Some of the most important recommendations by a government review of the Australian Securities and Investments Commission’s enforcement regime remain on hold while the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry plays out.

One of the most crucial recommendations relates to requiring licensees to report misconduct by an employee or representative, says Andrew Serpell, an academic from Monash University. The government addresses this recommendation in its taskforce review response document.

“The Government agrees in principle to this recommendation,” the response reads. “The Government notes that the [royal commission] will consider internal systems of financial entities to identify misconduct. The Government will defer implementation of this recommendation to enable it to take [into] account any findings arising out of the royal commission.”

The government taskforce was established in October 2016 to review the adequacy of ASIC’s enforcement regime in response to the Murray Financial System Inquiry. The taskforce provided its report to Treasury in December last year.

The government then made headlines by announcing a raft of changes last month that were aimed at strengthening ASIC’s powers, yet stated it was able to “prioritise” only 30 of the taskforce’s 50 recommendations.

The rest remain on hold while the royal commission rolls on, despite the government agreeing to them.

Serpell, who is a former employee of ASIC and its predecessor, the National Companies and Securities Commission, published a research paper that dealt with several of the issues the ASIC Enforcement Review Taskforce brought up. He says that, while the royal commission’s findings are important, the need for change is clear.

“At the moment, an isolated breach by a representative isn’t automatically a breach by the licensee as well,” Serpell points out. “If there’s no breach by the licensee, there is nothing that needs to be reported. So that is a flaw in the current legislation.”

Another key reform being delayed is the introduction of civil penalties for licensees that don’t report breaches. Criminal proceedings are too lengthy and onerous for ASIC to wield effectively and should be bolstered by civil penalties, Serpell says.

He notes that the government has agreed to several of the changes his paper discusses, including broadening the scope of bans to stop advisers found guilty of misconduct from working further in financial services roles. The government is also preparing legislation that will apply what the response document calls “disgorgement remedies” to civil penalty proceedings so that recipients “of ill-gotten gains” must pay them back.

Commissioner Kenneth Hayne is scheduled to submit an interim report to the governor-general no later than September 30 this year, and a final report by February 1, 2019.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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