by Wietske Blees*
Regulatory scrutiny around client and investor protection continues to increase, with both the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) sharpening regulations and, critically, enforcement of those regulations.
ASIC in particular has ramped up what it refers to as “high deterrence enforcement” resulting in a 20 per cent increase in the number of ASIC enforcement investigations and a 216 per cent increase in wealth management investigations between July 2018 and July of this year.
A Royal Commission Implementation Update, published this week, outlines some of the regulator’s key regulatory priorities and actions of late, which include the establishment of a new Office of Enforcement. In a marked departure from the regulator’s heavily criticised tendency to “resolve misconduct by agreement”, the new office is applying a uniform “Why Not Litigate?” approach to enforcement and, according to ASIC Chair James Shipton, there is a “sense of urgency and significance” among ASIC Commissioners.
Enforcement will also hurt more. Following the passage of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 in March, ASIC now has strengthened penalties available in cases where previously it had none. This includes 15 years maximum prison penalties involving serious offences and civil penalties of up to $1.05 million for individuals and $525 million for companies. Considering the fact that many of the referrals by the Royal Commission to ASIC related to breaches of obligations by financial services licensees (section 912A of the Corporations Act) for which there were previously no civil penalties available, this is a significant development.
Then there are ASIC’s new Design and Distribution Obligations and Product Intervention Powers (DDO & PIP) which put accountability on issuers and distributors to design, market and distribute financial and credit products that “meet consumer needs” and allow ASIC to modify or ban products that are unsuitable. While ASIC is planning to consult on the DDO obligations later this year, the idea is that from April 2021, issuers will have to identify in advance the consumers for whom their products are appropriate and direct distribution to that target market. The PIP component is already in place, with proposals to ban over-the-counter binary options and restrict retail contracts for difference currently open for consultation.
And finally, in line with Royal Commission recommendations that ASIC become the conduct regulator of superannuation, ASIC is increasingly focusing on persistent underperformance as a form of misconduct. To monitor this, ASIC has announced that it will increase supervision and surveillance of superannuation trustees, with more frequent on-site visits.
On the prudential side, APRA is introducing new operational planning requirements to improve member outcomes through SPS 515 Strategic Planning and Member Outcomes, which is due to come into effect on January 1, 2020. In a nutshell, APRA wants to see that licensees don’t just pay lip service to member outcomes and that achieving these are in fact are a key component of their operations. To establish this, the regulator wants to see a new business plan, a business performance review and an annual outcomes assessment among other things.
Key topic at Fund Summit
Meeting these expectations and requirements will be a key topic at the 6th Fund Summit in Melbourne on October 29. Helen Rowell, Deputy Chair at APRA and Suzanne Smith, General Manager Specialised Institutions at APRA will run the audience of C-level executives through APRA’s upcoming initiatives and expectations, while King & Wood Mallesons’ Partner, Jim Boynton, will run the audience through ASIC’s application of DDO & PIP.
Other topics that will be discussed in detail at the Fund Summit include investment governance, product strategy, client experience, third party governance and managing complex technological change projects.
*Wietske Blees is editor at Fund Business and a former regulatory analyst with Thomson Reuters Regulatory Intelligence.