ASIC releases its 2021-22 Annual Report

Co-authored by Nicholas Buxton, Law Graduate

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ASIC releases its 2021-22 Annual Report

ASIC releases its 2021-22 Annual Report

Co-authored by Nicholas Buxton, Law Graduate

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November 22, 2022

Background

On 14 October 2022, ASIC delivered its annual report for the 2021-2022 financial year. The report summarises ASIC's operations and general market conditions over the last financial year, including its renewed focus on evolving regulatory demands in the changing economic environment.

ASIC’s shift in focus has been predominantly brought about by the COVID-19 pandemic and the significant new licensee obligations recently introduced into Australia’s regulatory domain.

Though not a focus of its report, ASIC has flagged that next financial year, ASIC will look to:

disrupt and combat scams
enforce compliance with product design and distribution obligations
improve climate-related and sustainability disclosure and governance
reform the breach reporting regime (which was only introduced in October 2021).

Enforcement

Throughout the last financial year, ASIC was particularly focused on matters with high deterrence value and those involving egregious harm or misconduct, particularly towards vulnerable consumers.

To combat these abuses, resources were centralised around three key focus areas:

serious misconduct that harms confidence in markets, business and the economy or exacerbates consumer hardship
poor product design and governance, mis selling, and a failure to comply with conflict of interest requirements and disclosure obligations and
failure to implement new standards set by law reform initiatives.

These key focus areas are unlikely to vary dramatically in the future, as ASIC flagged similar strategic priorities in its recently released Corporate Plan 2021-25.

Some key statistics in enforcement over the 2021-22 financial year are as follows:

Outcome	Total 2021-22	Total 2020-21
Surveillances completed	1,040+	1,080+
Instances of potentially misleading or deceptive promotional material withdrawn or corrected as a result of surveillance activities	61	59
Investigations commenced	107	110
Criminal litigation completed	37	29
Criminal litigation completed successfully (as a percentage)	89%	100%

Licensing and professional registration activities

Over the financial year, there was a 65% increase in the number of financial service licences approved. The amount of applications refused, cancelled and suspended has remained consistent over the last two financial years.

ASIC believe the market and competition in the financial sector has now grown, likely as a result of the then low interest rates and high consumer demand for financial services and products.

However, given the current inflationary environment, ASIC have forecasted a decrease in licensing and professional registration activities over the next financial year.

The number of credit licenses approved has increased marginally over the last financial year from 219 applications approved in 2020-21, to 267 in 2021-22.

ASIC’s achievements by sector

Within the report, ASIC also highlighted positive outcomes achieved in various sectors over the financial year.

Sector	ASIC achievements over the 2021-22 financial year
Deposit-taking and credit	In 2021, ASIC continued to engage with lenders about the impact of COVID 19. ASIC has encouraged lenders to continue to work with consumers who are experiencing hardship and struggling with their repayments. to find appropriate solution. ASIC launched enforcement action in the Federal Court against lenders who allegedly attempted to structure their businesses in a way that would bypass the National Credit Act and National Credit Code, including a successful appeal against Cigno Pty Ltd and BHF Solutions Pty Ltd. ASIC have commenced two further actions in this area in the past year.
Investment management, superannuation and related services	ASIC's focus in this sector was on encouraging better governance practices, challenging misleading representations, and working towards greater transparency of underperforming MySuper products. Investment Management In June 2022, ASIC issued ‘Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability related products (INFO 271)’ to help superannuation and investment funds avoid greenwashing or overstating the ‘environmentally friendly’ credentials of their sustainability related financial products.. While INFO 271 focuses on superannuation and investment funds, ASIC states that its principles can apply more broadly to all entities which offer or promote financial products that take into account sustainability related considerations as part of their investment strategies and decision making. In March 2022, ASIC surveilled the marketing of managed funds to identify the use of misleading performance and risk representations in promotional material, such as promoting target returns without disclosing risks or reasonable assumptions underpinning those targets. Following this surveillance, ASIC wrote to the responsible entities, which prompted those funds to withdraw or amend their marketing materials and strategies or introduce additional compliance controls. Superannuation ASIC’s surveillance of superannuation trustees (and their directors and employees) revealed a lack of appropriate oversight and control measures in relation to investment switching. Trustees did not have proper systems to prevent directors and senior executives from potentially misusing confidential information for personal gain. 19 of the 23 trustees contacted by ASIC implemented greater board involvement, policy awareness campaigns, and independent reviews of broader conflicts management frameworks. In June 2021, ASIC published Report 729 Review of trustee communications about the MySuper performance test and set expectations for future communications about performance.

Sector

ASIC achievements over the 2021-22 financial year

Deposit-taking and credit

In 2021, ASIC continued to engage with lenders about the impact of COVID 19. ASIC has encouraged lenders to continue to work with consumers who are experiencing hardship and struggling with their repayments. to find appropriate solution.
ASIC launched enforcement action in the Federal Court against lenders who allegedly attempted to structure their businesses in a way that would bypass the National Credit Act and National Credit Code, including a successful appeal against Cigno Pty Ltd and BHF Solutions Pty Ltd. ASIC have commenced two further actions in this area in the past year.

Investment management, superannuation and related services

ASIC's focus in this sector was on encouraging better governance practices, challenging misleading representations, and working towards greater transparency of underperforming MySuper products.

Investment Management

In June 2022, ASIC issued ‘Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability related products (INFO 271)’ to help superannuation and investment funds avoid greenwashing or overstating the ‘environmentally friendly’ credentials of their sustainability related financial products.. While INFO 271 focuses on superannuation and investment funds, ASIC states that its principles can apply more broadly to all entities which offer or promote financial products that take into account sustainability related considerations as part of their investment strategies and decision making.
In March 2022, ASIC surveilled the marketing of managed funds to identify the use of misleading performance and risk representations in promotional material, such as promoting target returns without disclosing risks or reasonable assumptions underpinning those targets.
Following this surveillance, ASIC wrote to the responsible entities, which prompted those funds to withdraw or amend their marketing materials and strategies or introduce additional compliance controls.

Superannuation

ASIC’s surveillance of superannuation trustees (and their directors and employees) revealed a lack of appropriate oversight and control measures in relation to investment switching. Trustees did not have proper systems to prevent directors and senior executives from potentially misusing confidential information for personal gain. 19 of the 23 trustees contacted by ASIC implemented greater board involvement, policy awareness campaigns, and independent reviews of broader conflicts management frameworks.
In June 2021, ASIC published Report 729 Review of trustee communications about the MySuper performance test and set expectations for future communications about performance.

Outlook for 2022-23

The corporate regulator has no plans to wind-back enforcement activity in the future. Over the past financial year, ASIC has repeatedly signalled their intention to increase litigious efforts against market participants operating outside the rules.

Higher levels of surveillance should continue in line with reported figures over the next financial year, which serves as a reminder to all licensees that ASIC are continuing to take a proactive approach to consumer protection in the marketplace.

Likewise, continued tightening of the credit market will no doubt influence regulatory action in the coming year, as consumers brace for higher repayments and struggle to service their loans. Licensees should be particularly aware of their obligations to borrowers in hardship and serviceability requirements under the NCC.