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ASIC Enforcement Review — Draft reforms released for comment

04 October 2019 | Australia
Legal Briefings – By Michael Vrisakis, Andrew Eastwood and Steven Rice

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On 11 September 2019, Treasury released exposure draft legislation which propose to give effect to 16 of the 50 recommendations made by the ASIC Enforcement Review Taskforce. The Government intends to introduce these reforms by the end of the year.

The Draft Legislation

The draft Bills comprise five different draft laws, which would reform ASIC’s ability to:

  • access intercepted telecommunications material;
  • ban individuals from working in the financial services industry;
  • obtain search warrants to seize material; and
  • administer Australian credit licence (ACL) and Australian financial services licence (AFSL) applications.

The draft Bills also simplify existing penalties relating to the production of materially false or misleading documents under the Corporations Act 2001 (Corporations Act) and National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).

ASIC will have greater ability to access telecommunications interception information

The Financial Regulator Reform (No. 1) Bill 2019: Banning orders proposes to include ASIC on the list of agencies in s 68 of the Telecommunications (Interception and Access) Act 1979 (Cth) (TIA Act) that are able to receive lawfully intercepted information from an interception agency.

ASIC would then be able to receive lawfully intercepted information if that information relates, or appears to relate, to a matter that may give rise to an investigation by ASIC of a ‘serious offence’ or the likely commission of a ‘serious offence’. The definition of a ‘serious offence’ is defined in s 5D of the Crimes Act 1914 (Cth) (Crimes Act), and includes several offences under the market misconduct provisions of Part 7.10 of the Corporations Act.

ASIC would only be able to deal with this information in relation to investigating and prosecuting serious offences. ASIC would not be able to use lawfully intercepted information, for example, to assess an AFS licence application.

ASIC will be able to more readily ban individuals in the financial and credit industry

The Financial Regulator Reform (No. 1) Bill 2019: Banning orders proposes to expand the range of circumstances in which a person may be subject to an ASIC banning order. Specifically, the Bill will enable ASIC to ban persons who are not ‘fit and proper’ or ‘not adequately trained or competent’ from:

  • providing financial services (in relation to the Corporations Act) or engaging in a credit activity (in relation to the NCCP Act);
  • performing functions as an officer of an entity that carries on a financial services or credit business; or
  • controlling an entity that carries on a financial services or credit business.

This draft Bill also proposes that a person may be banned by ASIC for a number of other reasons, for example if the person has, at least twice, been linked to a refusal or failure to give effect to an AFCA determination.

ASIC’s search warrant powers will be expanded

ASIC’s existing search warrant powers under the Australian Securities and Investments Commission Act 2001 (ASIC Act) and NCCP Act will be repealed under the Financial Regulator Reform (No. 1) Bill 2019: ASIC search warrant powers. These powers would be replaced with a new ASIC Act power to seize material through a regime based on the search warrant regime under Part IAA of the Crimes Act.

This will increase ASIC’s power to issue search warrants and seize relevant material. ASIC will no longer be limited to seizing only the particular books that are specified in the warrant. ASIC will also be able to use the material in criminal, civil penalty, civil and administrative action, unlike the case under existing law for a Crimes Act search warrant. Interestingly, in some respects these reforms also narrow the scope of ASIC’s existing search warrant powers by permitting ASIC to seek a warrant where ASIC is investigating the commission of indictable offences.

ASIC’s licencing powers will have important reforms

ASIC’s licensing powers will be reformed to:

  • replace the ‘good fame and character’ test for Australian financial services or credit licences (Licences) with a ‘fit and proper’ test;
  • empower ASIC to cancel a Licence if the licensee fails to commence business within six months, and refuse a Licence application if it is materially false or misleading;
  • require licensees to notify ASIC if an entity starts to control or stops controlling a Licence before the end of 30 business days;
  • permit ASIC to require Licence applicants to disclose any material changes in the information that has been provided to ASIC in connection with a Licence application; and
  • align the requirements for financial services and credit licence applications.

These amendments will be made under the Financial Regulator Reform (No. 1) Bill 2019: (Licensing).

The regime for penalising lodgement of false or misleading documents will be reformed

The existing penalty regime for false and misleading documents under section 1308 of the Corporations Act and section 225 of the NCCP Act will be replaced with a simplified penalty regime under the Financial Regulator Reform (No. 1) Bill 2019: Penalties. This amended regime includes a broad range of civil and criminal penalties relating to false or misleading statements about share capital and materially false or misleading statements or omissions in documents that are:

  • required under or for the purposes of the Corporations Act or NCCP Act; or
  • lodged with or submitted to ASIC.

What’s next?

Treasury has invited interested parties to provide public comments on the draft legislation until 9 October 2019. Comments can be made by email to ASICenforcementreview@treasury.gov.au or by post. Further information on making a submission is available here.

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