A person who carries on a financial services business in Australia must hold an Australian financial services (AFS) licence, subject to certain exemptions, including where the person provides a financial service as a representative of an AFS licensee. Similarly, a person must not engage in a credit activity unless the person holds an Australian credit licence, or engages in the activity as a credit representative or as an employee or director of a credit licensee or related body corporate.
When it grants a licence, ASIC can require that a licensee put in place internal systems or restricts its activities in appropriate ways. However after a licence is granted, imposing such requirements or restrictions is slow and difficult.
The Taskforce has reviewed ASIC's existing powers to modify an AFS or credit licensee's ongoing systems and conduct after the relevant licence has been granted. These powers include to:
- vary, suspend or cancel the licence if ASIC can establish the licensee has breached the law, and the breach justifies this action;
- apply to the court for an injunction; or
- negotiate an enforceable undertaking with the licensee .
ASIC's existing powers to require licensees' to adopt internal systems or to restrict their activities have three shortcomings. First the resources and procedural requirements necessary to impose additional conditions, or to suspend or cancel a licence can result in delay between concerns arising and ASIC achieving a protective outcome. This can leave financial consumers at risk in the interim period as surveillance and hearings take place.
Secondly, applying to a court for an injunction involves significant time, resources and costs in investigating and preparing a case to the required standard to commence court proceedings. In urgent matters, involving a licensee, there is utility in providing ASIC with an efficient and quick mechanism to require a licensee put in place or modify internal systems or restrict its activities in appropriate ways to address risks to consumers.
Thirdly, enforceable undertakings must be agreed to by a licensee and are generally negotiated as an alternative to ASIC exercising its administrative powers or initiating court proceedings. This requires acknowledgment by the licensee of ASIC's concerns. The outcome also depends on the strength of the evidence available to support ASIC's concerns and the nature of the alternative remedies that could be pursued by ASIC.
Particular difficulties arise where a licensee has taken some steps to rectify identified compliance concerns but ASIC remains concerned that those steps are not sufficient to ensure that there will not be further breaches by the licensee of its obligations or additional measures are required to ensure that the impact on clients or former clients is identified and, where necessary, remediated. For example a licensee may make appropriate amendments to its systems and processes to address how a breach occurred but has not established an appropriate remediation program to assess whether compensation is payable to consumers affected by the breach.
The Taskforce considers that, to the extent practicable, ASIC should be able to require compliance with AFS or credit licence obligations in real time, and that the regulator should be given powers to direct licensees to take or refrain from taking actions where appropriate for this purpose.
Please note the closing date for submissions will be 20 November 2017 and any submissions received after this date may not be accepted.