ASIC flexes its muscles to gain power to ban managers in the financial services sector

September, 2017

By Lisa-Marie McKechnie, Partner, and Ahmed Rizk, Lawyer

The Australian Securities and Investments Commission (ASIC) may soon be getting expanded powers to ban persons involved in the financial services industry and prevent them from having a role in a financial services business, according to a consultation paper released on 6 September 2017. But are the proposed new powers too broad and far reaching? This article examines the proposed new powers and considers their consequences.

The Consultation Paper, titled ‘ASIC’s power to ban senior officials in the financial sector’, was released by the ASIC Enforcement Review Taskforce as part of a wider review of the adequacy and suitability of the enforcement regime of ASIC.[1] It suggests that ASIC’s financial services banning powers should be expanded to address current perceived shortfalls and has proposed the following positions in an endeavor to rectify the shortfalls and enhance ASIC’s power to ban senior officials in the financial services sector:

    1. ASIC should be able 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.
    2. ASIC’s power to ban a person should include circumstances:
a. where ASIC has reason to believe that the person is not:
       i. 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; and/or
       ii. 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;
b. where a person has more than once been an officer, partner or trustee of more than one financial services or
    credit licensee that has been:
       i. the subject of a report by the Australian Financial Complaints Authority (AFCA) regarding a failure to comply with a
          determination of that authority;[2] or
       ii. a corporation that was wound up and a liquidator lodged a report under subsection 533(1) of the Corporations Act 
          2001 (Cth) (Corporations Act) about the corporation’s inability to pay its debts;
c. where a person has breached their duty under sections 180, 181, 182 or 183 of the Corporations Act.

The Taskforce has also recommended that equivalent powers should be given to ASIC in respect of credit regulation under the National Consumer Credit Protection Act 2009 (Cth).

The new proposed powers would be in line with similar powers granted to foreign regulators such as the United Kingdom’s Financial Conduct Authority (FCA), New Zealand’s Financial Markets Authority (FMA) and the Ontario Securities Commission (OSC) (Canada); as well as powers proposed to be given to the Australian Prudential Regulation Authority (APRA) under the Federal Government’s Banking Executive Accountability Regime (BEAR), to enhance responsibility and accountability of Authorised Deposit-taking Institutions (ADIs) and their directors and senior executives.

ASIC’s current banning powers

Under s920A of the Corporations Act, ASIC may make a banning order against a person, which prohibits that person from providing any financial services or specified financial services in specified circumstances or capacities. The order may prohibit the person from providing a financial service permanently or for a specific period of time.

ASIC may only make a banning order against a person after giving the person an opportunity to appear, or be represented, at a private hearing before ASIC, and to make submissions to ASIC on the matter. A banning decision can be appealed to the Administrative Appeals Tribunal.

ASIC may only make a banning order against a person in certain circumstances, which include where:

Shortfalls in current powers

The Taskforce’s recommendations address two key shortfalls in ASIC’s current banning powers; scope and threshold.

ASIC’s current banning powers only prevent individuals from providing financial services. This does not prevent a person from having another role in a business that provides financial services, for example as a director, officer, compliance manager or owner. Practically, this means that a person can be banned from providing financial services, but still hold a senior position or management role in a financial services business; and in that capacity may be responsible for the provision of financial services by others in the business and/or the policies and procedures of the business.

ASIC’s current banning powers also do not cover directors or senior managers who may not themselves have breached financial services laws but who were nonetheless integral to the operation of the business. The effect of this limitation is that persons responsible for developing an environment or business model that led to breaches occurring cannot be the subject of a ban, even if they are involved in multiple failed businesses.

What happens next?

The Government has enthusiastically welcomed the paper. The Taskforce is now seeking community and industry feedback on the paper before making final recommendations to the Government.

The position paper is available here.

Interested stakeholders are invited to comment on the positions put forward by the Taskforce. Submissions for the consultation close on 4 October 2017.

[1] The Taskforce is comprised of a core panel with representatives from Treasury, ASIC, the Attorney-General’s Department (AGD) and the office of the Commonwealth Director of Public Prosecutions (CDPP); and supported by an Expert Group drawn from peak industry bodies, consumer groups and academics.

[2] AFCA is a newly formed external dispute resolution scheme that will commence operations from 1 July 2018, consolidating the existing Financial Ombudsman Service (FOS), the Credit & Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT) into a single industry ombudsman scheme.

Contact Mills Oakley

For further information, please do not hesitate to contact:

 

lisa-marie-mckechnie-mills-oakley

Lisa-Marie McKechnie | Partner

T: +61 2 8289 5857
E: lmckechnie@millsoakley.com.au

Ahmed Rizk | Lawyer

T: +61 2 8289 5814
E: arizk@millsoakley.com.au

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