Mackay Chapman May 2024 ASIC Update
In this month’s ASIC update:
- Head of audit at William Buck Victoria pays $20,625 penalty for audit rotation issues;
- ASIC extends and amends parent entity financial statement and auditor independence instruments;
- ASIC brings first action against a director for failing to have a director identification number;
- ASIC reaffirms ongoing registration obligation for financial advisers;
- ASIC consults on misconduct reporting guidance for external administrators and controllers; and
- ASIC action results in $1.25 million Court imposed penalty against AFSL 'licensee for hire' firm.
Head of audit at William Buck Victoria pays $20,625 penalty for audit rotation issues
Nicholas Benbow, director of William Buck Audit (Vic) Pty Ltd, has paid $20,625 in response to three infringement notices from ASIC, marking the first time such notices have been issued under the Corporations Act for alleged audit rotation breaches.
The notices stem from concerns that Benbow failed to conduct three listed company reviews according to auditing standards, particularly regarding independence. ASIC asserts Benbow served as lead auditor for these companies' half-year reviews in March 2023, despite having fulfilled this role for five consecutive years, violating audit rotation rules.
ASIC Commissioner Kate O’Rourke emphasised the importance of auditor integrity, echoing Deputy Chair Sarah Court's 2023 announcement of a heightened enforcement focus on this issue for 2024.
Payment of the infringement notices is not an admission that a contravention of the law has occurred, and it should be noted that Benbow reported the alleged breaches to ASIC as required by section 311 of the Corporations Act and Regulatory Guide 187 Auditor Rotation. This guide mandates that auditors self-report their own violations, including breaches of the five-year audit rotation rule for listed companies.
ASIC extends and amends parent entity financial statement and auditor independence instruments
ASIC has prolonged the validity of legislative instruments concerning parent entity financial reporting and auditor independence.
Originally set to expire on 1 April 2024 and 30 April 2024 respectively, ASIC has issued Amendment Instrument 2024/187 to extend the relief for an additional five years.
Additionally, ASIC has revised the instruments to grant registrable superannuation entities the same relief as other statutory audit clients, aligning their treatment.
During a consultation announced on 17 November 2023, ASIC sought feedback on extending the relief. Four submissions were received, with two supporting further amendments to align the treatment of registrable superannuation entity audit clients with other statutory audit clients.
Read more here.
ASIC brings first action against a director for failing to have a director identification number
ASIC has initiated the first prosecution against a director for failing to obtain a director identification number (director ID).
On March 19, 2024, the director appeared in the Downing Centre Local Court and was formally charged with contravening section 1272C(1) of the Corporations Act 2001 by lacking a director ID. An interim non-publication order (NPO) was granted, shielding the defendant's identity. The case is scheduled for further mention on April 16, 2024.
The interim NPO, initially granted on March 22, 2024, was extended to April 16, 2024.
All directors must verify their identity with Australian Business Registry Services to obtain a director ID.
For more information, click here.
ASIC reaffirms ongoing registration obligation for financial advisers
Since the registration requirement began on 16 February 2024, most financial advisers have registered with ASIC, allowing them to legally offer personal advice on relevant financial products to retail clients.
Both AFS licensees and relevant providers must understand ongoing registration obligations to ensure compliance and prevent unregistered status. AFS licensees should register relevant providers under various circumstances, such as when appointing new advisers or when an adviser changes roles.
Information Sheet 276 FAQs: Registration for relevant providers (INFO 276) provides detail on registration requirements and cessation.
As of 16 February 2024, unregistered relevant providers offering personal advice to retail clients on relevant financial products, along with their AFS licensee(s), will breach the law and may face regulatory action.
For more information, refer to the ASIC news centre.
ASIC consults on misconduct reporting guidance for external administrators and controllers
ASIC has released a consultation paper proposing updates to its guidance for external administrators and controllers reporting misconduct. The proposed revisions aim to clarify reporting obligations and streamline ASIC's approach to assessing reports.
The move follows feedback from industry bodies and a parliamentary committee recommendation. ASIC seeks feedback by 6 June 2024.
The updates respond to changes in case law, legislative reforms, and feedback from the Parliamentary Joint Committee's inquiry into corporate insolvency.
You can download Consultation Paper 377 here.
ASIC action results in $1.25 million court penalty for AFSL 'licensee for hire' firm
Lanterne Fund Services Pty Ltd (Lanterne) has been fined $1.25 million by the Federal Court for breaching six key obligations of Australian financial services (AFS) licence holders in a case brought by ASIC. These breaches occurred between March 2019 and October 2021 and include failures in risk management, resource adequacy, representative training, and compliance with financial laws.
Lanterne, operating under a 'licensee for hire' model, had over 60 corporate authorised representatives (CARs) and 205 authorised representatives (ARs), managing funds totalling up to $1.685 billion. Despite charging substantial fees, Lanterne lacked basic risk management systems and had inadequate staffing, relying solely on its CEO and maintaining a paper filing system until 2020.
The Court deemed these breaches serious and systemic, emphasising Lanterne's failure to meet the standard expected of an AFSL holder.
Additionally to the penalty, an independent expert will review Lanterne's systems, processes, and controls, with required implementation of recommended improvements.
The judgement can be downloaded here.
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.
