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ASIC

Product issuers must improve distribution practices to ensure DDO compliance

ASIC reminded product issuers that, under the design and distribution obligations (DDO), they must take reasonable steps that will, or are reasonably likely to, result in financial product distribution consistent with their target market determination. 

ASIC recently called on product issuers to review their distribution practices for DDO compliance, as poor design and distribution puts consumers at risk of financial harm. This call to action follows ASIC’s latest DDO surveillance which examined compliance with product issuers’ obligation to take reasonable steps to support appropriate distribution of their products. ASIC noted issuers need effective arrangements to manage the risks identified in the distribution of their product. 

See ASIC Report 795 Design and distribution obligations: Compliance with the reasonable steps obligation.

See ASIC update.

ASIC warns governance gap could emerge in first report on AI adoption by licensees

ASIC is urging financial services and credit licensees to ensure their governance practices keep pace with their accelerating adoption of artificial intelligence (AI). The call comes as ASIC’s first state of the market review of the use and adoption of AI by 23 licensees found there was potential for governance to lag behind AI adoption, despite current AI usage being relatively cautious.

ASIC Chair Joe Longo said making sure governance frameworks are updated for the planned use of AI is crucial to licensees meeting future challenges posed by the technology. ASIC’s findings revealed nearly half of licensees did not have policies in place that considered consumer fairness or bias and even fewer had policies governing the disclosure of AI use to consumers.

See ASIC media release. 

Opening Statement by ASIC Chair Joe Longo at the Senate Economics Legislation Committee, Supplementary Budget Estimates, 7 November 2024

ASIC Chair Joe Longo outlined ASIC’s ongoing transformation since his appointment in 2021, driven by recommendations from the 2022 Financial Regulator Assessment Authority (FRAA) review. Longo said ASIC has made significant strides, including organisational redesign, improved collaboration and enhanced data capabilities to address emerging risks such as market volatility, AI and cybersecurity. 

ASIC has implemented 19 of the FRAA’s 22 recommendations, focusing on innovation in surveillance, strategic planning and stakeholder engagement, with key long-term priorities in data, technology and impact assessment. Longo also highlighted the upcoming release of ASIC's draft regulatory guide on sustainability reporting, marking a key step in evolving financial reporting standards amidst growing environmental, social and governance concerns.

Read the full statement.

ASIC seeks feedback on proposed guidance on sustainability reporting regime

On 7 November, ASIC released a draft regulatory guide on the sustainability reporting regime for consultation with stakeholders. 

From 1 January 2025, many large Australian businesses and financial institutions will need to prepare annual statutory sustainability reports containing climate-related financial disclosures.

The draft Regulatory Guide 000 Sustainability reporting (Draft RG 000) includes guidance on who must prepare a sustainability report, how the regime will interact with existing legal obligations and how ASIC will administer the sustainability reporting requirements. This includes specific guidance on ASIC’s approach to granting relief from the regime and use of its new directions power.

Draft RG 000 also addresses specific issues in relation to the contents of the sustainability report and sustainability-related financial disclosures outside the sustainability report.

ASIC Commissioner Kate O’Rourke said: ”Our focus for this regulatory guide is to assist preparers of sustainability reports to comply with their obligations so that users are provided with high-quality, decision-useful, climate-related financial disclosures that comply with the law and the sustainability standards”.

ASIC’s Consultation Paper 380 Sustainability reporting seeks stakeholder feedback by 19 December on Draft RG 000, whether any ASIC legislative instruments grant relief in relation to financial reporting or audit requirements should be extended to sustainability reporting and any other areas where ASIC should support the introduction of the sustainability reporting regime.

See ASIC media release.

ASIC Key actions and proceedings

• ASIC sues Oak Capital alleging unconscionable conduct designed to avoid the National Credit Code – ASIC has commenced proceedings against Oak Capital (Oak Capital Mortgage Fund Ltd and Oak Capital Wholesale Fund Pty Ltd) for allegedly engaging in unconscionable conduct to avoid the National Credit Code (the Code). ASIC alleges that from 7 March 2019 to 4 October 2023, Oak Capital made up to 47 loans totalling over $37 million under a model designed to avoid the application of the Code and the National Consumer Credit Protection Act 2009 (Cth). ASIC alleges Oak Capital provided loans to companies – rather than the individuals requiring the loan – to avoid the operation of the Code and the National Consumer Credit Protection Act 2009 (Cth) in circumstances where Oak Capital knew, or ought to have known, the loan was for a domestic, personal or household purpose (such as a home loan) and would otherwise be captured by the Code. See ASIC media release.
• Federal Court finds HCF Life contract term was liable to mislead the public – The Federal Court found a 'pre-existing condition' term in certain HCF Life insurance policies was liable to mislead the public because:
  • It seemed to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract.
  • It suggested HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the insurance contract.

Section 47 of the Insurance Contacts Act 1984 (Cth) prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance and a reasonable person in the circumstances could not be expected to have been aware of the condition.

ASIC plans to seek penalties for misleading conduct, emphasising consumers deserve accurate information about their rights when making claims. See ASIC media release.