Taskforce proposes tougher ASIC licensing powers

by Miklos Bolza30 Jun 2017
Strong licensing powers for the Australian Securities and Investments Commission (ASIC) have been proposed in a new position and consultation paper released by the ASIC Enforcement Review Taskforce.

The paper, written in response to concerns raised in the Financial System Inquiry (FSI), lists seven preliminary positions that expand ASIC’s abilities with regards to assessing, granting, cancelling and suspending Australian credit licences and Australian financial services (AFS) licences.

The paper proposes the following seven positions and asks for industry feedback on whether these proposals are reasonable or not. Interested parties are invited to make a submission by 26 July.

1) Permit ASIC to refuse licence applications or take action against controllers which are not fit and proper

“The Taskforce adopts as its preliminary position that ASIC should be able to refuse a licence application if it is not satisfied that the controllers of the applicant are fit and proper and to take licensing action if it is no longer satisfied of this, including on a change of control.”

Licensees would need to provide ASIC with sufficient information on application of the licence or when exchanging control about all individuals and groups of individuals under that particular licence.

Additionally, if ASIC is no longer satisfied the controllers of existing AFS or credit licences are fit and proper, it has the right to suspend or cancel those licences.

2) Implement a 10-day mandatory notice period for change of control of a licence

“The Taskforce adopts, as a preliminary position, that a statutory obligation requiring licensees to notify ASIC of changes of control within 10 business days of the change of control taking effect and penalties for failure to notify should be introduced.”

This would replace the current criteria where ASIC has to be notified within 10 business days of the licensee becoming aware of the change. The Taskforce said this provides “certainty” around when the timeframe of the notification period commences.

3) Align assessment requirements for AFS licence applications with those for enhanced credit licence applications

“The Taskforce adopts, as a preliminary position, that there should be uniformity in the assessment requirements for AFS and credit licence applications. The Taskforce considers that there are no policy reasons for treating them differently and that licence applicants in similar circumstances should be subject to the same assessment criteria and requirements. To the extent practicable, the requirements should be universal for both types of licence applicants.”

Updates to AFS assessment criteria in the Corporations Act have been proposed to make them consistent with the equivalent positions found in the Credit Act.

4) Allow ASIC to suspend AFS and credit licences for licensees who fail to commence business within six months

The Taskforce has proposed that ASIC be able to immediately cancel the AFS or credit licence of a licensee who has not commenced business within six months of being granted the licence as well as those who have ceased to operate a credit or financial services business.

“This will address the issue of ‘warehousing’ AFS licences … and provide certainty for AFS and credit licensees as to when ASIC’s power to suspend or cancel a licence for failure to commence engaging in business will arise.”

5) Align consequences for both AFS and credit licence holders who provide false or misleading statements to ASIC

The consequences for making false or misleading statements in documents provided to ASIC should be the same in both AFS and credit contexts, the Taskforce has proposed.

“This should apply with respect to statements made in licence applications, licence variation applications and any other document lodged with ASIC. The AFS and credit licensing regimes impose similar standards of conduct on those wishing to offer licensed services and similar consequences for breaching those obligations. The process for applying for an AFS and credit licence are also similar.”

6) Make providing false or misleading information in an AFS or credit licence application grounds to refuse to grant the licence

“Currently, there is no express power to refuse a licence application if an application is false or misleading in a material particular. ASIC must rely on the general test and the false or misleading statement would provide a basis for ASIC to have reason to believe that the applicant is likely to contravene its licence obligations.”

Currently, licence applicants can argue that the false or misleading statements were inadvertent, not serious or that the circumstances leading to the statement have been remediated and so will not affect the ability of the licence holder to meet their obligations, the Taskforce said.

“Expressly including a power for ASIC to refuse an application if the information relating to the application (by statement or omission) or documents accompany the application,   are false or misleading in a material particular, in effect creates a presumption that a licence applicant who engages in conduct of this kind cannot satisfy a reasonable belief that they will comply with their licence obligations.”

7) Require applicants to confirm that there have been no material changes to the information provided before the licence is granted

The last position by the Taskforce is that applicants seeking an AFS or credit licence should have to confirm that there have been no material changes in their circumstances prior to the licence being granted. This will ensure there is nothing in the application that is false or misleading.

“The confirmation could be provided at the end of the assessment period after the applicant has been provided with a draft of the licence that ASIC proposes to grant. The granting of the licence would be subject to provision of the applicant’s confirmation as to the currency and accuracy of the information in the application (and any other matters required by ASIC in the relevant circumstances).”

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