ASIC enforcement news and insights for busy people
Your quarterly round-up of the key enforcement developments and updates that ASIC-regulated entities and individuals need to know about, packaged up in a five-minute read and brought to you by Gilbert + Tobin’s Disputes and Investigations team.
1. Key themes of the quarter - May to July 2024
It’s been a busy three months from May to July 2024 for ASIC. Not only has a challenging Senate report into ASIC’s performance been published (which is particularly critical of ASIC's approach to investigation and enforcement), but on 30 June 2024, ASIC announced an expanded program of work to enhance the integrity and quality of financial reporting . And then at the end of July 2024, Chair Joe Longo said that ASIC would be prioritising a review of (the less transparent) private markets , which would include whether the compliance requirements of listed entities were nudging capital away from public markets.
However, it has also been business as usual for ASIC and it is ramping up its efforts on the enforcement front. As reported by the AFR , ASIC commenced around 180 new investigations in 2023-24 (an increase of around 33 per cent on the previous year) and Chair Joe Longo has made clear that an investigation means “by definition we suspect a contravention of the law ”. Based on enforcement activity to date, we see three key themes emerging:
2. Combatting greenwashing remains a key priority
ASIC has been able to reinforce its stance on greenwashing as a result of successful cases in the Federal Court against Mercer and Active Super.
These two cases, along with ASIC’s success against Vanguard in March 2024 (see our briefing on this case here), with its third proceeding against Mercer also likely to result in a similar outcome on an agreed basis (albeit still subject to Court approval). These three cases all relate to the purported application of exclusionary criteria for investment products (so consider this a key risk area!); however, unlike the Vanguard and Mercer proceedings, Active Super actively defended the case against it, with most (but not all) of the alleged contraventions being made out.
Although they do not attract as much fanfare and do not amount to an admission of guilt or liability, ASIC continues to use infringement notices to achieve its enforcement objectives in relation to the less egregious instances of greenwashing. On 25 June 2024, ASIC confirmed that natural fertilizer company Fertoz Limited, an ASX-listed entity specialising in fertilizer mining, manufacturing and supply had paid $37,560 in compliance with two issued by ASIC in relation to alleged false or misleading statements that Fertoz had made in a presentation published on the ASX in respect of its reforestation project in the Philippines. The presentation stated, in essence, that the reforestation project would obtain an offtake partner and receive funding by the end of 2023 and that planting would also take place in that timeframe (“planting initial hectares Q4 2023”). ASIC’s position was that Fertoz had no reasonable basis to determine that the relevant statements could be true when the presentation was published. In line with ASIC’s Sustainable Finance enforcement priority, since October 2022, ASIC has issued 17 other infringement notices in relation to alleged ESG misconduct. We expect there will be more, not least with the onset of mandatory climate reporting.
Key takeaway - ensure that all claims (green or otherwise) can be properly substantiated! The requirement to be accurate and transparent is not new. As ASIC Chair Joe Longo has said, ASIC’s greenwashing interventions are founded on enforcing well-established legal obligations that prohibit misleading and deceptive conduct (see speech on 2 May 2024 ). As further discussed at the Senate Greenwashing Inquiry , ASIC has found no barriers in applying the existing statutory framework to actions in relation to greenwashing (the Senate report in relation to greenwashing is now due on 20 November 2024 - a date for the diary).
3. Cyber, technology and AI enforcement action
The headline in this space is the Federal Court’s landmark decision on 4 June 2024 to relieve digital currency exchange Block Earner from liability to pay a penalty in proceedings brought by ASIC, despite having found that Block Earner had provided unlicenced financial services and operated an unregistered managed investment scheme in contravention of s 911A(1) and (5B) and s 601ED(5) and (8) of the Corporations Act 2001 (Cth) (CA). This was because the Court found that Block Earner had acted honestly, in accordance with legal advice and in an uncertain regulatory environment. This is the first time a company has successfully relied on relief provisions of the CA to avoid a civil penalty . Both sides have appealed, so watch this space!
This quarter also brought the first judgment in relation to a non-cash payment facility involving crypto assets . In a win for ASIC, the Federal Court found that BPS Financial Pty Ltd engaged in unlicensed conduct when offering the ‘Qoin Wallet’, a non-cash payment facility which used a crypto-asset token called ‘Qoin.’ on the basis that it did not hold an Australian Financial Services Licence (AFSL), nor was authorised by a licence holder (in breach of s 911A and 911A(5B) CA). The Court also found that BPS Financial engaged in misleading or deceptive conduct. The case also clarified the legal principles relating to the authorised representative exemption to the requirement of holding an AFSL and is likely to have important implications for how ASIC will interpret and apply the exemption moving forward - so take note!
In other news, the question of whether cryptocurrency is property was considered in a fascinating speech by Justice Jackman on 21 June 2024. The answer is hugely relevant for the structure of crypto transactions as well as available remedies. In a nutshell, Jackman J concluded that crypto should be considered property - but acknowledged that the law in Australia is as yet unsettled. See the full text of the speech here .
More broadly, cybersecurity is still likely front of mind for ASIC (noting its own proposed cybersecurity uplift referred to by ASIC Chair Joe Longo in his Parliamentary Joint Committee opening statement ), even though it’s been a while since ASIC brought its first (and so far only) action alleging contravention of s 912A CA on the basis of failure to have in place adequate cybersecurity risk management in place (see G+T’s case summary and analysis of that case here).
Although ASIC has not brought any similar actions since then, with the implementation of FAR already in place for banks and looming for insurers and superannuation entities (see below for more details), ASIC now has another legislative springboard for potential enforcement action relating to cybersecurity arrangements of regulated entities - all the more reason to get your house in order (see G+T’s tips for mitigating potential exposures under FAR here).
4. Accountability (and FAR)
And while FAR makes clear that ASIC is focused on individual accountability , ASIC has continued to use existing statutory regimes to pursue directors under the CA, consistent with ASIC's announcement in November 2023 that it had added governance and directors' duties failures to its list of enduring enforcement priorities for 2024.
In the period May to June 2024, ASIC announced [11] separate enforcement actions against directors.
We very much expect the focus on directors and executives to continue as the FAR framework is put into practice.
What else did I miss?
Here’s our pick of other key ASIC enforcement highlights we think you should know about:
What next?
The next three months look like they will be equally busy. Regulated entities should watch out for:
Look out for our next issue of Regulatory Rumblings at the end of October 2024. Otherwise, please do get in touch if you have any questions or need advice.
In the meantime, for an in-depth, weekly overview of regulatory matters more broadly, see our Financial Services team’s excellent publication here .