If you are a director, officer or senior manager of a financial services business, the implementation of a new Government proposal would mean that you could be the subject of an ASIC banning order as a result of your role.
These powers overlap with those which have recently been proposed for APRA under the Banking Executive Accountability Regime (BEAR) and the directions power for superannuation entities under the exposure draft of the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation) Bill 2017. If you are a director, officer or senior manager of a bank, and subject to the BEAR, you will also be subject to ASIC’s extended banning powers for the same conduct.
The Government is consulting on proposed amendments to ASIC’s administrative banning power in the financial services sector in a consultation paper ASIC’s power to ban senior officials in the financial sector (Consultation Paper) issued by the ASIC Enforcement Review Taskforce (Taskforce).
The Taskforce’s review of ASIC’s banning power in the financial services and credit sectors follows the recommendation of the Financial System Inquiry (FSI) in its final report that enhancing ASIC’s banning powers would improve accountability of managers and the corporate culture of financial services businesses.
How is the Taskforce proposing to widen the scope of ASIC’s banning order power?
ASIC’s current banning power under section 920A of the Corporations Act 2001 (Cth) (Corporations Act) only permits ASIC to ban persons from providing financial services. This power does not extend to ASIC banning persons from managing financial service businesses. The Taskforce proposes that the scope of ASIC’s banning power should be widened to allow ASIC to ban a person from:
- performing a specific function in a financial services business, including being a senior manager or controller of a financial services business; and/or
- performing any function in a financial services business.
How is the Taskforce proposing to reduce the threshold for ASIC to make a banning order?
ASIC’s current banning order power under section 920A of the Corporations Act does not apply to directors or senior managers who may not have breached financial services laws despite the significance of the director or senior manager to the operations of the financial services business. The Taskforce proposes that the grounds for ASIC’s power to ban individuals should include circumstances:
- Where ASIC has reason to believe that the person:
- is not a fit and proper person to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business; or
- is not adequately trained, or is not competent, to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business.
- Where a person has been an officer, partner or trustee of a financial services or credit licensee that has been:
- the subject of a report by the Australian Financial Complaints Authority regarding a failure to comply with a determination of that authority; or
- a corporation that was wound up and a liquidator lodged a report under section 533(1) of the Corporations Act about the corporation’s inability to pay its debts.
- Where a person has breached their duty under sections 180-183 of the Corporations Act. These provisions include directors’ and other officers' duties to exercise reasonable care and diligence.
What are the implications of the proposed amendments?
The proposed amendments have wide implications for directors, senior managers and officers of a financial services business. While BEAR proposes new powers for APRA such as a power to ban executives of Authorised Deposit-taking Institutions (ADIs) and their subsidiaries, the Taskforce’s proposed amendments will apply to financial services business and holders of an Australian financial services licence (AFSL) and operate independently of the BEAR.
Under the proposed amendments, ASIC would have the power to make a banning order in respect of any person who it does not consider to be adequately trained or competent to provide a financial service from performing any function in any financial services business. The consequences of the proposed amendments are far-reaching. If the proposed amendments are enacted as proposed, they could result in significant repercussions for both officers and senior managers of financial services businesses.
Submissions in response to the Consultation Paper are due by 4 October 2017
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2019