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Financial Services Sector to Remain in the Spotlight Throughout 2017

Posted on March 21st, 2017 by Sophie Gerber in ACL Compliance

At the beginning of March 2017, ASIC released their enforcement report for the July – December 2016 period. Report 513 entitled “ASIC enforcement outcomes: July to December 2016” (Report 513) details all of the enforcement results achieved by ASIC throughout the period. Interestingly, it also provides the financial services and credit sectors with some insight into ASIC’s enforcement focuses for 2017.

High Standards

ASIC has indicated that both the financial services and credit sectors will once again be of high focus. Individuals’ involvement in the management of AFSLs and ACLs will also face high scrutiny in their provision of financial and credit services to consumers.

ASIC has advised, however, that they will pay particular attention to the following:

  • Responsible Lending Obligations for Australian Credit Licence (ACL) holders with a particular interest in breaches of such obligations by ACL holders.

ASIC will continue to focus on larger institutions i.e. the larger banks, and their responsible lending obligations. On 1 March 2017, in an ASIC Media Release entitled “17-048MR ASIC commences civil penalty proceedings against Westpac for breaching home-loan responsible lending laws.” ASIC has commenced proceedings in the Federal Court against Westpac as they allege the bank did not adequately assess whether borrowers could meet repayment obligations as such breaching their responsible lending obligations under the National Credit Act.

Another example of enforcement action derived from a failure to adequately discharge responsible lending obligations was released in December 2016. The ASIC media release entitled “16-417MR ASIC action sees BMW Finance pay $77 million in Australia’s largest consumer credit remediation program” details the significant amounts of money BMW Finance must pay to compensate customers based on its responsible lending failures.

ACL holders should ensure they have adequate compliance policies and procedures in place detailing how they will meet their responsible lending obligations to avoid becoming ASIC’s next target for responsible lending breaches.

  • Financial Advisers’ ability to comply with their best interest duties under the Corporations Act and providing appropriate advice to their clients.

ASIC’s investigation into individual financial advisers failing to meet their best interest duties under the Corporations Act will continue throughout 201. The most recent finding against Mr Mateen Mohammed (Mr Mohammed) saw him banned from providing services for seven (7) years after ASIC found that Mr Mohammed did not act in the best interests of his clients when providing financial advice. Further information on Mr Mohammed’s best interest duty failures can be found in ASIC Media Release “16-429MR ASIC bans life insurance financial adviser for seven years.”

  • Financial Advisers failing to provide advice to clients for which they have paid for.

In October 2016, ASIC released Report 499 entitled “Financial advice: Fees for no service.” The report details ASIC’s ongoing work surrounding financial advisers and institutions who continue to charge clients a fee for service without providing advice. At the date the media released was published by ASIC a totally amount of $23.7 million in fee refunds had been provided to clients. This work forms part of the ASIC Wealth Management Project which will continue throughout 2017.

  • Australian Financial Services Licence (AFSL) holders masking the provision of personal advice as general advice as a means of avoiding their best interest duties under the Corporations Act.

Again, through the ASIC Wealth Management Project, proceedings have commenced in the Federal Court against Westpac subsidiaries for failing to meet their best interest duties. Two telephone campaigns by the entities are alleged to have provided personal advice to clients inducing them to invest in particular financial products however the subsidiaries are only authorised to provide general advice. ASIC’s media release “16-460MR ASIC takes action against Westpac entities in relation to the ‘best interests duty’ and superannuation customers” outlines the full details of the allegations.

Market Integrity

As 2016 was a big year for ASIC enforcement, with successful outcomes in high profile cases e.g. the imprisonment of Oliver Curtis for his involvement in insider trading; the focus will remain on the integrity of the financial markets and conduct risk.

Financial services participants should ensure they are upholding the highest standards of compliance and meeting all of their obligations under relevant legislation and regulations. Particularly financial services participants should ensure they are meeting their disclosure obligations and benchmarks and ensure they have adequate processes in place to combat market abuse to avoid unnecessary attention from ASIC.

Sophie Grace can assist both AFSL and ACL holders with maintaining compliance with their licensing obligations. Please contact us for any assistance.

Sarah Murray

Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah also works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.