ASIC's 2023 enforcement priorities and latest report insights
by Helen Tsaganos
ASIC has released its latest enforcement and regulatory report including its enforcement priorities for 2023.
This blog provides an overview of the key areas of focus with the ultimate goal to improve how your products and organisation is continually reviewing and delivering product trust and protecting consumers from harm in the financial services industry.
In its latest enforcement and regulatory report (REP 757) released 15 February 2023, ASIC has underlined its focus for 2023 and warns it will be targeting greenwashing, predatory lending and misleading insurance pricing promises this year.
So what are some of the key insights and messages from ASIC's latest report?
To summarise the key insights include:
- ASIC's has outlined its enforcement focus areas and priorities for the balance of 2023
- There were 22 DDO stop orders in 2022 of which 14 were in the last quarter - October to December 2022.
- There was $222 million in civil penalties resulting from ASIC action in 2022.
- Greenwashing predatory lending and misleading insurance pricing promises ranks amongst ASIC's top priorities - which are partly or all related to the Design and Distribution obligations.
- ASIC warns financial services organisations enforcement focus and actions will continue and grow in order to ensure protection of consumers.
Now lets unpack the insights further.
The latest ASIC enforcement and regulatory report outlines in detail the list of enforcement priorities for 2023 and highlights the actions from October and December 2022 and a summary of enforcement outcomes covering July and December 2022.
It’s fair to say that ASIC is demonstrating continual commitment in seeking to protect Australians from financial harm through various regulatory obligations including the compliance monitoring of the Design & Distribution Obligations.
Enforcement is going to be a continued fundamental part of ASIC’s work as evidenced with the latest report with the primary goal of ensuring consumer protection.
"In the final three months of last year we commenced a number of significant enforcement and regulatory actions to address misconduct, market integrity threats and consumer harms in sectors including financial services, retail and crypto assets". Ms Court said.
"This includes corporate governance and directors’ duties, product design and distribution, and misleading statements involving sustainable finance practices."
Enforcement priorities for 2023
ASIC released their enforcement priorities for 2023 where for the first time it has identified areas of “enforcement focus” which they now intend to provide annually.
The priorities, which include the Design and Distribution Obligations (DDO) at the top of the list allows the industry to be made aware of ASIC’s plan and focus.
ASIC’s priorities fall into three objectives and categories:
1. protecting consumers;
2. responding to emerging issues and;
3. maintaining market integrity.
The 2023 ASIC priorities are:
- Enforcement action targeting poor design, pricing, and distribution of financial products.
- Misleading conduct in relation to sustainable finance including greenwashing.
- Misconduct involving high-risk products including crypto assets.
- Combating and disrupting investment scams including working with other regulators, industry, and social media platforms to reduce consumer harm.
- Protecting financially vulnerable consumers impacted by predatory lending practices or high-cost credit including conduct by unlicensed or 'fringe' entities.
- Misleading and deceptive conduct relating to investment products that obscure the risk, performance, or nature of financial products.
- Misconduct in the superannuation sector including misleading conduct and poor governance.
- Failures by providers of general insurance to deliver on pricing promises to consumers.
- Misconduct that involves misinformation through social media about investment products, including 'influencer' conduct.
- Governance and director's duties failures including those related to property schemes that expose investors to significant loss.
- Manipulation in energy and commodities derivatives markets.
- Unfair contract terms including in insurance products.
Design and Distribution Obligations are listed at the top of the list
The objective of DDO is to reduce harm caused to consumers for financial services products due to poor product design and distribution. The obligations drive compliance and allow ASIC to access their regulatory took-kit, including court-based enforcement action, disruption, and using the DDO stop order power, to prevent consumer harms and help organisations ensure their products are consumer-centric.
There were 22 DDO stop orders in 2022 of which 14 were in the last quarter - October to December 2022. This represents an increase of over 60% compared to the prior reporting period.
The enforcement action shows that ASIC will continue to focus on compliance given that the industry has had sufficient time to bed down their implementation of DDO.
ASIC has demonstrated that intervention can improve target market determinations and areas of concerns.
In December, 2022 ASIC published a snapshot report following a review into small amount credit lenders compliance with DDO. Report 754 demonstrates that lenders had made improvements to their target market determinations (TMDs) following ASIC intervention.
The report was mostly focused on small amount credit contracts (SACCs) due to the overrepresentation of financially vulnerable consumers accessing these products, leading to high risk and probability of consumer harm.
It was found that SACC lender's TMDs lacked detail in descriptions of their product and target market. In addition, their product review triggers were not suitably granular to be insightful to have early warning of potential areas of concern for a product being distributed.
Whilst the report focussed on SACC lenders, it is strongly encouraged that all credit providers review the learnings and recommendations from the report when drafting and reviewing their TMDs.
ASIC’s areas of concern when creating or reviewing and updating TMDs include:
The report highlighted that the typical legislative definition of small amount credit contracts was used to describe the product. In most cases these definitions are insufficient at describing key features and attributes of the specific product.
Defining target markets
Many used descriptions of consumer classes that were too broad to be meaningful. Credit issuers will be in breach of their obligations if they do not provide enough detail in describing their target markets.
Setting trigger reviews
These were also found to be too broad and unlikely to lead to reviews of TMDs where a review would be appropriate and were therefore considered ineffective. Review triggers must establish events and circumstances that would reasonably suggest that the target market may no longer be appropriate.
ASIC will continue to review TMDs, governance documents and data collected by credit lenders from their periodic and trigger reviews. This work is part of a collection of TMD surveillances ASIC is undertaking to ensure the credit industry is designing and distributing financial products that are likely to meet consumers’ likely needs, objectives and financial situation.
Regulatory developments timetable
ASIC has published a regulatory developments timetable for the first time alongside the latest report. Financial organisations can foresee when ASIC will issue draft or final guidance, or the making of a legislative instrument.
Among the 18 initiatives listed for the first three months of this year is the planned release of a new information sheet regarding superannuation trustee transparency and disclosure obligations. It will also have a strong focus targeting sustainable finance practises and disclosure of climate risks, financial scams, cyber and operational resilience, and investor harms involving crypto assets throughout 2023.
“We take our role to protect consumers and investors seriously and won’t hesitate to take action to protect consumers where we identify poor conduct,” Ms Court said. “We will also remain focused on helping industry to meet their legal obligations by providing simple, effective and easy-to-access guidance.”
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