ASIC won't wait for new laws

ASIC says waiting on new laws won’t delay its plan to pursue matters raised in the Hayne royal commission with ‘a sense of urgency’.

ASIC chair James Shipton at Parliament House in Canberra. Picture: Kym Smith

The corporate watchdog will not wait for a raft of legislation to clean up the financial system, warning it will use its already-granted new powers with a “sense of urgency” to focus on early intervention to overhaul financial companies and reduce the reliance on litigation.

These include probes into debt collectors, mortgage brokers who shunt borrowers into dodgy loans, travel insurance companies and frontline sales staff marketing questionable products under the guise of tailored personal advice.

Following a 20 per cent increase in the number of enforcement investigations over the last year, the Australian Securities & Investments Commission will move on from mopping up the mess exposed by Kenneth Hayne’s royal commission to readying the financial sector for a system in which the regulator will intervene quickly in products and sales methods which disregard the wellbeing of the consumer.

In its second update on the implementation of the royal commission recommendations, ASIC said the Commonwealth Director of Public Prosecutions is currently weighing up two potential criminal cases referred to it by ASIC following the royal commission. However, all 13 cases referred by Mr Hayne are under investigation, along with a further 29 probes relating to separate case studies.

After ASIC was bruised during the year-long banking inquiry for failing to take companies to court, the regulator’s newly established enforcement office has 88 potential cases under examination and 17 court actions underway. Of these, 86 related to the big four banks — Commonwealth bank, Westpac, ANZ, National Australia Bank — and wealth giant AMP. Almost 60 individual bankers and wealth managers are under investigation for potential action.

Due to the growing pile of litigation, and thanks to the regulator being awarded with a number of new powers to help it intervene in cases with the potential of significant consumer detriment, ASIC is now poised to launch a raft of projects to ensure companies are taking on more responsibility for their actions.

ASIC chairman James Shipton, who along with other senior commissioners will be grilled by the Parliamentary Joint Committee on Friday, warned “the new regulatory powers provided to ASIC are enabling early intervention on what we believe are matters of potential significant harm to consumers”.

“In some cases we have initiated steps to provide consumers with interim protection ahead of legislative reforms, such as our proposed ban on unsolicited direct sales of life insurance and consumer credit insurance,” he said.

Mr Shipton said ASIC’s renewed enforcement mandate and its lengthy priority list over the coming year should underscore the “sense of urgency and significance” members of the watchdog were taking to “deliver a fair, safe and efficient financial system for all Australians”.

The shift to early intervention comes as major financial institutions continue to push back against the reinvigorated regulator, including recently at its proposals to clear up confusion over responsible lending laws, in which Westpac argued the plan would restrict credit and hurt the economy.

It also comes as Josh Frydenberg dragged forward the implementation timetable for legislation the Morrison government’s reform commitments and recommendations made by Kenneth Hayne to the end of 2020. However, there is still a great deal of uncertainty as to how the laws will navigate through parliament as each piece of legislation requires the government to deal with crossbench senators of the opposition in the upper house. This means ASIC won’t be able to rely on the laws to pass as they are currently proposed.

In a recent closed-door speech by ASIC deputy chair Karen Chester to the regulator’s Brisbane team, the former Productivity Commission deputy warned the watchdog was “the last line of defence” and that ASIC couldn’t “single-handedly deliver ethical behaviour across corporate Australia”.

“The first line of defence being public policy. The second line the consumer themselves. The third the conduct of firms and their directors. The regulator is an agent provocateur for change. While we are acutely aware that it is the regulator that has ultimately been left on the field … the ultimate responsibility for change rests with corporate Australia,” Ms Chester said.

As part of its attempt to force companies to act more fairly with customers, ASIC will review of how banks and credit companies deal with consumers in financial difficulty, with a particular focus on debt collection practices. Mortgage brokers are also not out of the woods yet, despite the industry’s win against a Royal Commission recommendation to ban lucrative trailing commissions, with ASIC set to investigate whether brokers are selling loans that meet the needs and wants of consumers, or whether consumers are saddled with expensive loans that are too large.

ASIC will also publish the regulator’s position on how companies should consider “fairness” in dealing with customers, as part of the “efficient, honest and fair” test for directors’ duties as it prepares to roll out its long-awaited “design and distribution” powers which will allow the watchdog to intervene where businesses have problematic products and sales methods.

It will also be naming and shaming more companies in its reports, where appropriate, in order to stoke competitive tension and push customers towards good firms.

Travel insurance companies will also face a review, while the heavily criticised “general advice” model will be the subject of a new report aimed at better protecting consumers from marketing masquerading as tailored advice. Frontline sales staff selling products under a general advice model will also face tougher standards following a review of the regulatory guide for financial product advisers.