ASIC has produced report after report exposing the deficiencies of the various sectors of the financial services industry it regulates.
However, it didn’t generally name names in its reports, leaving the public none-the-wiser as to which operatives were causing consumers the most problems.
That was the period of the “enforceable undertaking”; where the subject of the undertaking admitted to no wrongdoing but agreed to the legally enforceable terms of the undertaking.
The undertakings usually included compensation to affected investors but was of limited value in deterring future bad conduct.
The Hayne Royal Commission into misconduct in the industry said regulators (including the other financial regulator, the Australian Prudential Regulation Authority) were not tough enough on bad behaviour, and too often financial services entities who broke the law were not properly held to account.
In its final report released in early 2019 it recommended that ASIC overhaul its approach to enforcement with a focus on court action.
ASIC is indeed taking more licensees to court and that is likely sending a much more powerful message to the financial services industry than enforceable undertakings.
ASIC had 88 enforcement investigations and 17 court actions underway at the end of July this year, with 86 of these relating to the major banks and AMP – and their subsidiaries.
There has been a decrease in the number of enforceable undertakings listed on ASIC’s database. So far this year, there’s been two only, whereas during the past six calendar years, there were more than 20 a year.
The regulator’s willingness to use a new weapon in its armoury – product intervention powers – is also welcomed by consumers.
Range of actions
Under its powers, ASIC is able to stop financial and credit products that have resulted in or are likely to result in significant consumer detriment from being marketed.
It means the regulator can get ahead of the curve before consumers lose their money or lose more of their money.
ASIC can take a range of actions, including banning a product or feature of a product, imposing restrictions on sales and amending the information the promoter puts out on the product.
The regulator can also use the power to ban or limit the market-wide sale of particular products, not just those of individual promoters or products.
ASIC recently made a product intervention order banning a short term-lending business model that will better protect consumers from predatory lending.
Had such powers been in place 15 years ago, there is no doubt many of the financial disasters would have been avoided.
Writes about personal finance for The Sydney Morning Herald and The Age.