On 6 September 2017, Treasury released a consultation paper reflecting the position of the ASIC Enforcement Review Taskforce which proposes the possible expansion of ASIC’s powers under the Corporations Act to allow it to ban senior managers in the financial sector from performing their functions.
The proposed extension of ASIC’s power will apply to senior managers of financial services and credit businesses who breach legal obligations applying to the financial services business or licensee where they have been shown to be unfit to fulfil their role.
History of ban limitations
Potential shortcomings in ASIC’s banning powers have been previously identified in the Financial System Inquiry (FSI) and the earlier Senate report on the Performance of the Australian Securities Investments Commission (Senate Report).
The FSI identified the key problem as:
“Currently, ASIC can prevent a person from providing financial services, but cannot prevent them from managing a financial firm. Nor can ASIC remove individuals involved in managing a firm that may have a culture of non-compliance.”
The Senate Report identified the key problem as:
“ASIC informed the committee that while it has powers to cancel an AFS license [sic] or credit licence, or to ban a person from providing financial services or credit services, a missing element was a power to prevent a person from having a role in managing a financial services business or credit business.
The Taskforce has identified the following matters for further regulatory consideration:
- the scope of ASIC banning orders – which is currently limited to banning a person from ‘providing’ financial services and thus may not be able to prevent banned individuals from ‘managing’ a financial services business, as opposed to ‘providing’ financial services; and
- existing provisions relating to a banning order may not be ‘enlivened’ on the basis of offending behaviour of a director or senior manager of a financial services business, who has been shown to be unfit to fulfil their role (for example for serious systemic compliance failures over a period of time, or by engaging in ‘phoenixing’ activity – winding up companies leaving unpaid debts before emerging again as an officer of a new entity).
Proposed regulatory amendments
In response, the Taskforce proposes potential regulatory amendments which:
- broaden the circumstances in which ASIC may make a banning order against an individual to expressly cover directors, officers and senior managers of financial services companies;
- are harmonised with the banning provisions in the Credit Act;
- empowers ASIC to issue a ban where it considers that a person is not a ‘fit and proper’ person to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business;
- provides grounds under section 920A of the Corporations Act to include circumstances for ASIC to ban a director, officer or senior manager of a financial services or credit licensee:
- where a person has breached their obligations in sections 181-183 of the Corporations Act (duties of good faith, proper purpose and proper use of position and information)
- where a person is the subject of a report by the Australian Financial Complaints Authority (which replaces the existing external dispute resolution regimes from 1 July 2018) regarding a failure to comply with a determination of the AFCA
- where a corporation is wound up and a liquidator lodged a report under subsection 533(1) of the Corporations Act about the corporation’s inability to pay its debts.
Submission to the Taskforce on the positions outlined Consultation Paper were required by 4 October 2017.
If you have any questions relating to issues raised in this article, please contact Michael Bracken, Principal.