Australian govt opens consultation on proposed powers for ASIC to ban senior officials in financial sector

Maria Nikolova

Currently, ASIC can prevent a person from providing financial services, but cannot prevent them from managing a financial firm.

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The Australian Securities and Investments Commission (ASIC) is about to get extra powers with regard to banning officials active in Australia’s financial sector, under proposals outlined in a Consultation Paper published today on the website of the Australian government, the Treasury.

At present, ASIC has the power to ban individuals from providing financial services in certain circumstances, for instance, where an individual has violated a financial services law, has been convicted of fraud, is not of ‘good fame or character’, or is not adequately trained or competent to provide financial services. However, as noted in the final report of the Financial System Inquiry (FSI) and the earlier Senate report on the Performance of the Australian Securities Investments Commission (Senate Report):

“ASIC can prevent a person from providing financial services, but cannot prevent them from managing a financial firm. Nor can ASIC remove individuals involved in managing a firm that may have a culture of non-compliance.”

Moreover, the law as currently drafted means that ASIC can have ‘difficulty in removing these managing agents who do not themselves provide a financial service but are integral to the operation of a financial services business’.

ASIC explains that it had: “…seen instances where we cancel the AFS licence of an advisory business due to poor practices or other misconduct, but those responsible for managing the business move to another licensee’s business, or apply for a new licence with new responsible managers. If such managers are not themselves directly providing financial services or credit services in that new role, ASIC may not be able to prevent them from continuing to operate in the industry, even where there were serious failings in the previous business.”

The proposed reforms aim to enhance ASIC’s banning power by ensuring that the regulator may take appropriate action to ban senior managers from managing financial services businesses.

Under the proposals, ASIC should be able to ban a person from:

  • performing a specific function in a financial services business, including being a senior manager or controller of a financial services business; and/or
  • performing any function in a financial services business.

The causes for such a ban should include cases where ASIC has reason to believe that the person is not:

  • a fit and proper person to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business; and/or
  • adequately trained, or is not competent, to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business.

The banning powers should also apply in cases where a person has been an officer, partner or trustee of a financial services or credit licensee that has been:

  • the subject of a report by the Australian Financial Complaints Authority regarding a failure to comply with a determination of that authority; or
  • a corporation that was wound up and a liquidator lodged a report under subsection 533(1) of the Corporations Act about the corporation’s inability to pay its debts.
  • Where a person has breached their duty under sections 180, 181, 182 or 183 of the Corporations Act.

All interested parties are invited to make a submission on the proposals by October 4, 2017.

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