously. We recognise the important role this Joint Committee plays in overseeing our activities and responsibilities, and look forward to answering your questions.
As I mentioned at Senate Estimates last week, we have been working on an organisational review to support ASIC in achieving our strategic and operational ambitions. There were recurring themes during the review, which included stakeholder feedback from past reviews, including the FRAA Report. Some key themes included:
- Timeliness in decision-making
- Collaboration and coordination
- A better alignment of strategic priorities and resource allocation
- Risk appetite and risk management
The week before last, we shared with staff the proposed top‑level structure coming out of the review. The proposed structure brings a strong focus to four regulatory areas: intelligence gathering, transformation and technology; regulation and supervision; enforcement and compliance; and markets. The structure allows our intelligence about individual matters to flow more quickly to enforcement teams, which will allow us to pick up misconduct earlier and address potential breaches where we see them.
There will now be a consultation process on the proposal with senior executives, and then with all levels of staff in March. We anticipate the agreed new structure will start to be implemented from 1 July 2023. We will, of course, advise everyone of our revised structure once it is finalised and will publish it on the ASIC website.
Since we last appeared before this committee, we have continued to execute on our strategic and enforcement priorities that we launched last year.
Our Quarterly Report released last week highlights actions taken during the last three months of 2022. The quarter saw ASIC commence a number of significant enforcement and regulatory actions to address misconduct and consumer harms in a range of sectors. For the first time, our Quarterly Report included ASIC’s initial version of a regulatory developments timetable. It outlines proposed timeframes for the regulatory work ASIC is initiating, with a view to assisting stakeholders with forward planning of their own work. This is an initiative arising from the work of ASIC’s Regulatory Efficiency unit and stakeholder feedback about how we can better streamline our interactions with the entities we regulate.
Our Quarterly Report demonstrates our enforcement outcomes are significant. Between July and December 2022, 173 criminal charges were laid, $76.3 million in civil penalties were imposed by the courts and 62 investigations were commenced with another 103 investigations ongoing. This brings the total for the 2022 calendar year to 312 criminal charges being laid and $222.1 million in civil penalties imposed by the courts.
You will have seen in the media our action against former directors of Star Entertainment Group Limited for alleged breaches of their director and officer duties involving money laundering risks. As always, I am limited in what I can say about ASIC’s ongoing investigations and court matters. However, I will reiterate that we take these cases seriously and do not shy away from taking matters to court if we have sufficient evidence to bring an actionable case. In making investigation and enforcement choices, regulators necessarily need to be strategic. The challenge for ASIC, as for other regulators, is the need to balance the evidence, facts, and the public interest in order to maximise our regulatory outcomes.
In addition to court-based enforcement, ASIC is focusing strongly on our non-court-based enforcement work to prevent investor and consumer harm occurring in the first place. For example, we have issued 23 DDO stop orders so far under our design and distribution powers (14 in the last quarter). This is important work, and we will continue to use these powers to prevent consumers and investors being targeted by products inappropriate to their objectives, financial situation and needs.
On greenwashing, we are undertaking a range of activities. Our guidance makes it clear what our expectations are regarding sustainability-related claims and statements. So, entities should be well aware they need to take measures to ensure they are not misleading investors and consumers. Last year, we took our first action on greenwashing, and we issued infringement notices to three entities for misleading sustainability-related statements. We continue to work with our national and international colleagues to establish consistent sustainability disclosure standards.
In the cyber space we are encouraging companies to focus on cyber-preparedness and corporate governance. As the cyber attacks on Optus and Medibank last year have shown, the data of millions of consumers can be put at risk very quickly. Cyber attacks have the potential to seriously disrupt infrastructure and services, and to destabilise markets.
Entities need to be thinking about these risks and resourcing and testing their preparedness measures. They need to have communication and recovery plans in place to deal with cyber attacks. We welcome the announcement from ASX on Monday that it will run a consultation on including a worked example for a cyber incident in their Continuous Disclosure Guidance Note.
We support the Government’s commitment to establishing a framework for the licensing and regulation of crypto service providers, and we will continue to look at enforcement actions we can take under our existing remit to safeguard investors, consumers and the market.
I also wanted to mention our Indigenous Financial Services Framework that we published on Tuesday last week. As I said at Senate Estimates last week, I’m very proud of this work. It’s the culmination of years of collaborative work, and a First Nations led process that I believe is a first for ASIC. Our Indigenous Outreach Program led this initiative because ASIC acknowledged the unique ways that First Nations consumers interact with and experience the financial system, including harms and misconduct. ASIC wanted to understand these interactions and unique needs from First Nations people themselves.
We have appreciated being led by First Nations peoples in the development of the Framework, and we see it as an opportunity to continue including this engagement in our upcoming priorities for the next stage of the project.
We are sharing the Framework broadly, so our stakeholders can consider and use the key learnings to support positive financial outcomes for First Nations peoples.
Finally, much of today will be devoted to discussing the ASX and its CHESS replacement.
On 15 December we issued notices to the ASX companies to produce a special report on specified matters in relation to the current CHESS. The special report will be audited by Ernst & Young. We will take a practical approach to the publication of the findings of the special report and the audit report, taking into account any confidential commercial and security information, given CHESS’s importance.
On Tuesday we issued further notices to the ASX companies requiring two special reports. One will be about ASX’s response to the findings and recommendations of the external report on the CHESS replacement application, and the other will be a holistic assessment of ASX’s program and project management framework. These special reports will also be audited by Ernst & Young.
We are looking for assurance that any gaps or deficiencies are addressed before ASX pushes forward on the new CHESS replacement solution and any other future program ASX undertakes. We want to make sure ASX’s program and management framework is fit for purpose to successfully deliver programs of change to Australia’s market infrastructure.
We welcome the Government’s announcement at the end of last year that it will take forward reforms on Competition in Clearing and Settlement (CiCS) and the Financial Market Infrastructure (FMI) reforms. These reforms will strengthen our supervisory powers, including information-gathering powers. They will broaden the range of enforcement tools we, the RBA and the ACCC have available. We are engaging frequently with Treasury as it drafts the legislative packages. If enacted, ASIC will work with Government and the Council of Financial Regulators to implement both reforms.
We look forward to answering your questions.