The Australian Securities & Investments Commission (“ASIC”) has released a report outlining its enforcement activities and outcomes during the period of 1 July to 31 December 2017. The report summarises some key cases of this period and also outlines ASIC’s areas of focus for the coming six months.
The following table summarises ASIC’s key enforcement outcomes:
The report illustrates a substantial increase in criminal charges laid from July - December 2017, compared with the previous period, January – June 2017. In the first half of 2017, 32 criminal charges were laid, compared to 235 criminal charges laid in the latter half of 2017. Overall, this is a substantial increase on all of the previous four half-years that ASIC has reported.
For the period July - December 2017, 34 infringement notices were issued by ASIC, compared with 11 issued in the previous 6 month period (though volumes of infringement notices are still lower than in both halves of 2016).
In terms of corporate governance, ASIC has focused on holding company gatekeepers to account. ASIC recognises that company directors, senior executives and officers hold positions of trust and responsibility. Accordingly, ASIC is focused on ensuring such gatekeepers meet the standards of conduct required of them by law.
Over the next six months, ASIC has stated that it will focus on:
- 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.
ASIC continues to take action in preventing consumer harm by regulating the conduct of financial services and credit providers. The report presents data on the enforcement outcomes by misconduct type, showing that 32% related to credit misconduct and 37% related to dishonest conduct including misleading statements.
These percentages reflect ASIC’s area of focus for this past six month period, being:
- dishonest, misleading and deceptive conduct;
- tackling loan fraud; and
- protecting investors and consumers.
Indicative of ASIC’s endeavours in this area, is the decision of ASIC v NSG Services Pty Ltd, where the Federal Court imposed a civil penalty of $1 million on NSG Services Pty Ltd for breaching their best interests duties.
For the financial services and credit sectors over the next six months, ASIC’s areas of focus will be:
- 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; and
- 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.
Over the past six months, ASIC has had a particular focus on financial benchmarks, continuous disclosure and market integrity rules when it came to enforcement in this area. The report’s statistics reflect this, with 20% of the market integrity outcomes relating to continuous disclosure misconduct, and 32% relating to market integrity rules misconduct.
Whilst continuing to focus on conduct risk, ASIC has said that it will be paying particular attention to:
- offending enabled by technology and/or malicious cyber activity; and
- the adequacy of systems and controls in bank bill trading and foreign exchange activities as implemented by banks under their enforceable undertakings.
The report emphasises ASIC’s efforts to assist small businesses in understanding their legal obligations under the Corporations Act 2001 (Cth). However, where required, ASIC has taken action against companies, directors and other office holders who have failed in their duties.
A particular focus area for ASIC during this period has been illegal phoenix activity. This occurs when directors of a company transfer its assets for little or no consideration to a new company, before an external administrator is appointed. A business will conduct this activity in order to avoid paying its debts, including taxes and employee entitlements.
Over the next six months ASIC will continue to focus on combating illegal phoenixing. ASIC will also be targeting credit providers which fail to lodge annual compliance certificates as required by the National Consumer Credit Protection Act 2009 (Cth).
What does this report mean to you?
This report demonstrates ASIC’s continued activity in the enforcement space, emphasising the need for businesses to ensure they understand and comply with their legal obligations.