ASIC Enforcement Review – Part 3

Increasing ASIC licensing powers

ASIC has previously raised concerns regarding its powers to regulate AFS and credit licensees, including concern over inconsistencies between the AFS and credit licensing regimes.

As such, it’s proposed to broaden ASIC’s licensing powers, including ASIC being able to refuse a licence application if it is not satisfied the applicant/licensee’s controllers are fit and proper. Note the ability to take licensing action against existing licensees, which is clearly intended to catch those attempting to circumvent the licensing process by acquiring an existing licence.

The concept of “control” is one of practical and actual influence – in practice, this may extend beyond a licensee’s holding company, and include the influence individuals may exert over the licensee and its business.

This means information provided to ASIC would include similar information currently provided for responsible managers nominated for the license, such as police check, bankruptcy check, references, statement of personal information declaration.

Fortunately, pre-approval is not proposed for a change of control. Rather, the information is to be provided with ASIC notification.

It’s also proposed to introduce a statutory obligation to notify change of control within 10 business days of control passing. ASIC would be allowed to impose penalties for failure to notify. Currently, a licensee is required to provide notice within 10 days of becoming aware of the change of control but no penalties apply. The nature and quantum of the penalty is not specified.

Align the assessment requirements for AFS licence applications with the enhanced credit licence requirements. The Taskforce proposes amendments to the Corporations Act to align AFSL and ACL regimes, including:

• Assessments to apply to “directors, secretaries and senior managers” rather than “responsible officers” and “controllers” (if Position 1 is adopted)
• “Fit and proper” test applied rather than “good fame and character”
• The ability for ASIC to require an audit report
• A deemed withdrawal mechanism where a licensee fails to provide additional information requested by ASIC.

ASIC empowered to cancel or suspend a licence if the licensee fails to commence business within six months. This recommendation aims to cut down the practice of “warehousing” AFSLs.

Currently, ASIC only has power to suspend or cancel an AFSL (it does have the power for an ACL) when a licensee ceases to carry on a financial services business but not if it hasn’t commenced.

The six-month time-frame is controversial. It can be argued six months is not enough time for a business to be established. While licensees may apply to ASIC for an extension under the proposal, we think a 12-month minimum is more practical and hope it may be considered.

Increased penalties for false or misleading statements may be on the way, as it is proposed to align consequences for making false or misleading statements in documents provided to ASIC in the AFS and credit contexts. Currently making a false or misleading statement in an AFSL application is a strict liability offence of five penalty units for an individual and 25 for a company. The proposal to introduce civil and criminal penalty provisions in line with the credit regime will likely and dramatically increase penalties: for example, a civil penalty of up to 2,000 penalty units.

It’s also proposed that making a materially false or misleading statement in a licence application should be a specific basis for refusing to grant the licence. The presumption is that a licensee engaging in this kind of conduct cannot satisfy a reasonable belief they will comply with their license obligations.

But this is potentially troublesome in circumstances where an inadvertent mistake has been made.

Finally, to ensure ASIC is working with up-to-date material, there is a plan to introduce an express obligation requiring applicants to confirm no material changes to information given in the application before the licence is granted. This is intended to ensure that ASIC’s decision to grant a license or variation is based on the latest material information.

The fourth and final part of this series considers proposed changed around industry codes, and potential for ASIC to be more active in telecommunications surveillance.