24 August 2022
The Australian Securities and Investment Commission (ASIC) has signalled a focus on emerging trends and important law reforms that are reshaping the Australian financial system, including digital and data misconduct, emerging technologies, climate risks and an ageing population, in its Corporate Plan 2022–2026.
In this Corporate Plan, Chair Joseph Longo announced that ASIC’s work will focus on four external strategic priorities over the next four years.
1. Product design and distribution
Reducing the risk to consumers of financial and credit products because of poor product design, distribution and misleading marketing, especially by improving compliance with new requirements.
2. Sustainable finance
Supporting market integrity through proactive supervision and enforcement of governance, transparency and disclosure standards in relation to sustainable finance.
3. Retirement decision-making
Protecting consumers as they plan for retirement, with a focus on superannuation, managed investments and financial advice.
4. Technology risks
Focusing on the impacts of technology in financial markets and services, driving cyber-risk and digital and data misconduct.
To deliver on these external priorities, ASIC will undertake the following eight core strategic projects.
ASIC announced that more than $2 billion was lost from scams in 2021, including $700 million from investment scams. ASIC will focus on protecting Australians by acting against investment scams, taking a data-informed approach alongside other agencies (both domestically and internationally) to target investment scams more effectively.
They also plan to improve communications and education to the public, including raising awareness through social media to help consumers identify and avoid scams.
2. Sustainable finance practices
ASIC will continue their oversight of sustainability-related disclosure and governance practices, taking action to prevent greenwashing and misleading marketing. They will use enforcement powers to ensure information marketed is useful and accurate for investors (for further information, read our article on ASIC’s greenwashing guidance here).
ASIC will continue to work with other agencies and international peers such as the Council of Financial Regulators Climate Working Group and the International Organization of Securities Commissions Sustainable Finance Task Force to coordinate and improve practices in this area.
Crypto-assets and decentralised finance (DeFi) are increasing in popularity, but was described by Chair Joseph Longo as “highly volatile, inherently risky, and complex” in his address to the Committee for Economic Development of Australia (CEDA).
Crypto-assets reach beyond jurisdictions and the control of any single Australian regulator. While the industry develops, ASIC will take action to protect investors from harms posed by crypto-assets that fall within their jurisdiction. Such measures include enforcement action to protect consumers from potential harms associated with crypto-assets – such as supervising Product Disclosure Statements and target market determinations of major crypto offerings.
ASIC will continue to work with domestic and international peers to monitor risks, develop coordinated responses to issues and develop an international policy regarding crypto-assets and DeFi.
4. Design and distribution obligations (DDO regime)
ASIC’s design and distribution obligations came into effect on 5 October 2021. These obligations impose requirements for financial products that meet the needs of consumers and ensure those products are being marketed to the right consumers.
ASIC will pursue targeted, risk-based surveillances and take enforcement action (such as stop orders) to address poor design and distribution of products, focusing on sectors and products that pose the greatest risks of consumer harm and applying a design and distribution obligations lens when responding to poor design and marketing.
5. Breach reporting
The new reportable situations regime commenced on 1 October 2021. Reports lodged under the regime assist ASIC in identifying trends of non-compliance and enable early detection of significant non-compliant behaviours.
The new regime also introduced an obligation for ASIC to publish information about reportable situations to enhance accountability and provide an incentive for improved behaviour. ASIC intends to continue working with stakeholders to improve consistency and quality of reporting practices before publishing their first report.
6. Cyber and operational resilience
Cyber and operational resilience minimises the risk of disruption from cyber-attacks and promotes market confidence. ASIC plans to undertake proactive supervisory actions to raise awareness and encourage active management of operational risks and continuous improvement of cyber security.
ASIC will continue partnering with financial regulators on cyber-resilience initiatives, including the Trans-Tasman Council of Banking Supervision’s cyber-attack protocol and the Council of Financial Regulator’s Cyber Operational Resilience Intelligence-led Exercises.
ASIC will also take enforcement action against egregious failures to mitigate the risks of cyber-attacks and related governance failures relating to cyber resilience.
7. Financial Accountability Regime (FAR)
ASIC’s FAR is intended to improve the risk and governance cultures of entities in the banking, superannuation and insurance sectors. ASIC will continue to work jointly with APRA to implement and enforce the regime.
8. Digital technology and data
ASIC will utilise technology and data to accurately identify potential harms in the financial market, analyse data assets to support improved decision-making and drive more efficient, proportionate and targeted regulation.
Over the next four years, ASIC will continue to be an active litigator against market misconduct, albeit recognising that priorities must be set for such action. In his address to CEDA, Chair Joseph Longo stated that:
“Our appetite to take on matters has not diminished. Where we see egregious misconduct, we will act. Our action will be targeted, timely and proportionate.
Rather than attempting to be ‘everywhere’, we must prioritise the areas of greatest harm and take action to protect vulnerable people. Being a regulator is all about choices, so we must be targeted in the way we deploy resources.”
ASIC’s Corporate Plan highlights their aim to maximise deterrence, enhance market integrity and reduce harm to consumers (particularly vulnerable individuals) of financial services by continuing their enforcement on:
These focus areas reflect the current enforcement work that ASIC has undertaken recently as set out in their latest enforcement and regulatory update.
Supervision and surveillance
ASIC will undertake surveillance across the regulated population to ensure entities and individuals are acting in the best interests of consumers and investors.
This includes surveillance of corporate transactions, market activities, financial reporting and audit quality. The surveillances will also help ensure financial services providers have the resources, competence and systems to operate efficiently, honestly and fairly.
In his CEDA address, Chair Joseph Longo recognised the important role that regulatory guidance plays and the commitment to the delivery of this guidance where he stated:
“…we will look at how we engage around the development and maintenance of our regulatory guidance, recognising that this is a core aspect of our regulatory footprint. We also want to publish a more detailed regulatory timetable, to help you know what is coming and to support you in your planning.”
Chair Joseph Longo also highlighted the intention to enhance engagement when ASIC uses their compulsory information gathering powers. ASIC’s aim is to ensure engagement is transparent, targeted and efficient – clearly explaining what a relevant investigation is about, the steps involved and what is expected.
ASIC also indicated they are reviewing their stakeholder engagement approach – exploring a more regular and multi-channel engagement by collaborating with licensing applicants as a case study. This is to increase the market’s understanding of ASIC’s priorities, expectations and decisions.
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Authors: Joanne Jary & Tom Goodwin
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.