15 May, 2016
What you need to know
The Federal Government announced a reform package worth $127.2 million which grants stronger powers and additional resources to ASIC. The new reforms intend to address the recommendations in ASIC's Capability Review that were directed to the Government, and take into account the implementation of the "user-pays" industry funding model.
What you need to do
The effects of the increased funding may take a while to fully flow through, but you can anticipate an uplift in ASIC's information gathering and investigation activity in the future as resources for data analytics and surveillance capabilities are increased. You may also want to engage in the Government's consultation on the "user-pays" model, which is sure to be a hot topic within the industry.
The reforms
On 20 April 2016, the Federal Government announced a reform package which includes promises of additional funding for the Australian Securities and Investment Commission (ASIC). The proposals are a direct response to the ASIC Capability Review paper of December 2015, which made 34 recommendations about the manner in which ASIC's capabilities could be improved. Five of the recommendations were directed at the Government, and it was announced that all five of those recommendations "will be immediately implemented". We discuss briefly below the key headline items of these proposals and the implications for the industry and consumers.
Investigation and data analysis resources
The reforms have allocated $61.1 million to improve ASIC's data analytics, surveillance resources and information management systems, and a further commitment of $57 million for surveillance and enforcement projects on an ongoing basis.
These funds are earmarked for activities in the areas of financial advice, responsible lending, life insurance and breach reporting, which is consistent with the areas of investigations that ASIC has been focused on in the past 12 months. Enhanced capabilities for data analytics may also see an uptick in enforcement of misconduct in financial markets.
In addition, human resources within ASIC will be addressed through the proposal to remove ASIC from the Public Service Act 1999 (Cth). This is intended to make ASIC a more flexible and competitive employer, enabling it to attract and retain staff with specialist skills, which is consistent with a finding under the Financial System Inquiry (FSI).
Industry funding model
The introduction of an industry funding model for the financial services sector has been a topic of discussion for the past few years (noting that market participants already pay for markets surveillance following the transfer of supervision from ASX to ASIC in 2010). Treasury released a consultation paper in August 2015 on the various methodologies for determining a levy to be imposed on providers and increased fees for services. Today's announcement reaffirms the Government's commitment to implement industry funding for ASIC, and it is anticipated that this will come into effect in 2017 in what is proposed to be an extensive consultation with the industry to "refine and settle this funding model". The consultation is likely to build on the consultation previously conducted in August 2015 and the submissions received as part of that process, and it would be interesting to see how the position of the Government may have moved.
Medcraft extended and a new Commissioner
The Government announced that it will recommend to the federal Attorney-General that the tenure of ASIC chairmen Greg Medcraft be extended for an additional eighteen months, to provide continuity in the leadership of ASIC. It also intends to appoint an additional ASIC Commissioner who has experience in the prosecution of financial crimes.
Law reform response to the FSI
The Government has also allocated $9.2 million to accelerate the implementation of certain recommendations of the FSI, including:
- a product intervention power to enable ASIC to put a freeze on trading in certain products in specific market conditions or where they are seen as particularly high risk;
- product distribution obligations for industry;
- a review of ASIC's enforcement regime including deterrence powers, including a review of the penalties framework; and
- strengthening consumer protections in the ePayments Code to ensure that it keeps pace with emerging technologies.
We can expect a raft of exposure drafts and consultations over the next several months to give effect to these proposals.
Customer complaints and dispute resolution
In order to improve the way consumer complaints are handled, the Government proposes to establish a panel to advise on the external dispute resolution and complaints schemes and to assess the merits of integrating these schemes. The panel is due to report back to the government by the end of 2016. In addition, the Government is also providing $5.2 million worth of funding to the Superannuation Complaints Tribunal to deal with legacy complaints and improve internal processes.
The Government has also asked ASIC to work with the Financial Ombudsman Service to review monetary limits and compensation caps, and explore the possibility of extending the Ombudsman's jurisdiction to provide a wider range of small business loans.
For further information, please contact:
Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com
