ASIC confirms 2023 enforcement priorities

4 minute read 09.11.2022 Kate Hilder, Siobhan Doherty

We summarise ASIC's latest insights into its approach to enforcement and outline the regulator's immediate enforcement priorities.

Key takeouts

In separate addresses at the ASIC Annual Forum, ASIC Deputy Chair Sarah Court and ASIC Chair Joe Longo took the opportunity to emphasise ASIC's continued 'commitment to enforcement', including the regulator's continued willingness to take court action (where that is the best option). In doing so, both speakers also emphasised that court action is not always the most appropriate regulatory response and that ASIC will use the broad range of regulatory tools available.
This follows the recent announcement of an inquiry into ASIC's 'capacity and capability to respond to reports of alleged misconduct' by the Parliamentary Joint Committee on Corporations and Financial Services.
Ms Court also outlined ASIC's immediate enforcement priorities (listed here) including (among others) acting on misleading misconduct relating to greenwashing and crypto investments, DDO compliance, and 'predatory lending'. Our key takeaways are below.

Overview

In her 3 November 2022 address to the ASIC Annual Forum, Australian Securities and Investments Commission (ASIC) Deputy Chair Sarah Court spoke about the regulator's continued 'commitment to enforcement' and outlined ASIC's immediate enforcement priorities (2022-23).

ASIC has not 'gone soft on enforcement'

The regulator remains 'committed to court based enforcement'

A key message in Ms Court's address is that ASIC remains 'committed to enforcement' (including court based enforcement) despite perceptions in some quarters that the regulator has softened its stance. Ms Court stated:

'There has been much written in business pages about the enforcement stance of the "new" Commission – with the seeming perception that because we have moved away from the simple phrase "why not litigate", ASIC has somehow gone soft on enforcement.

I am here to say, yet again, that nothing could be further from the truth. Enforcement is at the heart of what we do... ASIC has been, and will be, committed to court-based enforcement, and our work in the courts every day is evidence of that fact'

In support of this, Ms Court pointed to:

ASIC's enforcement record over the last 12 months observing that there has been 'no lessening' in activity over that period and giving a number of examples of court action taken by the regulator against entities in the banking, credit, insurance and superannuation sectors, against a number of companies (and their directors) for breaches of continuous disclosure laws, as well as action taken to address misconduct in a number of other areas.
The high penalties paid by large financial institutions and extensive remediation secured for the consumers impacted. On this point, Ms Court added that most of the matters litigated to date have been under the former penalty regime and that going forward, penalties are likely to be higher (as misconduct that wholly post-dates March 2019 will be dealt with under the new penalty regime).

Ms Court added that ASIC has a 'large suite of significant investigations' currently on foot, with ASIC Commissioner is 'involved' in weekly meetings of the Enforcement Committee.

A targeted approach

Ms Court made clear that ASIC views enforcement as 'broader than court-based outcomes', with an enforcement investigation only one of a range of potential responses to a report of misconduct.

Ms Court observed that given the high volume of reports of misconduct received (approximately 10,000 each year) and ASIC's finite resources, ASIC 'cannot and should not launch formal investigations' into every report received. Rather ASIC assesses each report, and takes the most appropriate action in response, drawing on the full range of tools available. Ms Court states:

'We cannot take every matter to court, and clearly not every matter warrants a litigated outcome. But while we have a range of tools – stop orders, product intervention orders, infringement notices, enforceable undertakings, public warning notices – our current enforcement approach in no way departs from the important recommendations and approach set out in the Royal Commission. And just to be clear, where misconduct is engaged in by a large financial institution and has the potential for significant consumer harm, a court-based outcome, with the addition of a significant financial penalty, will always be our most likely enforcement response'.

Separately, in his keynote address, ASIC Chair Joe Longo also emphasised ASIC's continued commitment to undertaking 'important litigation' where that is the most appropriate response, but underlined, as Ms Court did in her address, that ASIC will also look to use the 'broad regulatory toolkit' available to it following the Hayne Commission, where this is more appropriate. Mr Longo observed:

'One of the challenges for a regulator is to strike the right balance. Clearly, it’s necessary to take decisive action against those who cause harm to consumers and investors. But there is also a need to focus on deterrence, education, and prevention to reduce harms arising in the first place'.

In making this observation, Mr Longo made clear that this is not to say that ASIC's willingness to pursue court based outcomes has diminished, only that ASIC is also committed to taking a targeted approach. Mr Longo said:

'For our part, ASIC remains committed to being a strong and active litigator against misconduct. We need to be strategic. We make choices to direct our resources to ensure maximum public benefit'

ASIC’s enforcement priorities

Ms Court reiterated that ASIC's 'enduring enforcement priorities' are: a) conduct which impacts or targets First Nations people; b) conduct that targets or predates on vulnerable consumers; c) serious misconduct that is damaging to our market integrity; d) systemic compliance failures by large financial institutions that result in consumer harm; and e) new or emerging conduct risks within the financial system.

ASIC's 2023 priorities

ASIC's 2023 priorities include:

addressing misleading misconduct relating to greenwashing and crypto investments.
ensuring that consumers receive the benefits of the new design and distribution obligations. In flagging this as a priority Ms Court stated that ASIC 'will not be deterred from taking cases where the legal outcome is less than certain, if we are of the view that consumers are being sold harmful products'.
monitoring for predatory lending practices and high-cost credit, 'especially that provided by unlicensed operators'. On this point, Ms Court flagged that ASIC intends to 'increase the testing of our jurisdictional perimeter in order to maximise the protections offered by the credit laws to those financially vulnerable consumers that need to rely on short term credit options'.
disrupting investment scams and working with other regulators and industry to make it harder for scammers to reach Australians.

Superannuation sector

Ms Court said ASIC will focus on 'poor governance including expenditure of member funds, failure to deliver value for members due to conflicts of interest and oversight failures'.

Insurance sector

Ms Court said that ASIC will focus on:

'pricing promises to consumers which we are concerned are not being delivered upon'
'examining unfair contract terms in insurance'
'misconduct that involves misinformation through social media about investment products, including so-called ‘finfluencer’ conduct'

Markets

ASIC will focus on:

'governance and directors’ duties failures' especially involving 'failed property schemes that expose investors to significant loss'
examining market conduct in energy and commodities futures markets for 'potential manipulation' in light of a 'spike in poor market conduct' recently observed.

[Sources: Speech by ASIC Deputy Chair Sarah Court, Enforcement priorities and the regulatory toolkit, at the ASIC Annual Forum, 03/11/2022; Keynote address from ASIC Chair Joe Longo at the ASIC Annual Forum 03/11/2022]