ASIC’s enforcement priorities for 2024 – licensees beware
ASIC is continuing its ambitious objective of taking more extensive enforcement action in 2024, with Deputy Chair Sarah Court describing a ‘proactive, strategic and bold approach to enforcement’ at the recent ASIC Annual Forum. This announcement from the corporate watchdog serves as advance notice to financial services and credit licensees to review their systems and policies.
ASIC recently announced its key focus areas for the year ahead.
Financial services and credit licensees should now turn their minds to the key priorities:
- poor distribution of financial products;
- member services failures in the superannuation sector;
- compliance with the reportable situation regime; and
- enforcement action targeting gatekeepers facilitating misconduct.
View the full list of ASIC’s 2024 enforcement priorities.
We can help review your policies, systems, and procedures to help ensure compliance and avoid ASIC enforcement.
Key priority 1: poor distribution of financial products
This enforcement priority has remained from 2023 and means ASIC will continue to monitor licensees’ compliance with their design and distribution obligations (DDO). In 2024, ASIC will focus on distribution, which refers to a licensee’s interaction and provision of its product to the end consumer.
Since 2021, ASIC has commenced four civil penalty proceedings in the Federal Court, showing an intent to prosecute licensees who are not compliant with their DDO. It has also issued a significant number of interim and temporary stop orders compelling changes to a product’s DDO.
Licensees should therefore take particular care to ensure they distribute their financial product in a manner consistent with the target market determination (TMD) for that product. Retail product distribution requires the TMD to be publicly available, appropriate, the distribution process must be aligned with the TMD, and any significant dealings that are inconsistent with the TMD must be notified to ASIC.
Key priority 2: member services failures in the superannuation sector
In 2023, ASIC’s enforcement priorities included misconduct in the superannuation sector, including misleading conduct and poor governance. In 2024, the new priority is member services failures.
This indicates ASIC is now less concerned about poor governance within superannuation trustees (apart from misconduct resulting in the systematic erosion of superannuation balances, which is a 2024 priority). Instead, ASIC has switched its focus to the interaction between superannuation members and customer service.
Superannuation funds should ensure their staff are given adequate training and sufficient resources are provided to the front-end member services teams for member queries and complaints to be dealt with swiftly and appropriately.
Key priority 3: compliance with the reportable situation regime
Reportable situations (previously referred to as ‘breach reporting’) refer to instances where licensees are required to submit notifications to ASIC due to:
- a breach, or likely breach, of a licensee’s ‘core obligations’ that are significant or deemed to be significant;
- certain investigations into breaches or likely breaches of obligations;
- additional reportable situations (such as gross negligence or fraud); and
- reportable situations about other licensees.
(Licensees should also be aware of modifications to the reportable situations regime made by ASIC Instrument 2023/589, with effect from 20 October 2023.)
Given the breadth of circumstances that may trigger the need to lodge a report, and the potential implications of the underlying conduct, licensees must ensure they have robust internal mechanisms for the rapid identification and reporting of reportable situations. ASIC is likely to increase its activity in this area, not only to ensure licensees are appropriately reporting, but to also identify conduct that might be contrary to their obligations and licence conditions. ASIC has already flagged its desire to name licensees in its public reports on the regime and is expected to be equally transparent about any enforcement action it takes.
Key priority 4: enforcement action targeting gatekeepers
Sarah Court explained the concept of ‘gatekeepers’ as referring to auditors, registered liquidators, licensees, and other persons or entities in a position to advise on or authorise the provision of financial or credit services.
This new enforcement priority indicates ASIC is not simply targeting providers involved in the day-to-day provision of products and services, but also those who establish the critical infrastructure to provide that product or service. The motivation behind this, Court says, is gatekeepers are in a unique position to identify and limit conduct, and if gatekeepers fail to meet the standards required of them, it can have similarly serious consequences for consumers.
How ASIC pursues this in practice will evolve throughout the year. However, we expect ASIC will target gatekeeper’s front-end governance and establishment processes, in addition to ongoing product or provider specific supervision, monitoring, and compliance.
In addition to its enforcement priorities, ASIC has once again named various ‘enduring priorities’. ASIC’s enduring priorities are:
- misconduct damaging market integrity, such as insider trading and market manipulation;
- misconduct impacting First Nations people;
- misconduct involving a high risk of significant consumer harm;
- systemic compliance failures by large financial institutions;
- new or emerging conduct risks within the financial system; and
- governance and directors’ duties failures (new in 2024).
The new enduring priority involving governance and directors’ duties failures highlights ASIC is interested in continuing the current trend of prosecuting individuals in positions of influence who do not adhere to their duties. This follows from recent action taken in relation to gross individual misconduct, such as the cases of Kurt Schlosser (Tesla Australia) and Gabriel Govinda (social media finance influencer), who were imprisoned for insider trading and market manipulation respectively.
We can help
If you or your business would like assistance with reviewing policies and systems so that you avoid ASIC enforcement and regulation, reach out to Selina Nutley, Anne MacNamara, or a member of our friendly and experienced Financial Services team.
You might be also interested in...
Investment Funds | 30 Nov 2023
Welcome to our first edition of Fundamental, a new publication from the HW Funds team.
Financial Services | 13 Nov 2023
In this edition, we outline ASIC’s changes to the reportable situation regime, ASIC’s commentary on under-reporting of reportable situations, the Government’s proposed sustainable finance strategy, and much more.