ASIC's regulatory approach
Mr Chester said that going forward, ASIC will adopt a 'lighter but more impactful', lower cost approach, based on cooperation and focused on addressing harmful misconduct rather than 'process breaches'.
Ms Chester said,
'ASIC will seek to maintain a regulatory spirit-level between incentives for good conduct and compliance; and targeted, swift action when we see misconduct and harm. For the firms we regulate (both big and small), it means that more often than not, we will work with you, not against you. We want to reward good performers with nudges, not grudges. We want to train ASIC’s radar on harmful misconduct, not on harm-free process breaches. And we think that over time, this will deliver better outcomes for the economy, markets, business, shareholders and ultimately – consumers and investors'.
ASIC's new enforcement approach: 'Express Investigation'
Ms Chester described ASIC's new 'express investigation' (EI) approach to enforcement as follows.
'EI is simple. At the earliest possible time, ASIC sets out our concerns to the entity. We then seek cooperation in the investigation through regular and consistent engagement. By cooperating, we reduce the time and expense of the investigation...If cooperation from the entity wanes, ASIC’s investigation forges on. But slowly and with greater cost.'
Ms Chester observed that the 'opportunity cost of lost time in protracted litigation' serves no-one and that the new EI approach, piloted in the wake of the Hayne Commission, has proven to be both time and cost effective.
Going forward, Ms Chester said that ASIC plans to 'work with firms and the ABA to share respective methodology on how to measure the benefits of EI. We will also start rolling out EI across a broader cohort of firms we investigate'.
ASIC's 'Year of Deployment': Key enforcement priorities
Ms Chester described 2021 as the 'Year of Deployment' for ASIC – the year in which ASIC has resolved to 'do things differently' with pilot programs rolled out quickly and of necessity in 2020, becoming 'regulation as usual'.
Key priorities include the following.
- DDO pilot program: New design and distribution obligations (DDO)s are set to commence on 5 October. Ahead of this, Ms Chester said that ASIC will launch a DDO pilot program, starting with Buy Now Pay Later (BNPL) firms. Ms Chester said that ASIC will hold meetings with the Chairs, CEOs and Boards of 'regulated cohorts', where ASIC considers that DDOs could prevent current and future harm. This is intended to provide a 'firm pre-emptive nudge' and 'reduce legacy trails of litigation, loss of shareholder value, and consumer harm.'
- Superannuation:
- Ms Chester flagged that industry should expect a number of new non-Hayne Commission related superannuation actions.
- Specifically, Ms Chester said that ASIC's 'superannuation pipeline' comprises: eight matters in litigation; two briefs of evidence in support of criminal charges with the CDPP; more than 20 enforcement investigations; and multiple surveillances about potential super trustee misconduct.
- Broadly, the 'misconduct themes' ASIC has identified are: a) trustee competence and oversight; b) complaints handling processes; and c) mischarging fees.
- Ms Chester added that in addition to enforcement, 'nudges like DDO will apply to parts of the super system. As will the new complaints handling requirements, which come into effect on 5 October 2021 alongside DDO'.
- Cyber risk:
- ASIC's current cyber supervisory projects include: a) 'raising awareness of cyber resilience' for regulated entities; b) 'helping our regulated entities get prepared with their self‑assessment'; and c) taking 'deterrence-based enforcement action' where necessary.
- Ms Chester cautioned that ASIC's 2020 case against RI Advice Group (the first cybersecurity action taken by the regulator against a licensee) 'won't be the last'.
- Ms Chester said that ASIC also sees 'much potential for collaboration among large firms to develop a standard of resilience (a pilot path) for their many, smaller service provider firms. Lifting the cyber resilience tide for all. And we’re initiating a dialogue to that end'.
- Consumer/investor harms: Ms Chester flagged that ASIC will continue to focus on addressing the consumer/investor harm caused by funds that market themselves as safer, lower risk, or more liquid than they are. So far, under the 'true to label' pilot, ASIC has 'dealt with' 30 funds.
[Source: Regulation for recovery: when pilots become enduring practice, A speech by Deputy Chair Karen Chester, to the AFR Business Summit 2021 10/03/2021]
