ASIC in action: regulation and escalated uncertainty

“Parliament has afforded ASIC the regulatory tools we need to continue taking a targeted, outcomes based and less prescriptive approach to regulation.”

— Karen Chester, (then) Acting ASIC Chair, "Getting on with it", AFR Banking & Wealth Summit, 18 November 2020

THE “NEW NORMAL OF ESCALATED UNCERTAINTY”

“Pleased to meet you

Hope you guessed my name, oh yeah

But what’s puzzling you

Is the nature of my game”

— Mick Jagger/Keith Richards "Sympathy for the Devil"

Too often, when we contemplate the pace and scope of change, we fail to recognise that ASIC is subject to many of the same pressures.

In fact, when you consider the practical limitations on their activities, the public and political scrutiny of their performance and the obvious disconnect between our expectations and their resources, you might consider that their position is not too dissimilar to those of advisers and licensees.

Expecting “sympathy for ASIC” might be too much to expect given the stress, tension and uncertainty we’re experiencing, but empathy might not be unreasonable - particularly in light of ASIC’s recent activity.

If, like most highly intelligent advice professionals, you’ve been reading Three Hit Tuesday for some time, you know that we’ve frequently expressed the view that the compliance burden should more appropriately be credited to conservative institutional licensees than to ASIC. Although we have also been critical of the Regulator, the costs and complexities that encumber advice are more often the result of our choices (including our risk aversion and mis-classification of regulatory risk).

Regulation, and over-regulation, plays its part but we’d still argue that a lot of our compliance injuries are self-inflicted.

Thankfully, we’re starting to see cultural shifts both within ASIC and within our industry - as advice businesses step up to fill the void largely abandoned by vertically-integrated institutional networks. (Largely, but not completely, and, we fear, only temporarily).

We understand your incredulity, but consider the following.

ASIC’S REVERSAL

“Last but not least, I recently created a dedicated ASIC unit to identify and implement changes to how we administer the law, with a focus on minimising regulatory costs for businesses.”

— ASIC Chair, Joe Longo, The regulator’s perspective Speech by ASIC Chair Joseph Longo at the AFA Hybrid Conference 2021, hosted by the Association of Financial Advisers, Tuesday 21 September 2021.

As identified by The Australian’s, Richard Gluyas, the departure of James Shipton and Daniel Crennan, the appointment of Chair Joe Longo and the slow, but inexorable, fade-out of the Hayne Royal Commission has led to a significant cultural change within ASIC.

The Australian's Richard Gluyas recently observed that the “why not litigate” approach to enforcement has been effectively consigned to “the graveyard of corporate mission statements and mantras”.

That conclusion may be overstated given the activity reflected in REP 699, but there’s little doubt that ASIC will, and do, try to choose the most appropriate method for “active, credible, targeted law enforcement”.

This is not an admission that “compliance is voluntary” but rather an acknowledgment that court proceedings are costly and uncertain and, if the public interest can be better served by alternate approaches, then these should be considered before automatic responses.

This suggests that ASIC are more openly committing to the flexibility and pragmatism they have signalled since 2020. As an industry, it’s important to acknowledge and appreciate the shift.

2. OPTIMISM AND SUPPORT

“?I am optimistic about the future of the industry. As long as we each play our part. Financial advice is crucial – even more so during the current pandemic. And while I know that the introduction of new professional standards has caused some angst among the adviser community, I am confident that these changes will be beneficial to advisers and clients.”

— ASIC Chair, Joe Longo, The regulator’s perspective Speech by ASIC Chair Joseph Longo at the AFA Hybrid Conference 2021, hosted by the Association of Financial Advisers, Tuesday 21 September 2021.

The impact of Red October has not been ignored by ASIC.

They appreciate that the Design and Distribution obligations, changes to the anti-hawking regime, new reference checking, breach reporting and information sharing requirements will significantly impact financial advisers, brokers and licensees.

“While these reforms have been in the pipeline for some time, ASIC recognises they require significant changes to businesses’ systems and processes and take effect at the same time industry is facing other challenges, including from COVID-19 and renewed lockdowns.

21-213MR ASIC’s approach to new laws reforming financial services sector

ASIC’s recognition of the scale of the required changes, and the difficult environment in which we operate, should give us cause for (cautious) optimism.

It should not, however, distract advisers and licensees from making the changes (and implementing the systems) required to comply with the new requirements.

ASIC are taking a facilitative approach in the short-term which is premised on us taking reasonable steps to implement the changes and making our “best efforts to comply”.

“ASIC’s initial approach extends to technical or inadvertent breaches, where firms have systems changes underway and act quickly to address problems as they arise. However, where firms are not acting in good faith or where we detect conduct causing actual harm, we will not hesitate to enforce the law.

21-213MR ASIC’s approach to new laws reforming financial services sector

3. ENFORCEMENT ACTIVITY

I appreciate that few advisers read ASIC Enforcement Updates but you should read them regularly (in the same way you read obituaries) to ensure you’re not named.

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