ASICs enforcement update 2022

What you need to know

• ASIC has released its quarterly enforcement update for the period April to June 2022. It provides insight into ASIC's future priorities including investigating cryptocurrency misconduct, enhancing financial reporting and risk disclosure, increasing transparency and governance in superannuation and monitoring for 'greenwashing'.
• ASIC emphasises its recent successes against misconduct, including in relation to insider trading, market manipulation, compliance failures, mis-selling consumer credit insurance and contraventions of the National Consumer Credit Protect Act.
• The enforcement statistics indicate that the amount of civil penalties being imposed and the number of ASIC investigations is increasing, but the number of civil penalty proceedings commenced is substantially lower than in previous periods.

Enforcement in April to June 2022

During the quarter, ASIC prioritised enforcement of the following types of matters:

• appropriate charging of interest, fees and charges under the National Consumer Credit Protection Act;
• adequate monitoring of account withdrawals by third parties (including financial advisers) and disclosure about available funds and balances in credit card accounts;
• "fees for no service" and provision of fee disclosure statements; and
• addressing failures to act in clients' best interest when providing financial advice.

ASIC states it also sought improved resilience during ASX market outages (including by market operators facilitating trading on alternative markets during outages), updated the ePayments Code to strengthen consumer protection, alerted customers to green bond scams and extended its product intervention order on CFDs.

ASIC emphasises its successful outcomes as an active litigant against misconduct in the following types of matters:

• insider trading and market manipulation (Gabriel Govinda and Sigma Healthcare);
• compliance failures across multiple banking, superannuation, wealth management and insurance business units (Westpac);
• mis-selling of consumer credit insurance (Westpac); and
• charging fees in contravention of National Consumer Credit Protection Act (Cigno).

ASIC highlights that, between January and June 2022, there have been large numbers of:

• Prosecutions – including 25 individuals or companies charged in criminal proceedings and 132 criminal charges laid;
• Civil penalties – including $145.8 million in civil penalties imposed by the court, 7 civil penalty cases commenced and 40 civil penalty proceedings currently before the courts;
• Bannings – including 31 individuals removed or restricted from providing financial services or credit and 26 individuals disqualified or removed from directing companies; and
• Investigations – including 60 investigations commenced and 148 investigations ongoing.

What is interesting about these statistics is that the:

• total amount of civil penalties imposed is higher than reported in the last two six-monthly reports indicating a trend towards higher civil penalties;
• number of investigations commenced and ongoing have increased on the previous six-month period; and
• number of civil penalty proceedings commenced this half-year period is significantly lower (7) than the last three six month periods (21, 12 and 14 respectively).

You can read about our reflections on the evolution of ASIC's enforcement approach here.

What's ahead

• Focus on crypto assets: ASIC will continue to investigate and take action against unlicensed cryptocurrency businesses involved in misconduct, having commenced proceedings against Helio Lending.
• Enhanced financial reporting and disclosure: In June 2022, ASIC released new financial reporting requirements for AFS licensees, urged for more useful and meaningful information in financial reports, highlighted key focus areas for reporting and called for better disclosure of business risks and asset values. It will be interesting to see if ASIC takes any action against unsatisfactory financial and risk disclosure.
• Obligation to manage cyber security risks: ASIC highlights a key Federal Court enforcement outcome against RI Advice who were found to have failed to adequately manage cyber security risks in breach of the efficiently, honestly, fairly obligation. You can read our analysis on what directors need to do to meet their cyber security obligations here.
• New financial adviser requirements: ASIC released guidance on the Better Advice Reforms, including its approach to warnings and reprimands of financial advisers, and training, qualification and CPD requirements for financial advisers. Financial adviser conduct will likely be an area of continued focus for ASIC.
• Increased governance and transparency in superannuation: ASIC is seeking improved arrangements for managing conflicts, better oversight and control measures for investment switching, and more balanced, clear and factual disclosure of performance test results for MySuper products.
• Warning on 'greenwashing': It is likely this will remain a priority enforcement area for ASIC who are monitoring for misleading claims about environmental, ESG and sustainability matters. Product issuers should review their practices and marketing in light of the release of ASIC Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products.

Authors: Morgan Spain, Partner;  and Claire Potter, Lawyer.