In this edition:
- Advertising continues to be in ASIC’s surveillance spotlight;
- ASIC releases consultation paper on retail client review and remediation programs and update to record-keeping requirements; and
- ASIC enforcement reminder: the importance of not deleting emails.
Advertising continues to be in ASIC’s surveillance spotlight – AFS Licensees beware!
Keen readers of ASIC publications will have noticed that ASIC is continuing its surveillance focus on potentially misleading or deceptive advertising and promotional material. This focus includes wholesale as well as retail Australian financial services (AFS) licensees.
Two weeks ago, ASIC issued a Media Release about action taken against ACE Insurance Limited and Tiger Airways Australia Pty Limited to force the removal of misleading promotional statements on their websites concerning ACE Insurance travel insurance policies.
This Media Release also highlights 17 other similar cases over the last few years where ASIC has taken action against companies for misleading advertising. But this is not the full extent of ASIC’s recent surveillance of advertising and promotional materials. During the 2015 financial year, ASIC took action with 54 cases of potentially misleading or deceptive promotional material.
As distinct from some of ASIC’s more time-intensive surveillance activities, you can imagine that picking up potentially misleading or deceptive advertising and promotional material is a relatively low-cost, high impact exercise.
So, AFS licensees beware! If you don’t already have a robust advertising and marketing material policy, now would be a good time to establish one and ensure that your advertising and promotional materials are only issued after a thorough sign off process, taking into account your legal obligations under consumer protection laws. For guidance, ASIC has published Regulatory Guide 234dealing with advertising financial products and services.
ASIC releases consultation paper on retail client review and remediation programs and update to record-keeping requirements
Note: This ASIC proposal only affects AFS licensees who provide personal advice to retail clients and who may need to remediate clients who have suffered loss as a result of the decisions and behaviour of the licensee, or its advisers, in relation to that personal advice.
In December 2015, ASIC released Consultation Paper 247 (the Paper) which contains two key proposals. First, in order to ensure the quality and effectiveness of retail client review and remediation programs (CRRPs), ASIC is proposing to publish guidance that helps AFS licensees understand when a CRRP should be used and how it should be run. Second, the Paper outlines proposed amendments to record-keeping obligations of AFS licensees. ASIC is inviting stakeholders to provide submissions that address the proposals, with the view to publishing a regulatory guide and class order in May 2016.
What are retail client review and remediation programs?
CRRPs are a way of complying with the legal obligations of AFS licensees to operate their businesses efficiently, honestly and fairly. If a systemic issue has emerged with the decisions and behaviour of an AFS licensee who provides personal advice to retail clients, or an adviser that is a representative of the licensee, and the affected clients are likely to have suffered a loss, a CRRP is a project that may be set up to seek out affected clients, review the advice and remediate the clients where necessary. It can be a large scale program which involves hiring external staff and setting up a new team or it can be managed internally with existing resources.
ASIC has released the Paper as there is a growing trend towards AFS licensees using CRRPs proactively to address systemic issues. The design and management of these programs can involve ASIC and so guidance will help these programs to be effective, fair and transparent. In publishing the guidance, ASIC aims to:
- improve outcomes for consumers;
- provide a streamlined and well-understood framework; and
- set out key principles against which an AFS licensee’s CRRP can be evaluated for efficiency, honesty and fairness.
The Paper proposes the following elements of a CRRP:
- establishing a program: the Paper proposes definitions of key terms such as ‘systemic issue’ and outlines how ASIC envisages CRRPs will interact with the existing internal and external dispute resolution mechanisms available to the client. In addition, the implications of the AFS licensee’s legal obligations in relation to their duties to operate efficiently, honestly and fairly, to allocate adequate resources to the provision of services, to monitor and supervise representatives, to report breaches and to create compensation arrangements for retail clients are discussed in terms of CRRPs.
- scope of the program: ASIC emphasises that first, the scope of the CRRP in terms of the class of affected retail clients should be precise yet flexible if further information comes to light through the program and second, that the burden should be placed on the licensee to invite possibly affected clients to participate.
- design and implementation of the program: all CRRPs should be consumer-focused, free of charge, objective, unbiased and fair, have the support of senior management and should operate fairly, efficiently and honestly. The Paper sets out the standards for the processes a CRRP should comply with when reviewing advice, making a determination and calculating possible remediation. ASIC also highlights the importance of maintaining independent oversight and of keeping adequate records.
- communicating with retail clients: as ASIC has emphasised that CRRPs should be consumer-focused, the timing and nature of communications is discussed in detail by the Paper. Generally, communication should be direct, straightforward and managed in such a way that the retail client has a clear understanding of what is required of them and their options moving forward.
- external review of decisions: retail clients should have access to external review processes if they are dissatisfied with the decision of the CRRP. These processes should be clearly communicated to retail clients, and any settlement deeds that are created should not restrict the retail client’s ability to speak to a government agency such as ASIC, the adviser’s professional association or legal representation if they have concerns.
Changes to record-keeping requirements
ASIC has identified an issue with record-keeping obligations based on its regulatory role in overseeing CRRPs. Although AFS licensees are required to maintain records for a period of at least seven years, circumstances may arise where the records are maintained but the licensee has lost access to them. This can occur if a representative moves to a different licensee. This may prevent a CRRP or other scheme from operating effectively as the licensee cannot review the advice that may have been affected.
In order to clarify the obligations of licensees, ASIC is proposing to amend Class Order 14/923 to reflect that the licensee must have access to the records during the period in which they must be maintained.
Evaluating the impact of these changes
In order to fully appreciate the consequences of the new guidance and the amended class order, ASIC has included questions throughout the Paper. If you are interested in making a submission, you must submit your comments by 26 February 2016. For further details, see page 4 of the Paper.
In addition to public consultation, ASIC will also complete a Regulation Impact Statement and submit it to the Office of Best Practice Regulation for approval prior to making any final decision.
ASIC enforcement reminder: the importance of not deleting emails
In the latest development in an ASIC investigation that stretches back to 2009, a Sydney man has been charged with five counts of authorising a false or misleading statement to ASIC and one count of attempting to cause the concealment or destruction of records. These charges related to 17,000,000 shares in Northwest Resources Limited, which were held by Craigside Company Ltd until they were frozen by ASIC in December 2011, before ASIC obtained orders to cancel the shares in April 2014.
ASIC alleges that between October 2009 and December 2011, in response to enquiries made by ASIC into the identities of parties who had an interest in the shares, the man authorised the making of false or misleading statements. This is a breach of section 1308(2) of the Corporations Act 2001 (Cth) which carries a maximum penalty of five years.
In addition, the man has been charged with destroying or concealing records where ASIC is investigating or is about to investigate. ASIC alleges that the man requested that a third party delete an email relating to the ASIC investigation, an offence under section 67(1)(a) of the Australian Securities and Investment Commission Act 2001 (Cth). The matter is listed for mention on 8 March 2016.
The importance of being honest
These charges demonstrate the high importance placed on honesty and openness during ASIC investigations. Although the shares themselves were cancelled nearly two years ago, ASIC has continued its investigation into the conduct of the different parties involved. Deleting an email may seem like an administrative necessity if done legally, but if the intention behind its deletion is illegal, it may constitute a serious offence and could lead to five years imprisonment or a $36,000 fine. ASIC takes actions such as this very seriously, which should serve as a reminder to all financial service providers that information should not be destroyed unless the individual is certain that there is not legislative requirement to maintain it as a record.