Australian Treasury consults on ASIC enforcement powers under new client money regime

Maria Nikolova

ASIC will be provided with alternatives to civil proceedings: in particular, the ability to issue infringement notices and enter into enforceable undertakings with licensees.

Sydney Australia

As FinanceFeeds has earlier reported, from April 4, 2018, Australian financial services (AFS) licensees are no longer able to use retail derivative client money for a range of purposes, such as their own working capital.

Today, the Australian Treasury opened a consultation on the draft Corporations Amendment (Client Money Reporting Rules Enforcement Powers) Regulations 2018. These Regulations complete the Government’s client money reform agenda, which aims to boost the protection of retail clients of financial services.

In particular, the proposed regulations propose to give the Australian Securities and Investments Commission (ASIC) necessary tools to enforce the ASIC Client Money Reporting Rules 2017. These Rules make Australian financial services licensees more accountable for the way they hold client money.

The Corporations Act 2001 already permits ASIC to impose a pecuniary penalty of up to $1 million for non-compliance with the ASIC Rules. In a nutshell, the draft Regulations give ASIC alternatives to civil proceedings: in particular, the ability to issue infringement notices and enter into enforceable undertakings with licensees.

Under the draft regulations, ASIC is able (but not required) to accept enforceable undertakings from persons alleged to have contravened a client money reporting rule, as an alternative to civil proceedings. Such persons may undertake to perform or refrain from performing a specific action, or pay a specified amount to a specified party. These undertakings are able to be varied or withdrawn with ASIC’s agreement.

If a person breaches their undertakings, ASIC is able to apply to a Court to make an order. The Court may direct the person to comply with the undertaking; pay the Commonwealth an amount not exceeding the amount of financial benefit attributed to the breach; compensate a person who has suffered loss or damage as a result of the breach; or any other order it deems appropriate.

In addition, ASIC will be allowed to issue a client money reporting infringement notice to persons alleged to have contravened a client money reporting rule, as an alternative to civil proceedings. The liability of a person to civil proceedings is not affected if a notice is not given, or if a notice is withdrawn or not complied with.

Before an infringement notice can be issued, ASIC must advise the intended recipient in writing why it believes a contravention has occurred. ASIC must also give them the opportunity to attend a private hearing, give evidence and make submissions in relation to the alleged contravention. During this process the intended recipient may bring new evidence, including witnesses, before ASIC.

Recipients must be given detailed information about each alleged contravention and the corresponding rule; the maximum applicable pecuniary penalty or penalties; the immediate repercussions of their conduct (penalties, remedial measures, sanctions, and/or terms of an undertaking); how to comply with ASIC’s terms, and the effect of that compliance.

Responses to this consultation are expected until April 26, 2018.

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