This paper accompanies a presentation given by Justin Brereton of the Victorian Bar to the Law Institute of Victoria on 9 February 2011.
Both the presentation and the paper consider some of the issues arising from a recent expansion in the Australian Securities and Investments Commission’s (“ASIC’s”) area of responsibility. For solicitors, consideration of these matters is timely because the various changes are likely to see more solicitors than ever coming into contact with ASIC.
In broad terms, ASIC’s new areas of responsibility can be broken into three areas. Those areas are:
a. consumer credit;
b. supervision of financial markets; and
c. the changes brought about by the Corporations Amendment (No 1) Act 2010 (“2010 amendment act”).
The aim of both the presentation and this paper is to provide a general introduction to these new areas and to highlight some of the regulatory issues which are likely to arise. Neither the paper nor the presentation is intended to provide an exhaustive consideration of all possible matters.
Part 1 – Consumer Credit
Traditionally, consumer credit in Australia has been regulated by the states. Most recently this occurred through a suite of legislation known as the “Uniform Consumer Credit Code.” On 1 July 2010 this was replaced by the National Consumer Credit Protection Act 2009 (“consumer credit act”) and ASIC became the sole regulator of consumer credit. The transition period which has been applied to this legislation will expire on 1 July 2011.
Whilst in many ways, the effect of the change has been to make the Uniform Consumer Credit Code Commonwealth legislation; there have also been a number of other changes. These changes have been to give ASIC “greater enforcement powers” by introducing a range of criminal, civil and administrative powers.
Probably the most significant change from a regulatory point of view however has been the establishment of a national licensing regime. Through this licensing regime, both credit providers and those involved in helping consumers obtain credit must now be licensed. The effect of this is that many solicitors who act for those in the credit industry and in particular those acting for mortgage and finance brokers are now likely to be dealing with ASIC in instances where they have not previously had cause to do so.
From a regulatory point of view, the reason that the establishment of this licensing regime is important is that it will have an enormous impact on the manner in which ASIC goes about regulating the area of consumer credit. Accordingly, it is that impact which will be the main focus of the discussion relating to consumer credit.
The Licensing Regime
A brief look at the new credit licensing requirements reveals a number of similarities between the new regime and the one which already exists in relation to deposit based financial services. In particular, it should be noted that through the credit licensing regime, ASIC is able to impose a number of pro-active or prudential regulatory requirements, including requirements that licensees:
a. observe a number of general conduct requirements, including responsible lending obligations;
b. maintain membership of an external dispute resolution body;
c. undertake adequate training and maintain competence, systems and resources.
As was evident from ASIC’s approach immediately following the Financial Services Reform Act amendments Corporations Act 2001, the obligations imposed through the credit licensing regime are likely to become a major focus of the initial regulatory work undertaken by ASIC in this area. The reason for this is that the administrative powers which are linked to the credit licensing regime will allow ASIC to act as both investigator and decision maker when it comes to determining whether a contravention has occurred and a penalty imposed. In other words, ASIC can achieve their regulatory outcomes without the need to resort to court action to do so.
Furthermore, we also know from the financial services reform experience, that ASIC consider administrative proceedings to be an effective way to bring about behavioural change and set the standards by which ASIC expect regulated entities to operate. Indeed, in late November 2010 ASIC telegraphed its intention to focus on administrative action in the area of consumer credit when it released the second version of its Regulatory Guide 218 Licensing: administrative action against persons engaging credit activities (“the guide”). In the guide, ASIC notes the importance of administrative action in educating industry participants and raising compliance standards generally.
It is for these reasons that those acting for licensees and their representatives should be familiar with both the administrative regulatory action linked to the licensing regime and the factors ASIC takes into account when deciding whether or not to take such action.
*To read the remainder of Justin Brereton's paper on ASIC's growing sphere of influence please click here.