As the NZ government mulls over new proposals to expand Financial Markets Authority (FMA) powers, the post Royal Commission (RC) Australian financial regulator offers a glimpse of the future for this side of the Tasman.
Sean Hughes, Australian Securities and Investments Commission (ASIC) commissioner, delivered the hardline message in a speech late in August framed around the new ‘Why not litigate?’ mantra underpinning the corporate cop philosophy.
Hughes said the ‘Why not litigate?’ approach “is a procedural discipline that we have adopted for ourselves to make sure that we ask, and answer this question”.
“Its aim is to deter future misconduct and address the community expectation that wrongdoing be punished and publicly denounced through the courts,” he said. “But it does not mean that we will take every matter to court.”
Nevertheless, ASIC, which was heavily-criticised during the RC for its overly-accommodative dealings with large financial institutions, is already flexing its muscles.
Hughes said since July last year:
- there has been a 20 per cent increase in the number of ASIC enforcement investigations;
- a 51 per cent increase in enforcement investigations involving the big six financial services firms (or their officers or subsidiary companies); and,
- a 216 per cent increase in wealth management investigations.
And the Australian regulator is arming for further combat.
“The next year will see ASIC continue with its recruitment program to increase the number of analysts, investigators and lawyers in our ranks,” he said.
“This will increase our capacity to investigate – and where necessary litigate against – market, corporate and financial sector misconduct. This expansion is being funded by the $404 million over four years provided to ASIC by the Government following the Royal Commission. We are also expanding our use of external resources to provide advice and to support us increase and accelerate our enforcement action.”
At the same time, ASIC has been handed an arsenal of new penalties and policing powers including an early intervention product-squashing ability.
The Product Intervention Power (PIP) allows the Australian regulator to “directly confront, and respond to, actual or likely significant consumer detriment” after public consultation on each case, Hughes said.
ASIC played the PIP card first with a consultation on the “short term credit industry” earlier this year. Last month, the regulator proposed a ban under PIP of over-the-counter binary options and a restriction on contracts for difference for retail investors.
The FMA could be granted similar product powers under proposals tabled by the government in April this year.
Drafted in response to the FMA and Reserve Bank of NZ bank and insurer ‘conduct and culture’ reviews concluded earlier this year, the government proposals have yet to appear in draft legislation form. Public consultation on the proposals closed off in June.
The ‘RC-lite’ culture and conduct reviews did not uncover systemic issues as revealed in Australia but the flagged NZ reforms could be just as far-reaching.
Local legislators will also be keeping a close watch on how the Australian rules play out, given the similar goals at stake.
For instance, ASIC’s Hughes outlined the regulator’s ability to proscribe ‘design and distribution obligations’ under the PIP.
“This brings accountability for issuers and distributors to design, market and distribute financial and credit products that meet consumer needs,” he said. “Issuers must identify in advance the consumers for whom their products are appropriate and direct distribution to that target market.”
The NZ government April consultation echoes the ASIC line with its “requirement for manufacturers to identify the intended audience for a product and a requirement for distributors to have regard to the intended audience when placing the product”.
At the time Commerce Minister Kris Faafoi said the ensuing legislation should be in parliament by the end of the year, in time for a mid-2020 enactment date.