ASIC the enforcement agency - a new direction?

The recent appointment of Joseph Longo as ASIC Chair will likely see renewed ASIC consideration of its overall strategy. As a highly experienced bank general counsel who has worked in Asia and Europe, as well as a former national director of enforcement with ASIC, firms can expect Mr Longo to concentrate on how ASIC meets its enforcement mandate and its broader regulatory engagement with the market.

ASIC's strength and effectiveness as an institution can be enhanced. During my first few months I will be engaging widely with ASIC staff and stakeholders with a view to understanding ASIC's current strategy and approach to regulation and enforcement.Joe Longo, ASIC Chair

This could also mean a potential re-set for the wider market – understanding a regulator’s method of engagement and, ultimately, its enforcement approach is critical for any regulatory response team that is seeking to ensure its organisation’s regulatory risk is well managed.

ASIC adopted a ‘Why not litigate?’ discipline early in the term of Mr Longo’s predecessor, James Shipton, in response to criticism from the Banking Royal Commission. That discipline was reinforced in the agency’s most recent Corporate Plan 2020-24 (published in August 2020).

Comments by Deputy Chair Karen Chester earlier this year underscored an evolving approach on how enforcement could be handled. She identified Express Investigation, or EI, as being the ‘how’ of ASIC’s ‘new’ approach to enforcement. ASIC’s aim was to achieve a “lighter (lower cost) footprint” in ASIC’s enforcement efforts. “EI is simple. At the earliest possible time, ASIC sets out our concerns to the entity. We then seek cooperation in the investigation though regular and consistent engagement. By cooperating we reduce the time and expense of the investigation.”

The ‘Why not litigate?’ discipline is still part of agency strategy, albeit to be applied with a keener focus on public interest factors that underlie enforcement action and a more co-operative approach. However, she warned that if “co-operation wanes, ASIC’s investigation forges on. But slowly and with greater cost.”

In considering ASIC’s enforcement function, the new leadership might re-consider its priorities when enforcing financial services and markets legislation, and its recent insider-trading action may be evidence of this. It is noteworthy that Commissioner Sean Hughes referred the recent Senate hearing to a re-focus of prioritisation, addressing specific strategic enforcement priorities:

What we have done is prioritised matters that give rise to significant consumer detriment or hardship or which relate to egregious misconduct, including matters that undermine confidence in the market.Sean Hughes, ASIC Commissioner

Mr Longo’s international experience may result in ASIC enhancing its focus on wider developments in the cross-border regulatory enforcement space – hot topic issues such as ESG (for example, ‘greenwashing’), cyber resilience, and whistle-blower protections might develop further traction in the domestic space.

Mr Longo will also be greeted by a number of reforms this coming Spring that expand ASIC’s remit and should assist its surveillance capacity. The new DDO regime that aligns retail products with the right target markets is a major change for financial product issuers and distributors. The strengthened breach reporting regime (which will now cover ACL holders) enhances the disclosure of serious compliance concerns to ASIC with significant penalties now applying for failure to report. And the anticipated expansion of BEAR-style accountability frameworks to the super and insurance sectors (through the new Financial Accountability Regime) will extend ASIC’s important role in the policing of governance frameworks (FAR timeframe still to be finalised).

ASIC’s leadership will also have an eye on the future establishment of the Financial Regulator Assessment Authority (FRAA). A Hayne recommendation to act as an oversight authority to assess the effectiveness of ASIC and APRA, the legislation establishing the FRAA is currently progressing through Parliament. Enforcement, how it is handled, and case success rates will be obvious FRAA agenda items.

A new Chair who has worked effectively both in senior investment banking and in public agency enforcement roles will be particularly alive to the areas that financial institutions find difficult (and consistently get wrong) and the regulator’s enforcement strategy may develop to reflect this. The market will keenly follow Mr Longo’s comments and actions over the next few months to see how ASIC will approach this new era.

This article was co-authored with Stephanie Hogarty.