On Friday, 14 February RSE licensees received a letter from ASIC and APRA jointly written to address the proposed law reform to the roles of these regulators. While this legislation is currently in the consultation stage, it remains important that industry are aware of the proposed expansion of the regulators roles especially when it comes to criminal and civil penalty provisions.

What’s this all about?

On the back of the royal commission into financial services, various recommendations were made in particular around regulation and enforcement. We have already seen a number of changes introduced to the ASIC enforcement process and the reforms released on 31 January 2020 are an expansion of that.

Under this proposed legislation, the two regulators, ASIC and APRA would perform their roles as co-regulators. APRA would continue in its day to day management of member-outcomes and developing a comprehensive framework of prudential standards and prudential practice guides.  ASIC’s role under this proposal would expand to the administration with APRA of more civil and criminal penalty provisions that relate to consumer protection and market integrity.

Should I be concerned?

There are some concerns that the regulators have identified that industry may have in relation to the proposed reforms.  As identified by APRA and ASIC in their joint letter to RSE licensees, the co-regulators recognise that there is likely to be some concern around the different roles and, I would suggest, blurring of the lines between the two regulators.  It is important that clear lines of demarcation exist in relation to who is responsible for investigating particular conduct and that industry knows when they will be required to deal with one entity over another.

The co-regulators will both retain formal enforcement powers.  It is a concern that APRA and ASIC have acknowledged in their letter may concern some and which they have said will be addressed by determining which agency has the best available tools to address the conduct. The way that is to be determined by APRA and ASIC is not clear from their current statements. However, it is important that there is clear guidance around when each regulator will use their enforcement powers. If both regulators were to use enforcement powers against a licensee, issues of double jeopardy and double punishment abound.

The reason that this concern arises is that under the proposed legislation, the relevant provisions of the SIS Act which will be co-regulated are:

  • False representation about status as an RSE licensee
  • Governing rules covenants for registerable superannuation entities and the consequences for breaching these covenants
  • Duties on trustees to identify multiple superannuation accounts of members
  • Offences for disqualified persons to be trustees, investment managers or custodians of superannuation entities.
  • Civil and criminal consequences of contravening the civil penalty provisions

Ultimately, it is proposed that APRA and ASIC have a role in administering the obligations contained above (among others) including, for example, determining and enforcing compliance.

What can licensees do now?

At this stage, these reforms are proposed only. The draft legislation is currently being considered but it is noted that the regulators do jointly support these proposed reforms.

If you are contacted by one of the regulators the following matters should be borne in mind:

  • Which regulator has made contact with you?
  • What are the powers that regulator has?
  • What is the issue that the regulator has identified?
  • Are you aware of any intention to share information with another regulator?
  • Are there issues of non-compliance being raised by the regulator?
  • If there are issues of non-compliance, is the particular allegation one that could lead to a penalty whether civil or criminal?

In the event that you are concerned about your response to a regulator’s enquiries or wish to seek advice before or throughout an investigation, our specialists are able to assist and advise you.

Written by Emma Higgins