What's on ASIC's radar

The enforcement efforts of Australian Securities and Investments Commission (ASIC) will soon be expanded to include loan fraud, false accounting and takeovers and shareholder disclosure, Commissioner Greg Tanzer warns.

The corporate watchdog will also continue to focus on cracking down on misleading advertising of products and services advertising, he says.

In particular, ASIC will be monitoring the comparisons of products, where differences in the products may make comparisons misleading; and in the description and labelling of structured and other complex products, especially where there are claims of capital protection.

ASIC's fifth six-monthly enforcement report reveals that ASIC achieved 340 enforcement outcomes between 1 July and 31 December 2013. This included criminal as well as civil and administrative (for example, a banning or disqualification) actions and negotiated outcomes, including enforceable undertakings (EUs).

112 outcomes were achieved in the market integrity, corporate governance and financial services areas, and 228 in the small business area.

“ASIC’s crackdown on brokers submitting fraudulent loan applications and similar behaviour has seen several individuals criminally charged or banned. We currently have more than 20 investigations underway involving falsification of loan documents and loan applications,” says Tanzer.

In addition to misleading advertising, ASIC also focused on market misconduct, including insider trading, and the responsibility of gatekeepers.

Looking ahead, ASIC plans to continue to take action to remove “bad apples” from the financial services industry. It will be placing increased attention on the conduct of Australian financial services (AFS) licensees that fail to detect, prevent or deter poor compliance practices by employees or authorised representatives, where this enables improper practices to occur.

ASIC is also focusing on breaches of takeovers laws and failure by shareholders to disclose their interests in shares.

Examples of this conduct may include an entity acquiring a controlling stake in a listed company other than in an authorised manner (such as a formal takeover bid) or a person holding a substantial interest in shares in a listed company through offshore entities and not disclosing these interests to the market.

Another area of heightened focus will be false accounting, particularly in the current economic climate. “In a market where investors are seeking high-yield investments, the temptation to exaggerate profits or disguise losses is substantial. During recent investigations, ASIC has uncovered several instances of false accounting that have resulted in the misstatement of company financials, in the process providing short term gains to company officers who have engaged in such conduct,” says ASIC in its enforcement report.

For the last six months some of ASIC's more notable outcomes included:

  • Mr Rental Port Augusta released Indigenous consumers from their rental contracts following ASIC surveillance. ASIC took action in this case to protect financially vulnerable people from exploitation. 
  • The Full Court of the Federal Court of Australia upheld ASIC’s appeal against the court-approved $82.5 million settlement between former Storm Financial investors and Macquarie Bank.
  • The Federal Court found five former directors of Australian Property Custodian Holdings Ltd (APCHL) liable for breaching their duties as officers of APCHL. This was a significant outcome for investors. The conduct of the APCHL Board was unacceptable and this was reflected in the court’s judgment.
  • Clestus Weerappah, a former director of Dollarforce Financial Services Pty Ltd, was jailed for four years over his role in the collapse of the property development group. The sentence sends a clear message to corporate Australia that ASIC, the community and the courts will not tolerate criminal behaviour.

ASIC’s work will see more than $15 million refunded to consumers.

ASIC also secured EUs with a number of high profile companies including NAB, UBS, Wealthsure and Commsec.

“Negotiated outcomes, such as EUs, can offer a faster, more flexible and effective regulatory outcome than could otherwise be achieved through administrative or civil action,” says Tanzer.

“Since 1 July 2011, ASIC has entered into 63 EUs with entities and individuals. Many of these enforceable undertakings have required entities to pay compensation to consumers, improve internal compliance arrangements, appoint an independent expert to oversee elements of the entity’s business and report back to ASIC on performance.”

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