Review finds gap in ASIC's legal powers

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An official review of the Australian Securities and Investments Commission (ASIC) has recommended that the corporate watchdog be given stronger powers to ban “unfit” financial services managers, directors, and officers.

In its position paper, titled ASIC’s power to ban senior officials in the financial sector, the ASIC Enforcement Review Taskforce has cited the need to beef up ASIC's banning powers to enhance accountability of managers and the culture of firms in the financial sector.

The paper has argued that the legal gap in ASIC powers allow some senior managers or directors who are "not a fit and proper person to provide a financial service," including some banned financial advisers who switch to those roles, to potentially put customers at risk, The Sydney Morning Herald reported.

It also said that ASIC's inability to take action against senior managers or directors who have overseen serious breaches of the law allows repeat offenders to move within the industry unpunished.

"The government and the community are demanding better from those who occupy senior roles in banks, and the financial services sector generally," said Kelly O'Dwyer, financial services minister.

The minister said the task force recommendation would complement the Banking Executive Accountability Regime (BEAR), which enhanced the powers of the Australian Prudential Regulation Authority (APRA) to remove and disqualify senior executives and directors in banks.

Under current rules, ASIC can ban people from providing financial services, but not from acting in managerial positions in the sector. The regulator also doesn't have the power to ban a director or manager "who may not have breached financial services laws but were nonetheless integral to the operation of the business," SMH said.

And while ASIC can ban directors or managers who knowingly broke the law, the paper identified a “residual concern” over the corporate watchdog's powers to act against managers who "were responsible for the relevant business and failed to ensure that it was conducted in a lawful manner.”

It cited a case study where ASIC was unable to take action against a manager dubbed “Mr G,” who was part of a “large” licensee that accepted an enforceable undertaking for “widespread breaches” and was later involved in further management failings at another firm.

"Despite the fact that Mr G appears to be involved in management failings at a number of licensees, ASIC is unable to ban him from managing financial services providers," the case study said.


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