Keeper at the gate: Regulator targets a range of transgressions in financial services - Financial Services

Balancing a free market-based system while protecting the consumer has its challenges. Just ask the Australian Securities & Investments Commission.

Its focus on financial services and corporate governance is targeting cultures of poor gatekeeping and ensuring financial advisers act in the best interests of clients. Those who fail to meet the standards set face serious consequences, as outlined in the organisation's recent Half-Term Report Card. A range of transgressions are under the spotlight - from misuse of cross-border services and transactions, apathy around cyber-security and misalignment of company disclosures through to serious 'phoenix' behaviour.

Conduct risk and the integrity of financial market benchmarks also remains a priority right now.

So, how is your organisation placed to deal with an ASIC investigation and what areas is the regulator looking to target? In the report, ASIC clearly references The Future of Financial Advice reforms. These are a focus for the rest of the year as ASIC strives to ensure firms and advisers comply with these obligations, lifting the standards of major financial advice providers. This is aligned with ASIC's Wealth Management Project, which is particularly focused on the quality of the advice clients receive and the remediation of clients who are adversely affected.

Other areas of focus within financial services include scrutiny of responsible lending practices and ensuring responsible entities of managed investment schemes comply with their obligations.

Earlier this year, ASIC's chairman stated that additional funding would enable the regulator to carry out further surveillance and enforcement in financial planning, responsible lending, life insurance and misconduct and breach reporting.¹

It has only been a few months since that increase in funding was announced but the marked increase in criminal charges laid and the rise in infringement notices could be a sign of things to come: for the first six months of 2016, the number of infringement notices has increased drastically – by 275% since the second half of 2015.

Interestingly, ASIC's targeting of credit providers is demonstrated by 65 of the 75 infringement notices being related to consumer credit, resulting in the imposition of $739,500 in penalties. This is very much in line with ASIC's Corporate Plan, aimed at balancing a free market-based system with investor and financial consumer protection.

Another notable area of change in enforcement outcomes is that the number of criminal charges laid has risen by almost 129% compared with the previous six months. At the same time, the value of compensation or remediation paid has significantly dropped by over 90%. However, this might be explained by the timing of settlements and other claims resolutions.

WHAT SHOULD BE ON YOUR RADAR?

So, now is a good time to stop and think about what you or your organisation is doing to make sure it is well prepared for any regulatory investigation or inquiry. Some questions to ponder:

When was the last time you did a review of your organisation's compliance framework – are there appropriate controls in place?
Are you taking complaints seriously and addressing them in a timely manner, so as to mitigate the risk of grievances being taken to the regulator?
Will you be prepared to act quickly if ASIC comes knocking – would you be able to gather appropriate documents and are there people in your organisation who are familiar with responding to ASIC notices?

Fair, orderly and transparent are all key drivers for ASIC right now. It's a good rule of thumb when you're answering any of these questions.

Footnote

¹ Greg Medcraft, 'Building trust and confidence: ASIC priorities' (Speech delivered at the Annual Stockbrokers Conference, Melbourne, Australia, 2 June 2016); Greg Medcraft, Senate Estimates: Opening Statement, 6 May 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.