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A consultation has launched for new legislation that would broaden the financial services regulator’s powers so it can ban directors or senior managers of financial services or credit business should they be deemed “unfit”.
The Treasury has released for consultation exposure draft legislation that will “strengthen ASIC’s enforcement and supervision powers to protect consumers”, in line with the recommendations of the ASIC Enforcement Review Taskforce.
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As well as strengthening ASIC’s licensing powers by increasing the standards required of an Australian financial services (AFS) licence holder (at both the time of application and on an ongoing basis) and aligning the penalties for false and misleading statements in AFS licence and Australian credit licence (ACL) applications, the new legislation also looks to extend ASIC’s powers so that they may ban a person from performing functions in a financial services or credit business.
Currently, ASIC can ban a person from providing a financial service or engaging in credit activities but only where there has been poor conduct in the provision of financial services or engagement in credit activities.
The new legislation would enable ASIC to ban a person from controlling or managing a financial services or credit business if it is demonstrated that they are “unfit to fulfil their role or has a culture of non-compliance with financial services laws”.
Banning order updates
The draft exposure legislation outlines that banning orders under the Credit Act would be extended.
Currently, ASIC may make a banning order against a person under the Credit Act in certain circumstances, including where it has reason to believe that the person is “not a fit and proper person” to engage in credit activities, or the person is insolvent, other than a person who is the trustee of a trust.
Under the new law, it is proposed that this would be extended out to include those who “perform functions as an officer [i.e. senior manager] of another person that engages in credit activities” and/or “control another person that engages in credit activities”.
It is also proposed that the law be updated so that ASIC may also make a banning order against a person that:
- is insolvent;
- has, at least twice, been an officer of more than one corporation that was unable to pay its debts;
- has, at least twice, been linked to a refusal or failure to give effect to an AFCA determination; or
- has an officer who ASIC has made, or could make, one or more banning orders against.
Likewise, the order would be extended to ensure that any person banned would be prohibited from controlling another person that engages in credit activities, performing any function involved in another person engaging in credit activities, and performing specified functions involved in another person engaging in credit activities.
ASIC may make a banning order against a person under the Credit Act in certain circumstances, including where ASIC has reason to believe that the person is “not a fit and proper person” to engage in credit activities, or the person is insolvent (other than a person who is the trustee of a trust).
Similarly, the new law would also provide ASIC with powers to ban individuals under the Corporations Act in certain circumstances, including where ASIC has reason to believe that the person is “not a fit and proper person”, or is “not adequately trained or is not competent” to provide financial services, perform functions as an officer of an entity that carries on a financial services business, or control an entity that carries on a financial services business.
Changes to AFS and ACL applications
The government is also consulting on draft legislation that updates the penalties for false and misleading statements in AFS and ACL applications and builds out ASIC’s licensing powers by replacing the AFS licence requirement that a person be of “good fame and character” with an ongoing requirement that they be a “fit and proper person”.
The amendments also make a number of changes to the AFS licence and credit licence regimes to ensure broader application of the respective fit and proper person tests to all officers, partners and trustees of an applicant, and to extend the test to their controllers. The “fit and proper person” requirements must be satisfied on an ongoing basis. For example, an AFS licensee or credit licensee who requests a variation of their licence must satisfy the fit and proper person test in order for ASIC to grant a varied licence.
Other “improvements” to the licensing regimes include giving ASIC access to adequate information in relation to an application or a licence, ensuring that ASIC can refuse to grant a licence when a material particular in an application is false or misleading, and ensuring that a licence can be suspended or revoked in certain circumstances (including where the financial services authorised by the licence have not been provided within six months of the licence being granted).
The amendments also align the consequences for making false or misleading statements in documents provided to ASIC in AFS licence and credit licence contexts.
Search warrant changes
The government is also proposing to enhance ASIC’s search warrant powers “to ensure that ASIC has consistent search warrant powers across legislation for which it has specific enforcement responsibility”.
The new legislation would allow ASIC to apply for a search warrant in circumstances where the contravention would be an indictable offence under the ASIC Act, the Corporations Act 2001, the National Financial Regulator Reform (No.1) Bill 2019: ASIC search warrant powers, National Consumer Credit Protection Act 2009, the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993.
It would also be able to apply for a search warrant where a law of the Commonwealth, a state or territory has been contravened and concerns the management of a body corporate or managed investment scheme or involves fraud or dishonesty and relates to a body corporate, managed investment scheme or financial product and the contravention would be an indictable offence.
The new search warrant powers would enable ASIC to search and seize evidential material, and use the evidential material to perform its functions and duties and exercise its powers including preventing and investigating breaches of ASIC administered legislation, prosecuting such breaches and taking administrative action.
As well as strengthening ASIC’s banning and search warrant powers, the draft legislation also allows interception agencies to provide “lawfully intercepted information” to ASIC for serious offences that ASIC can investigate or prosecute
Speaking of the draft legislation, Treasurer Josh Frydenberg commented: “The Morrison government is continuing to deliver on the commitments set out in its Banking, Superannuation and Financial Services Industry Royal Commission Implementation Roadmap Restoring Trust in Australia’s Financial System.
“[T]he government has announced consultation on exposure draft legislation, which will strengthen the Australian Securities and Investments Commission (ASIC) enforcement and supervision powers to protect consumers, in line with the recommendations of the ASIC Enforcement Review Taskforce.”
He continued: “The exposure draft legislation is further evidence of the government’s commitment to strengthening financial regulators like ASIC, and restoring trust in the financial system as part of our plan to build a stronger economy.”
The exposure draft legislation is available on the Treasury website.
The consultation on the legislation closes on 9 October 2019.
[Related: ASIC to release loan fraud report next month]
