More Power to ASIC

February 2020
Regulatory & Governance
Licensing (ASIC & APRA)

The Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Bill 2019 has been passed without amendment.  The changes made by this bill commence the day after Royal Assent is given.

As its title indicates, it strengthens the enforcement powers of ASIC including through expanding warrant powers, banning powers and surveillance powers.

The Bill also makes a number of changes to the AFS licensing regime. The changes are only relevant to new applicants for an AFS licence, and may also impact existing AFS licensees.

The changes include:

  • Replacing the ‘good fame or character’ test that applies to an applicant (including responsible officers of a corporate applicant) with a ‘fit and proper’ test that extends to all officers of a body corporate (not just responsible officers).    The definition of ‘officer’ is much broader than the definition of ‘responsible officer’.  ASIC must also apply this test when considering an application for variation of an existing licence.  ASIC may suspend or cancel a licence, or impose conditions on a licence, on the basis this test is not satisfied.
  • Applying the new ‘fit and proper’ test to controllers of the applicant (‘control’ for this purpose is defined broadly).  If the controller is a body corporate then the test applies to the officers of that entity
  • Providing ASIC the ability to refuse a licence if it is false or misleading in a material particular, including through the omission of information (as a separate basis for the refusal, rather than having to rely on other tests relevant to the grant of a licence)
  • Providing ASIC the ability to cancel an AFS licence if the licensee does not start to provide the financial services covered by the licence within six months after the licence is granted.  Also, new licensees must notify ASIC if they don’t start providing financial services within 6 months.  In the case of existing licensees, the 6 month period starts on commencement of the Bill.
  • Requiring AFS licensees to notify ASIC of a change in control within 30 business days after an entity starts or stops controlling the licensee (currently notification of changes in control is based on when the licensee becomes aware of a change, and must be provided in 10 business days).  According to the explanatory memorandum, licensees are expected to implement systems and procedures to ensure they are aware of changes in control in a timely manner.  This new requirement applies, in the case of existing licensees, where the change in control occurs on or after the commencement of the bill.
  • Expanding the provisions relating to (including consequences of) making false or misleading statements in any document required under or for the purposes of the Corporations Act, or lodged with or submitted to ASIC.

The factors that ASIC may have regard to when assessing a person’s fitness and propriety are extensive and include whether the person has ever been linked to a refusal or failure to give effect to an AFCA determination and (subject to some exceptions) any convictions in the last 10 years (this is no longer limited to offences involving dishonestly that are punishable by imprisonment for at least 3 months).

Being linked to a refusal or failure to give effect to an AFCA determination is also a ground on which a banning order may be made.

This is an overview only.  The provisions (including transitional arrangements) are complex and implications for governance arrangements are significant.

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