ASIC Enforcement Wrap: March 2023 | Whistleblower Protections in the Spotlight

March 2023 has combined unique ASIC enforcement outcomes with ‘business as usual’ actions.

• Very much in the former category, ASIC commenced its first civil penalty action for breach of whistleblower protection laws (which were expanded on 1 July 2019);

• A$10M penalty against ANZ in relation to its Hole Loan Introducer Program;

• Continued action in ‘marginal’ consumer credit with actions against Green County and Max Funding for alleged unlicensed credit activity and other consumer credit laws –consistent with ASIC’s Enforcement Priority around consumer credit and potential predatory lending;

• A liquidator’s registration was cancelled by CALDB on the basis he no longer had the qualifications, experience, knowledge and abilities of a liquidator after action by ASIC; and

• At least 10 ASX-listed entities made changes to their disclosures due to ASIC actively monitoring their half-year and annual reports.

March in summary – enforcement actions and outcomes

Civil Action:

Civil Penalties Handed Down–

• The Federal Court handed down a $10 million penalty against ANZ in relation to its Home Loan Introducer Program. Under the Program, unlicensed introducers not only referred customers, but also submitted pay slips and copies of identification documents to ANZ on behalf of the customers, which is a credit activity. ANZ contravened the Credit Act for conducting business with another person who has engaged in a credit activity without a license.

Civil Penalty Proceedings Commenced–

• ASIC commenced proceedings against TerraCom Limited, an ASX Listed company, and some of its officers, on allegations that they may have harmed a whistleblower. This case concerned a former employee of TerraCom who previously made whistleblower allegations that TerraCom falsified coal quality results. This is the first time that ASIC has taken action for alleged breaches of whistleblower provisions.
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• ASIC commenced proceedings against Green County and Max Funding on allegations that they provided personal loans without a credit or intermediary license. and also of other breaches of consumer credit laws, such as failing to make reasonable inquiries about purpose of loans, and exceeding the 48% annual cost rate cap.

Criminal:

• Charges Laid - Charges laid against 5 defendants involving offenses such as dishonest breach of directors’ and officers’ duties, dishonestly obtaining a financial advantage by deception, dishonest conduct in relation to a financial product or service and knowingly providing or permitting the provision of misleading information to the operator of a financial market.

• Guilty Pleas – Guilty please were obtained against two defendants on 5 charges, involving offenses such as insider trading and dishonest conduct while carrying on a financial services business.

• Sentencing– Sentences were handed down against three defendants on 22 charges, involving offenses such as failure to lodge annual financial reports with ASIC, failure to hold an AGM and obtaining property of financial advantage by deception.

Administrative action:

• Interim Stop Order – Continuing the recurring theme of ASIC focusing on enforcement of the Design and Distribution Obligations (another Enforcement Priority) over the past year, four interim stop orders were issued by ASIC all related to non-compliance with the DDO. ASIC’s concerns on the relevant Target Market Determinations include targeting an inappropriate market, not describing the target market in objective tangible parameters, inadequate distribution conditions, and failure to specify review triggers of the TMD.

• Director Disqualifications – Two directors were disqualified over the failure of five companies, which owed a combined debt of over $8m to creditors, of which over $4m were owed to the Australian Tax Office.

• Financial Services Bannings – Five individuals were banned from providing financial services, some of the reasons conviction for a serious fraud, engaging in dishonest conduct in relation to a financial product, failure to meet the best interests duty, falsifying financial adviser exam results, and prioritising their own interests (or that of the AFS licensee) over the interests of the client.

• License Cancellation/Suspension –Five companies had their AFS License cancelled or suspended. Reasons included failure to maintain the required organisational competence to provide financial services, failure to meet financial reporting obligations, failure to take reasonable steps to ensure its representatives comply with financial services laws, and ceasing to carry on a financial services business. Notably, one company had their AFS License suspension lifted for remedying the issues for which its licence was initially suspended.

• Liquidator Registration Cancellation– the CALDB cancelled the registration of a liquidator because he no longer had the qualifications, experience, knowledge and abilities of a liquidator as prescribed under the Corporations Act.

Surveillance

• Listed Entity Disclosure – ASIC continues its ongoing financial reporting surveillance program, reporting significant results. Six entities made additional disclosures of material business risk in their 31 December 2022 interim financial reports response to the surveillance program and subsequent ASIC inquiries. A further four entities made various amendments to their financial reports, such as removing a non-IFRS financial measure, increasing estimates of contingent liability, writing down good will, and writing down intellectual property assets.

If any of the above is relevant to you or you want to know more, please feel free to get in touch.

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‍The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.