ASIC Enforcement wrap: November 2022 | Stop Orders Targeting Non-Compliant Target Market Determinations Ramping Up

ASIC Enforcement outcomes in November 2022 saw increased frequency in the use of stop orders targeting alleged deficiencies in complying with the (relatively) new Design and Distribution Obligations. Six such interim stop orders were issued in November 2022, compared to 11 in total during the first year of the regime until and including October 2022. This ‘ramping up’ of product intervention in respect of the DDO regime was not unexpected – it was flagged in ASIC’s Enforcement Priorities for 2023.  It is a clear indication that the Enforcement Priorities will be areas of enforcement action.

November in summary – enforcement actions and outcomes

Administrative action:

• Financial Services Bannings – Four people were banned from providing financial services for period of 3 years to 10 years for reasons including carrying on a financial services business without holding an AFS license, withdrawing money from a deceased estate without authority, ignoring duty to ensure that a licensee complied with financial services laws, and generally not being a fit and proper to provide financial services.
• AFS License Cancellation/Suspension – One licence was cancelled on the basis that the firm did not carry out any financial services business since 2017. Another license was suspended because it was placed into voluntary administration (associated with the collapse of FTX).
• Director Disqualifications – Four people were disqualified involving 11 failed companies, owing a total of over $20 million. Disqualification periods ranged from 2 years to 4 years.
• Interim Stop Order – Six interim stop orders were issued by ASIC, all related to non-compliance with the Design and Distribution Obligations. Reasons cited involve the failure to make the Target Market Determination publicly available, distribution conditions being unlikely to result in product being distributed to the target market, and failure to include any distribution conditions. 
• Actions against SMSF Auditors - Three disqualified, one having additional conditions imposed, and two had their registration cancelled. ASIC action resulted from breaches of obligations including auditing and assurance standards, independence requirements, and registration conditions, or because ASIC was satisfied the individual was not a fit and proper person to remain registered, failing to provide a current PI insurance policy, and failing to lodge annual statements

Criminal:

• Guilty Pleas – made by two defendants to seven charges, involving offenses such as engaging in dishonest conduct in relation to a financial product, carrying on an unlicensed financial services business, and insider trading.
• Sentences imposed – on one defendant for using his position as director dishonestly to obtain advantage for himself. Sentenced to 1 year and 3 months imprisonment, to be served by way of an Intensive Correction Order

Civil Action:

• Judgments Obtained – The Federal Court found that National Australia Bank Ltd (NAB) engaged in unconscionable conduct by continuing to charge customers periodic payment fees even though NAB knew the overcharging was occurring. The matter is now listing for a hearing for further relief, where it will determine a penalty.
• Travel Restraint Order – ASIC’s investigation into a former director of a financial services firm which went into liquidation is ongoing, with the former director consenting to a Court order to be restrained from leaving Australia and to deliver his passports to the Court.
• Crypto-related Proceedings Commenced – ASIC sued Block Earner for providing unlicensed financial services in relation to crypto-asset based products. More coverage on this topic can be found here (Link).
• Proceedings Dismissed – ASIC brought proceedings against Commonwealth Bank of Australia (CBA) for misleading or deceptive conduct and making false or misleading representations,  alleging that CBA incorrectly charged monthly access fees to customers who were actually entitled to fee waivers because they met certain criteria under their contracts with the bank. The proceeding was dismissed on the basis that CBA only represented in bank statements that a fee was charged and that the customer should double check whether the entry was correct and notify CBA of any error – not that CBA would have adequate systems and processes in place to ensure that clients had the applicable fee waiver.

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Others Actions

• Court Enforceable Undertaking – A financial advisory firm failed to provide a statement of advice to its clients on at least 50 occasions. The firm gave an enforceable undertaking t to cease operating its financial services business and commence the process to cancel its AFSL, as an alternative to ASIC taking administrative action.
• Surveillance – ASIC achieved the following results from its surveillance efforts:

• ASIC was concerned over the ways that managed funds are marketed to investors, with issues such as that projected fund performance must be reasonable, and promotion of fund needs to have balanced risk disclosure. In response to ASIC surveillance, the managed funds amended their marketing materials and compliance plans related to supervision of fund marketing. 
• ASIC was concerned that material business risks were not sufficiently disclosed by listed entities in their annual reports. In response to ASIC surveillance, five listed entities have made such disclosures accordingly.

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.

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