Government announces ASIC financial services regulation changes

The Commonwealth Government has released the ASIC Capability Review Report and its response. It will commence a new round of financial services regulation by agreeing to provide ASIC with stronger powers and funding to enhance its surveillance capabilities, to deal with misconduct in Australia’s financial services industry and bolster consumer confidence in the sector.

The Report concluded that there are a number of areas where ASIC’s capabilities show material gaps to what the Review Panel considers to be good practice, and where improvement is required without delay. These include ASIC’s governance model and leadership related processes, its IT, data infrastructure and management information systems (MIS), for measurement and reporting of internal efficiency in management dashboards, and its approach to stakeholder management.

The Report contains 34 recommendations. The Government has responded to the five recommendations addressed to it. ASIC has published its Implementation Plan to address the remaining recommendations or the objective of those recommendations.

Government response
The five recommendations to government will be immediately implemented. These focus on governance, recruitment, annual performance discussions with the Minister and removing ASIC from the Public Service Act.

In addition the Government will secure additional funding to enable ASIC to increase its surveillance and enforcement activities, particularly in the areas of financial advice, responsible lending, life insurance and breach reporting.

The Government will introduce an industry funding, or ‘user-pays’ model for ASIC, to commence in the second half of 2017.

It has previously released a consultation paper which proposes that the costs of ASIC’s regulatory activities (including the costs of capital expenditure) would be recovered from industry through:

  • annual supervisory levies that reflect the portion of ASIC’s activities dedicated to each of its regulated sectors (eg credit and deposit product providers); and
  • fees-for-service that reflect ASIC’s actual costs in providing specific on-demand services to individual entities.

Financial System Inquiry Recommendations
The government has previously released its response to the Financial System Inquiry (FSI).

The Government will accelerate implementation of the following measures recommended by the FSI:

  • a product intervention power to enable ASIC to respond to market problems in a flexible, timely, effective, and targeted way;
  • product distribution obligations for industry to foster a more customer-focussed culture;
  • a review of ASIC’s enforcement regime, including penalties, to ensure that it can effectively deter misconduct; and
  • the strengthening of consumer protections in the ePayments Code, which regulates consumer electronic payments and includes a number of consumer protections, to ensure that it keeps pace with emerging technologies.

Dispute Resolution
The Government believes that there would be advantages in extending the FOS’s current jurisdiction to include a wider range of small businesses loans, as well as conducting a review of monetary limits and compensation caps. To facilitate this, it has asked ASIC to work with FOS on an immediate review of FOS’s small business jurisdiction under its Terms of Reference.

The Government is also providing additional funding for the Superannuation Complaints Tribunal to help deal with legacy complaints and improve internal processes.

The Government will establish a panel to review the role, powers and governance of all of the financial system’s external dispute resolution and complaints schemes and will assess the merits of better integrating these schemes to improve the handling of consumer complaints. This Panel will report back to the Government by the end of 2016.

ASIC Commissioners
The Government intends recommending to the Governor-General that Mr Greg Medcraft’s term as ASIC Chairperson is extended for a further 18 months from May 2016.

The Government also intends to appoint an additional ASIC Commissioner with experience in the prosecution of crimes in the financial services industry.

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