‘Significant’ misconduct reports driving advice enforcement: ASIC

Responding to a question on notice that Senator Slade Brockman asked during Senate estimates in February, ASIC explained how it makes its investigation and enforcement decisions, noting that it aims to “detect, disrupt and respond to unlawful conduct”.

“In doing so, we prevent and deter actual and future misconduct, improve standards and behaviours within our regulated population, and reduce the risk of harm to Australian consumers and investors,” it said.

“The factors we consider when deciding whether to investigate and take enforcement action vary according to the nature and circumstances of the suspected misconduct reported to or detected by us, giving particular attention to matters that align with our strategic and enforcement priorities.”

Looking specifically at ASIC’s level of enforcement spending on the financial advice sector, Brockman asked: “Why does ASIC spend more money on the financial advice sector than any other sector including ones that are much larger, particularly when this sector has been subject to a process of professionalisation over a number of years and is now barely more than half the size it was four years ago?”

According to the corporate regulator, this can be traced back to the financial services royal commission.

“ASIC continues to see a significant number of reports of misconduct in relation to the financial adviser subsector and financial advice matters continue to represent a significant proportion of ASIC’s enforcement activities,” it said.

“ASIC considers that this is in part due to:

• Heightened community and industry awareness of misconduct, in particular financial advice misconduct, following the Financial Services Royal Commission (FSRC);
• ASIC’s supervisory and enforcement approach following the FSRC; and
• A not insignificant enforcement effort required in respect of unlicensed operators involved in providing financial advice.”

Investigating these “unlicensed operators”, ASIC said in response to another question on notice from Brockman, cost a total of $4,488,157 in the 2022–23 financial year – which was charged to the financial advice sector.

Around $650,000 of this figure was related to the Melissa Caddick matter, with ASIC explaining that it would likely spend another $15,000 on the Caddick case in FY23–24.

However, that was far from the only case of advisers paying for ASIC investigations into unlicensed operators. The regulator said that it worked on 39 unlicensed conduct operators in FY22–23 in the financial advice sector, with 10 of these matters costing ASIC in excess of $100,000.

CRIS revisions

Brockman also raised questions about ASIC’s Cost Recovery Implementation Statement (CRIS), the first of which was released in June 2023 and estimated the cost of the ASIC funding levy for the financial advice sector would be $55.5 million – or a minimum levy of $1,500 plus $3,217 per adviser.

When the final figure that was issued in November last year, it was instead $47.6 million, taking around $400 off the figure per adviser.

Brockman sought an explanation from the regulator for the almost $8 million reduction between June and November.

According to the regulator, the June CRIS represented the expected cost of enforcement activity, however the estimates for each sub-sector are based on “six months of actual costs (July to December of the financial year) and forecast costs for the remainder of the financial year”.

“During the financial year, after the calculation of those estimated costs, ASIC’s discretionary enforcement activity was higher in other sub-sectors including retail over-the-counter derivatives issuers,” ASIC said.

“As ASIC makes discretionary choices to undertake enforcement based on a triage approach of threats and harms, less enforcement activity was undertaken relating to the ‘licensees that provide personal advice on relevant financial products to retail clients’ sub-sector than expected.

“The industry funding levy that applied to the ‘Licensees that provide personal advice on relevant financial products to retail clients’ sub-sector for the 2022-23 financial year represents ASIC’s regulatory effort for that sub-sector for that year.”