Key Points: Focus areas for 2018

• Corporate Governance: In the area of Corporate Governance, ASIC highlights 'holding gatekeepers to account' as a key focus.

• Financial Services: In the area of Financial Services, Dishonest, misleading and deceptive conduct; protecting investors and consumers (targeting breach of best interests duty) and tackling loan fraud were identified as key areas of focus.

• Market Integrity: In the area of Market Integrity, ASIC identified: continuous disclosure, financial markets benchmarks and compliance with the market integrity rules as key areas of focus.

• Small Business: Illegal phoenix activity was identified as the key area of focus in relation to Small Business.

ASIC notes that these priorities/areas of focus are in line with those identified in the latest corporate plan.  

Summary of Key Enforcement Outcomes

ASIC highlights the following as 'key enforcement outcomes' for the reporting period:

• Investigations: 63 investigations commenced and of those, 61 completed.

• Bannings and disqualifications: 54 people or companies removed or restricted from providing financial services or credit; 28 people removed from directing companies.

• Infringement notices, compensation and enforceable undertakings: 34 infringement notices issued; 12 enforceable undertakings; $21.7m in civil penalties; $1.7m in infringement notices paid; $94.4m in compensation and remediation for investors/consumers; $40.5m in community benefit fund payments.

• Prosecutions: 17 people charged in criminal proceedings; 235 criminal charges laid; 232 people charged in summary prosecutions for strict liability offences; 476 charges laid in summary prosecutions for strict liability offences.

ASIC Commissioner Cathie Armour said, 'This report highlights our ongoing commitment to ensuring that Australians can have trust and confidence in the financial system. Where there are practices in our markets and financial services industry that could create harm, ASIC will take enforcement action to protect investors and consumers.'

Loan Fraud activity: Overview of ASIC work on loan fraud

ASIC states that it has undertaken over 100 investigations into loan fraud, and removed or restricted 60 people from providing financial services, of which 36 people were banned permanently, since becoming the national consumer credit regulator in 2010. 

The report identifies the following key risk areas as areas of focus over the next six months:

• Insolvency practitioners and others who facilitate serious illegal ‘phoenix’ activity and improper transactions in the face of insolvency;

• Company directors and officers who fail to stop their companies making illegal payments to officials of overseas governments;

• Responsible lending practices in the consumer credit industry; and

• Technology-enabled offending and/or cyber crime activity in the context of rapid technological developments.

Further detail

Corporate Governance: Focus areas for H1 2018: ASIC states that it will continue to focus on the 'conduct of gatekeepers—company directors and officers, liquidators and auditors, and business advisers—to ensure they meet the standards of conduct required by law'.

More particularly, over the next six months, ASIC will focus on the following.

• 'companies with poor corporate governance;

• undisclosed associations and substantial holdings in shares in public companies (including benefit tracing and corporation fraud);

• related party transactions involving public companies;

• poor financial reporting by listed companies;

• auditing standards and audits of public companies;

• insolvency practitioners and others who facilitate serious illegal ‘phoenix’ activity and improper transactions in the face of insolvency;

• debenture issuers and other companies exposed to risk as a result of a declining property market; and

• company directors and officers who fail to stop their companies making illegal payments to officials of overseas governments'.

Corporate Governance Enforcement outcomes

Holding gatekeepers to account: ASIC highlights two actions in relation to this enforcement priority.

1. Action against the Principal of Sherwin Financial Planners for fraud: The former principal for Sherwin Financial Planners Pty Ltd and Chairman of Wickham Securities Ltd pleaded guilty to 24 counts of dishonesty causing detriment to the value of nearly $10m and one count of dishonesty in breaching his duties as a director.  [Source: 17-300MR Principal of Sherwin Financial Planners pleads guilty to fraud]

2. Action against the former Managing Director of Banksia Securities Ltd for contravention of s344(1) of the Corporations Act. [Note: This action is discussed in Governance News 15/01/2018]

Summary of outcomes Corporate Governance overall: 20% of actions were against auditors; 12% were against directors; 8% were insolvency related; 48% were related to 'other' corporate governance misconduct.   

2.  Financial services
Focus areas for H1 2018: ASIC states that over the next six months, it will continue to focus on enforcing higher standards in the financial services industry, and more particularly in relation to the following areas.

• Responsible lending practices in the consumer credit industry.

• Financial advisers’ compliance with the best interests duty and their obligation to provide appropriate advice to clients.

• Australian financial services (AFS) licensees’ failure to deliver ongoing advice services to financial advice customers who are paying fees to receive those services.

• Conduct in the credit repair industry that results in consumers being deceived or misled, either about the effectiveness of the services that they pay for, or about the credit repair firm’s ability to improve their credit history.

• Instances where AFS licensees claim to provide general advice to retail clients during the sale of financial products (and therefore do not need to comply with the best interests duty and related obligations), but are actually providing personal advice.

Financial Services Enforcement outcomes: Actions highlighted by ASIC include those below.

1.  Dishonest, misleading and deceptive conduct: Action against a financial planner, Shane Thompson for alleged falsification of client change of adviser forms.  [Source: 17-260MR Former NAB adviser charged with forging documents]

2.  Protecting investors and consumers:  Action against a financial advice firm for breach of best interests duty

[Source: 17-365MR Financial advice firm to pay $1 million penalty for breach of best interests duty]  

3.  Tackling loan fraud:  Action against Naham Shah for his role in creating and using false documents to support fraudulent home loan applications [Source: 17-337MR Melbourne man sentenced to 5 years jail for role in hundred-million dollar home loan fraud conspiracy ]

Market Integrity: Focus Areas for H1 2018

ASIC states that conduct risk and the integrity of financial benchmarks remain a high priority and reaffirmed its commitment to addressing market abuse eg insider trading and market manipulation, failure to meet disclosure obligations.  More particularly, ASIC states that it will continue to focus on conduct risk in relation to the following areas:

• malicious cyber activity or technology-enabled offending in the context of rapid technological developments; and

• the banks’ implementation of their enforceable undertakings to ensure the adequacy and robustness of the systems and controls in their bank bill trading and foreign exchange businesses.

Market Integrity Enforcement outcomes: ASIC highlighted the following enforcement actions in relation to:

1. Financial markets benchmarks: Action against ANZ and NAB in relation to each bank's bank bill trading business and their participation in the settling of the BBSW.  [See: This action was discussed in Governance News 27/11/2017]  

1. Continuous disclosure: Action against MG Responsible Entity for breach of continuous disclosure obligations under s674(2) of the Corporations Act.  [Source: 17-441MR MG Responsible Entity fined $650,000 for breaching continuous disclosure laws]

1. Market integrity rules: Action against Bell Potter Securities Ltd for alleged breach of ASIC Market Integrity Rules.  [Source: 17-387MR Bell Potter Securities Limited pays $358,000 in infringement notice penalty]

Summary of enforcement actions in relation to Market Integrity overall: 20% of actions related to continuous disclosure; 4% related to insider trading; 32% related to market integrity rules; 8% related to market manipulation; 36% related to other market misconduct.

 Small Business: Focus Areas for H1 2018

ASIC states that it will focus on:

• credit lenders who do not lodge annual compliance certificates in accordance with the National Consumer Credit Protection Act 2009 (National Credit Act); and

• addressing illegal phoenix activity and minimising the effects of this activity on companies suffering financial distress.

Enforcement outcomes in relation to Small Business: ASIC highlights the following enforcement activity in relation to illegal phoenixing:

1. Action against Mr James Meaden for breach of s184 of the Corporations Act (dishonesty offence).  [Source: 17-448MR Former director sentenced for director duties breaches]

Summary of enforcement outcomes in relation to Small Business overall: 97% of actions were against persons and 3% related to efficient registration and licencing.

[Sources: REP 568 ASIC enforcement outcomes: July to December 2017; 18-056MR ASIC's latest enforcement report highlights outcomes from the second half of 2017]