The Australian Securities and Investments Commission (ASIC) has reinforced that enforceable undertakings will take a back-seat to litigation for licensees, particularly around section 912A of the Financial Services Reform Act dealing with acting efficiently, honestly and fairly.
ASIC deputy chair, Karen Chester said the regulator was pursuing this strategy because enforceable undertakings too often carried zero penalties.
“… s912A is now front and centre on ASIC’s ‘why not litigate’ radar, as distinct to the enforceable undertaking territory of the past,” she said. “And why? Before 13 March 2019 a breach of this provision would attract a penalty of zero. Today it attracts maximum civil penalties of up to $1.05 million for an individual, or up to $525 million for a corporation.”
Addressing a Sydney forum, Chester also reinforced ASIC’s view that disclosure of conflicts of interest was no longer sufficient and in doing so used the example of financial advice in the United States where disclosure of conflicts of interest is mandatory.
“When conflicted advisers provided ‘bad advice’ and disclosed said conflict, 81% of consumers followed that bad advice. Yet only 53% of consumers followed the bad advice when the conflict was not disclosed,” she said. “And why? The disclosure of the conflict backfired – it translated into a trust dividend for the adviser as opposed to the intended protection through consumer scepticism. A loyalty loss.”
In doing so, Chester said that an over-reliance on disclosure in some ways had proved an enabler of the poor conduct and poor consumer outcomes revealed by the Royal Commission.