Australian Treasury consults on ASIC powers for giving directions to AFS licensees
ASIC can give a direction to an AFS licensee if the regulator has a reason to suspect that a licensee has, is or will engage in conduct that contravenes the financial services law.
The Australian Treasury has opened a consultation regarding new rules that will provide the Australian Securities & Investments Commission (ASIC) with powers to give directions to financial services and credit licensees.
In particular, Schedule 1 to the Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2020 Measures) Bill 2020: FSRC rec 7.2 (ASIC directions) implements part of the Government’s response to recommendation 7.2 of the Financial Services Royal Commission, by providing ASIC with powers to give directions to AFS licensees and credit licensees in order to prevent or address suspected breaches of financial services law or credit legislation.
The new law will states that ASIC can give a direction to an AFS licensee if ASIC has a reason to suspect that a licensee has, is or will engage in conduct that contravenes the financial services law.
The directions are designed to be quick and efficient responses to the conduct of AFS licensees and credit licensees, aimed at early regulatory intervention in order to better protect consumers. For this reason, the threshold for triggering a direction is that ASIC must have a ‘reason to suspect’ that a licensee has, is or will engage in contravening conduct. The requirement for a regulator to have a ‘reason to suspect’ is a lower threshold than a ‘reason to believe’.
ASIC may give an interim direction to a licensee if ASIC considers that a delay in giving a direction would be prejudicial to the public interest.
ASIC can direct a licensee to address a suspected contravention by way of implementing a scheme to compensate persons who have suffered loss or damage due to that suspected contravention. Compensation may involve both financial and non-financial redress.
The directions power allows ASIC to direct a licensee to set up a compensation program, but it does not allow ASIC to direct a licensee to compensate a client or class/group of clients – only a court would be able to order that payment(s) be made and the amount of any such payment. The directions power enables ASIC to ensure that any remediation program established by a licensee provides a suitable process for addressing the impact of a breach on clients including, for example notifying clients about the program, identifying potential claimants, processes for assessing claims and rights to appeal decisions made where appropriate.
Further, the new law allows ASIC to give directions that are ancillary steps required to address or prevent a suspected contravention. For example, the regulator may direct a licensee to conduct a review of its records or systems prior to putting a compliance process in place.
A direction does not need to have a time limit or time period specified. ASIC may instead direct that the obligation to engage in specified conduct remain in place until a condition specified in the direction is met. For example, ASIC may direct that a licensee must not accept new clients until such time as it has engaged suitably qualified accounting staff.
An AFS licensee or credit licensee must comply with a direction given by ASIC. Failure to comply with a direction is a contravention of the legislation and triggers a civil penalty.
It is a general obligation of AFS licensees to comply with financial services laws. Failure to do so can result in suspension or cancelation of an AFS licence.
Failure to comply with a direction may also result in liability to a banning order or court order (including injunctions) and trigger obligations to report breaches under the Corporations Act.
Interested parties are invited to submit responses to this consultation up until February 28, 2020.