Mackay Chapman October 2024 ASIC Update

In this month’s ASIC update:

• Vanguard's greenwashing penalty;
• ASIC extends Consultation Agreement with FMSB;
• Macquarie Bank fined for market gatekeeper failures;
• Relief extended for reportable situations and personal advice record keeping;
• Regulatory Guide 121 for foreign financial services providers reissued;
• ASIC gains new powers under financial market infrastructure reforms;
• ASIC seeks urgent court orders against director and investment companies; and
• Consumers warned about suspicious digital gold vault investments.

Vanguard's Greenwashing Penalty

The Federal Court has imposed a record penalty of $12.9 million on Vanguard Investments Australia for misleading claims regarding its environmental, social, and governance (ESG) exclusionary screens. This ruling represents the highest fine to date for greenwashing in Australia.

ASIC Deputy Chair Sarah Court emphasised the decision's significance, noting that greenwashing poses a serious risk to the integrity of the Australian financial system and remains a key enforcement focus for ASIC. Vanguard admitted to misleading investors about the ethical screening of its Ethically Conscious Global Aggregate Bond Index Fund, which did not consistently exclude issuers from certain industries, including fossil fuels, as claimed.

Justice O’Bryan described Vanguard’s actions as serious, highlighting that 74% of the fund's securities had not been adequately screened against relevant ESG criteria. The misleading information was disseminated through various channels, including product disclosure statements, media releases, and public presentations.

This penalty follows ASIC's earlier success in securing an $11.3 million civil penalty against Mercer Super for greenwashing conduct. The Vanguard fund in question managed over $1 billion as at February 2021.

For further guidance on avoiding greenwashing, ASIC's Information Sheet 271 offers insights for fund managers and trustees. Additionally, ASIC's Report 791 outlines recent interventions related to greenwashing.

For more information on ESG investing, you can visit ASIC’s Moneysmart website. If you are concerned about greenwashing contact us - we have defended greenwashing investigations by ASIC.

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ASIC Extends Consultation Agreement with FMSB

ASIC has announced a two-year extension of its Consultation Agreement with the Financial Markets Standards Board (FMSB), now set to continue until 25 September 2026. This Agreement, initially signed in September 2022, aims to enhance global standards for fair and effective wholesale financial markets while formalising ASIC's commitment to developing international industry benchmarks.

While these industry standards do not replace Australian legal obligations, they are intended to foster robust operational practices among market intermediaries. The extension will allow for ongoing collaboration between ASIC and FMSB in drafting standards and other publications and ensure ASIC receives regular updates on FMSB's strategic initiatives.

Importantly, the Agreement allows ASIC to observe certain open sessions of FMSB meetings; however, it does not imply endorsement of FMSB's publications.

More information can be found here.

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ASIC Fines Macquarie Bank for Market Gatekeeper Failures

Macquarie Bank Limited has been fined a record $4.995 million by the Markets Disciplinary Panel (MDP) following an ASIC investigation into its failure to prevent suspicious orders in the electricity futures market. This penalty marks the highest ever imposed by the MDP.

Between January and September 2022, Macquarie allowed three clients to place 50 suspicious orders that were indicative of attempts to "mark the close." These orders were made within the final minute of trading, potentially influencing the daily settlement price to benefit the clients' existing positions. The MDP found that Macquarie should have recognised these orders as attempts to create a false impression in the market.

ASIC Chair Joe Longo stated that the significant penalty reflects Macquarie's serious, ongoing failures to detect and prevent market manipulation, especially given its role as a key player in energy derivatives. Despite being alerted by ASIC on six occasions about suspicious trading, Macquarie failed to take appropriate action, allowing further suspicious orders to occur.

The MDP highlighted that Macquarie's lack of responsiveness, particularly during a period of extreme volatility in global energy markets exacerbated by geopolitical tensions, was a key factor in determining the penalty's severity. Macquarie's oversight in managing its obligations as a market participant raised concerns about its internal culture and reporting practices.

Macquarie has complied with the penalty but did not contest the findings, which does not imply an admission of guilt. The infringement notice is available on the MDP Outcomes Register for more information.

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ASIC Extends Relief for Reportable Situations and Personal Advice Record Keeping

ASIC has introduced two new legislative instruments: the ASIC Corporations and Credit (Breach Reporting – Reportable Situations) Instrument 2024/620 and the ASIC Corporations Record-Keeping Requirements for Australian Financial Services Licensees when Giving Personal Advice) Instrument 2024/508. These instruments extend the provisions of the existing regulations due to expire in October 2024.

Following an evaluation, ASIC determined that the previous instruments were functioning effectively and remained essential to the legislative framework. On 7 August 2024, ASIC announced its intention to extend these provisions and invited public feedback until 4 September 2024. The response included six submissions, which predominantly supported the extension.

The feedback highlighted two key areas of concern:

• Wider Relief: Four submissions requested broader relief from the reportable situations regime. ASIC will consider this feedback and may seek further input on any proposals for wider relief.

• Migration to Primary Law: Two submissions advocated for transferring the relief and requirements into primary law, a suggestion that ASIC has forwarded to the Commonwealth Treasury.

Read more at the ASIC news centre.

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ASIC Reissues Regulatory Guide 121 for Foreign Financial Services Providers

ASIC has reissued Regulatory Guide 121 (RG 121), providing updated guidance for individuals and companies outside Australia wishing to conduct financial services business within the country. This new version replaces the guidance issued in June 2013.

Key updates in RG 121 include:

• Removal of Outdated References: The guide has eliminated references to expired or repealed Australian Financial Services (AFS) licensing relief, including class relief granted to foreign financial services providers (FFSPs) and foreign collective investment schemes.

• Clarification of AFS Licensing Exemptions: Descriptions of current AFS licensing exemptions and relief have been amended for clarity.

• Updated Legal Interpretations: The guide now reflects the Courts’ interpretation of "carrying on a business in Australia," detailing indicators and factors relevant to this definition and circumstances where a one-off transaction could qualify as carrying on a business.

• Current Regulatory Framework: Updates have been made to references regarding financial products, services, AFS licensee obligations, and applicable legislation, ensuring alignment with the current legal landscape.

RG 121 is a comprehensive resource for understanding when a foreign entity must hold an AFS licence, the circumstances under which exemptions may apply, and the obligations associated with being an AFS licensee in Australia.

For further details, the updated guide is available for download.

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ASIC Gains New Powers Under Financial Market Infrastructure Reforms

ASIC has welcomed the enactment of new Australian financial market infrastructure (FMI) laws, which provide enhanced powers crucial for maintaining Australia's stable and efficient financial system. These reforms come under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024.

FMIs are essential entities that facilitate trading in Australia's capital markets, including financial market operators, benchmark administrators, clearing and settlement facilities, and derivative trade repositories. The new legislation strengthens the regulatory framework, empowering ASIC and the Reserve Bank of Australia (RBA) to better monitor, manage, and respond to risks associated with FMIs.

In light of these new powers, ASIC is reviewing its regulatory approach to FMIs and will collaborate with the RBA and industry stakeholders to develop guidance for effective compliance. The regulatory regime will be planned and implemented over the coming years, with updated resources to be made available on ASIC's website.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 was introduced to Parliament on 27 March 2024 and passed on 9 September 2024, receiving Royal Assent on 17 September 2024. 

The relevant documents are available for download.

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ASIC Seeks Urgent Court Orders Against Director and Investment Companies

ASIC has initiated urgent civil proceedings against director David McWilliams and several associated companies involved in offering investment opportunities related to purpose-built, NDIS-compatible property developments across Australia.

On 11 September 2024, the Federal Court granted orders to preserve the assets of ALAMMC Developments Pty Ltd, SDAMF Pty Ltd, Harvey Madison Capital Pty Ltd, Coral Coast Mutual Pty Ltd, and other related entities. Additional orders were issued to safeguard the assets of Mr McWilliams and his partner, Laura Fullarton, and to prevent Mr McWilliams from leaving Australia.

ASIC's investigation focuses on the financial services provided by Mr McWilliams and his companies, particularly the use of investor funds since 1 January 2021. This investigation was prompted by information regarding Mr McWilliams' gambling activities.

On 16 September 2024, the Federal Court extended the asset preservation and travel restraint orders from 11 September, with the next hearing scheduled for 27 September 2024.

Investors in the mentioned companies with concerns are encouraged to reach out to ASIC at ALAMMC.Enquiries@asic.gov.au.

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Consumers Warned About Suspicious Digital Gold Vault Investments

ASIC has issued a warning regarding unlicensed entities promoting questionable investment opportunities in digital gold vaults. These entities attract consumers by claiming to offer passive income and benefits, often incentivising investment through referral bonuses to bring in new investors.

These operations typically target trusted networks, such as family and friends, and use social media platforms like Instagram and Facebook to disseminate information about the investments. 

Consumers are led to believe they can secure a digital gold vault for a specified storage capacity and duration, allowing others to store virtual gold, which supposedly generates passive returns for the initial investor.

ASIC encourages consumers to be cautious and report any suspicious investment opportunities involving unlicensed entities.

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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.