Response

(Publication date)

CHAIR: We've gone through a number of matters in our hearing, with witnesses as part of this inquiry raising a series of questions that fall within the remit of ASIC. One of them was the recent appearance by IFS before this committee. Have you read that transcript or are you aware of that transcript?

Mr Shipton: I, personally, have not, but I will ask my colleague Commissioner Press if she has.

Ms Press: I have seen that transcript, yes.

CHAIR: There was follow-up media with people questioning whether IFS was acting consistent with the law. I'll read a brief bit of the transcript from. Mr Falinski asked:

Do you think the limited scope financial planners that you have can fulfil their best interest duties if they only give advice on superannuation?
Then the witness from IFS said:

Yes, we believe so. I know that some in the industry have thought that the advent of the best interest duty and the code of ethics might see the end of limited scope or intrafund advice. We believe there's absolutely a place for it. We have the benefit of licensing advisers that sit in both unlimited scope and in a holistic advice sense. It comes down to appropriate scoping and then understanding when you need to decline providing advice …

Mr Falinski then went on to ask whether they had consulted ASIC on this, and they said they had spoken to ASIC and they got the sign-off based on what was being said by ASIC at conferences. Can you give some clarity: has ASIC actually signed off on the approach?

Ms Press: We have not signed off on the statements of advice that are provided by IFS advisers. We have on several occasions said and continue to believe that scaled advice, of which intrafund is a component, is appropriate and is able to be delivered under the best interests duty. The delivery of intrafund advice is something that is allowable and defined by the SI(S) Act but still must meet the best interests duty and the other duties of a financial adviser.

CHAIR: Mr Falinski, do you have a follow-up question on this?

Mr FALINSKI: Yes, I do. What I don't understand about the approach that they're taking is how you can give personal advice if you're not asking about a person's personal circumstances.

Ms Press: The intrafund advice that we're talking about is very limited in its scope, and it's limited scope advice.

Mr FALINSKI: I'm utterly confused by this. When does limited personal advice become personal advice?

Ms Press: Intrafund advice does take into consideration some personal circumstances, but it is limited in its scope, and that limitation in its scope is defined by the statement of advice.

Mr FALINSKI: So then wouldn't the consumer assume that they're getting personal advice?

Ms Press: They are getting—

Mr FALINSKI: The law is meant to be applied as to what a reasonable person would assume that they are [inaudible] and how that is presented. It seems to me that they're being presented with personal advice and it's not being made clear to them in any way, shape or form that it's general advice. And now there seems to be this hybrid kind of advice which is limited personal advice, which I didn't know existed at all.

Ms Press: So, to be clear, intrafund advice is personal advice; it is not general advice. It is subject to—

Mr FALINSKI: So then why weren't they providing that under the general advice provisions?

Ms Press: They're not providing it under the general advice provisions. They're providing it under the provision of the intrafund carve-out in the SI(S)Act, which is a matter for government to allow that.

Mr FALINSKI: I know many union backed publications reflect on my intelligence, but can I be blunt and say to you that I really don't understand what it is that is going on here. I believe you to be a competent, reasonable, intelligent person who is across the law, and you can't explain this to me in a manner and form that makes sense.

Ms Press: Well, I apologise that it doesn't make sense to you.

Mr FALINSKI: No, I don't mean it's your fault—

Ms Press: Intrafund advice is personal advice. It is subject to a statement of advice.

CHAIR: Sorry, I'm going to interrupt here. What I think would be useful is that, if ASIC could reflect on the transcript of the hearing, it could give a reflection on the transcript of this hearing as well and provide a formal written advice to this committee about the consistency between the position that IFS has taken and the issues and matters that Mr Falinski has raised, because there is clearly a lack of clarity about the extent to which certain types of advice can be provided.

Mr FALINSKI: As part of your COVID-19 plan, to what extent have notices slowed down as a result? To give context, in March 2020 you guys issued a statement saying that you're recalibrating your regulatory priorities to focus on COVID-19 challenges. As part of that statement, you said:

In issuing information-gathering notices, ASIC has provided new guidance to our staff – mindful that many notice recipients may be facing significant disruption.
By taking these actions, industry participants will be better placed to focus on their immediate priorities and the needs of their customers at this difficult time.

My question, in that context, is: to what extent have the notices slowed down?

Mr Shipton: I can confirm that those notices have slowed down. For instance, in our Close and Continuous Monitoring Program there has been a decline in the onsite supervision and notice utilisation. I don't have the figures to hand, but we can take that on notice if you wanted to get some statistical analysis here. I will also ask my colleague, Deputy Chair Crennan, to make any observations on the enforcements.

Mr Crennan: I would just add that there are a number of aspects of the operation of the office of [inaudible] issuing of notices, which you've referred to. That's been [inaudible]. We are not in a position to give you precise numbers or a graph or anything, but we'll take that on notice and endeavour to get back to you quickly. So too with the section 19 examinations—we have been persevering with them similar to these types of circumstances—and other interactions with the larger entities in particular in circumstances where we, for example, issue 912C notices where an entity can effectively write a report for us and all those sorts of things. So we've explored as many strategies as we can that are efficient and sensitive to the current economic environment such that we can continue to enforce the law, continue to investigate possible contraventions of the law, without overburdening the regulated communities but without stopping the office of influence from its operations in any significant way. I hope that's helpful, but we'll get back to you with the precise details.

This year, the ASX issued a class waiver, permitting listed firms to raise up to 25 per cent of new equity on a non-pro-rata basis (up from 15 per cent normally).

a) Please provide a full list of the instances in which this rule has been relied upon (i.e. non-pro-rata equity raisings above 15 per cent), providing for each: name, date, and amount raised.

b) What is the proportion of total capital raised that went to new shareholders versus existing shareholders?

c) What proportion of the total amount raised went to recipients who received more than their notional pro rata entitlements under the new placement regime?

d) What consultation did the ASX undertake with ASIC prior to the issuance of this class waiver?

e) What consultation did the ASX undertake with ASIC prior to the recent extension of this class waiver from July 2020 to November 2020?

f) Did ASIC support the recent extension of this class waiver from July 2020 to November 2020? If so, what evidence did you rely on in making that decision?

g) Can ASIC quantify the cost of dilution to retail shareholders of ASX companies across all raising types (not just those relying on the new class waiver) since the new class waiver was introduced?

Responses to
questions 7 - 10

(14 September 2020)
(PDF244KB)

ASIC received special funding of AUD6.8 million in the 2019 budget for a corporate governance taskforce.

a. Of this funding, how much was spent on consultants?

b. What deliverables were produced?

c. What measurable impact has it had on corporate governance?

The following questions relate to the collapse of Pasminco and its placement into voluntary administration in 2001.

a. Does ASIC believe that the directors of Pasminco in all the circumstances of the matter correctly discharged their duties to creditors and shareholders of Pasminco when they appointed administrators?

b. Did the directors of Pasminco take all steps to mitigate any loss by shareholders, such as to avoid the need for appointment of any administrators?

c. Following the administration process Pasminco became Zinifex Limited. The Shareholders of the former entity received nothing from the process while the 39 banking industry shareholders made significant profits from the debt they held. Has ASIC ever investigated the legality of this outcome in relation to investors?

d. Is it ASIC’s belief that the directors of Pasminco were appropriately fulfilling their directors’ and officers’ duties under general law and pursuant to the Corporations Act 2001 including:

i. acting with care and diligence;

ii. acting in good faith, in the interest of the company and for a proper purpose;

iii. not using the position of director improperly;

iv. not improperly using information that gain during the course of carrying out duties as a director;

v. avoiding conflicts of interest;

vi. keeping records about the financial position of the company.      

ASIC’s first Consultation Paper proposing reforms on the sale of insurance in car yards was released three years ago, and its Original Instrument was released for consultation 10 months ago. ASIC is proposing a 9 month delay for the main operative section in the New Instrument (Section 6).

(a) What has caused this delay? Why is it necessary in ASIC’s view?

(b) What calculations have ASIC done to gauge the impact of the altered timeline on consumers?

(c) Can ASIC guarantee there won’t be further delays after 9 months?

(d) What would be the cost of acting sooner?

ASIC Report 413 Review of retail life insurance advice found that 37 per cent of consumers received advice that failed to meet the relevant legal standard that applied when the advice was given. It also found that the way an advisor was paid had a statistically significant bearing on the likelihood of their client receiving advice that did not comply with the law (pp. 6-7).

(a) Was the decision to implement the life insurance advice reforms based solely on the findings of this report?

(b) Report 413 found that upfront commission models represent an incentive for advisers to give product replacement advice to clients with existing arrangements, often referred to as ‘churn’. How does ‘churn’ impact consumers?

(c) Has ASIC conducted research into the impact of different remuneration structures on clients receiving compliant advice following the introduction of the life insurance financial advice reforms? If so, please provide a copy of the research.

(d) Did this research find life insurance ‘churn’ to be a major issue in Australia? If not, do you believe that this is due to the new regulatory framework?

Articles in the Australian Financial Review, (‘Industry Super gets “please explain” notice from treasury’, 28 April 2020; and ‘Industry Super admits modelling bungle and probe’, 14 May 2020) reported that Industry Super Australia’s ‘super calculators’ were found to produce significantly higher estimated impacts of withdrawals under the early access scheme than those produced by the ASIC calculator.

(a) It was reported that ‘ASIC has confirmed it wrote to ISA on April 20 due to concerns that “contrary to the ASIC principles, the ISA modelling did not use the same assumptions as the generic calculator on the ISA website”’.

(i) Has ASIC received a response from ISA to this correspondence?

(ii) Is ASIC satisfied with ISA’s response? Does ASIC consider the matter resolved?

A recent article in the Australian Financial Review ‘Guardian too credulous on super calculators’, 24 September 2020, reported that ISA’s ‘super calculator’ regarding the impact of scrapping the planned superannuation increase was being promoted to consumers in the media.

(b) Considering the past issues with ISA super calculators, is ASIC concerned that this calculator may not be accurate and may mislead consumers?

(c) What is ASIC doing to ensure that ‘super calculators’ cannot be used to mislead consumers?

CHAIR: … We've raised this matter before you as well, which is on superannuation funds when, as you may recall earlier in the year, there was a bottoming out of the Australian Stock Exchange as a consequence of COVID-19. Then there was a delayed period, in many cases, where super funds had unlisted assets for revaluation that enabled people to move money about from within funds based on knowledge or inside information to potentially profit. I asked a series of questions of superannuation funds, and this seems to me to be quasi-insider trading, if it does occur.

We asked about the switching behaviour of executives and trustees of superannuation funds across Australia, and we got a number of different responses. Say, for instance, CareSuper, who I give credit to. In answer to, 'What volume of switching between funds occurred in that time by trustees of the fund that are also members of the fund, between the highest and lowest valuations,' their answer was:

Investment choices of individuals are treated with confidence.However, CareSuper has in place a comprehensive Conflicts Management Policy. This Conflicts Management Policy requires that 'blackout' periods are declared and enforced such that any director, executive or member of staff who was aware of any advance or sensitive information on valuations is prohibited from switching for the duration of the period. Black-out periods were enforced at various times in the six months from 1 January 2020 to 30 June 2020.

I give them credit, and I'll table that evidence, as answered as a question on notice.

I'll go to other funds. For instance, I believe UniSuper have admitted that one member, who is also an executive of the fund, had one or more switch requests processed during the high load periods of their fund to a total value of $445,368. I'll table that one. We then have other funds where we see other issues similarly occurring. AustralianSuper had one person who did a transaction during that time. I'll table that one. We have Cbus, who refuses to provide any information to us, which is interesting. We then have NGS Super. They have outlined that they have trustees who did major transactions—three of them, in fact—during that time. I'll table that one as well. Then we have Rest. Rest has a person who transacted $465,949 in funds. I'll table that one as well. You can see the pattern of behaviour. We have people who are trustees or managers of funds transacting huge sums of money within a defined period, where it's known that the stock market may not have reached bottom—we have to concede that—but had dropped considerably while they hadn't revalued their unlisted assets and therefore may have been able to secure a benefit. Is that the sort of thing that ASIC would investigate?

Ms Press: We would be happy to take those examples away and investigate them, yes.

Mr Wilson has provided the following responses to questions in writing from superannuation funds for this question:

• REST111QW
• NGS96QW
• CBUS98QW
• AS103QW
• CARE96QW

Regarding the case ASIC v Mitchell (No 2) [2020] FCA 1098:

(a) What is ASIC’s view of Beach J’s decision to call Mr McWilliam as a witness?

(b) In ASIC’s view, how did Beach J calling Mr McWilliam impact the outcome of the case?

(c) Does ASIC believe that the case established any precedents that might significantly impact future civil penalty proceedings brought by ASIC?

Does ASIC stand by the proposition, which it pursued in the case ASIC v Mitchell (No 2) [2020] FCA 1098 (Court Transcript, 2 December 2019, p. 1239), that Mr Healy made statements in his examination by ASIC which were inconsistent with the evidence he gave in court? If so:

(a) What is ASIC’s view of Beach J’s decision (Court Transcript, 2 December 2020, p. 1314) to not allow ASIC to use the excerpts of the transcript of Mr Healy’s examination by ASIC?

(b) Does ASIC intend to pursue Mr Healy for making a false or misleading statement to ASIC or for giving a false statement to the court? If not, why not?

Does ASIC intend to submit an appeal in regards to ASIC v Mitchell (No 2) [2020] FCA 1098? If not:

(a) What are ASIC’s reasons for not submitting an appeal?

(b) Does ASIC hold the view that the prospects of success for an appeal are low?

(c) Which commissioner/senior executive at ASIC made the decision not to submit an appeal?

(d) Did ASIC consider submitting an appeal on the grounds that Beach J did not ultimately, in his judgement, provide his reasons for excluding Mr Healy’s evidence, as he had undertaken to do? If not, why not?

On 14 September 2020, an article in the Sydney Morning Herald ‘‘Former Tennis chief Healy says ASIC tried to turn him against Harold Mitchell’, reported that Mr Healy revealed details of a settlement offer he had received from ASIC.

(a) Were the settlement discussions ASIC held with Mr Healy, which are referred to in the article, confidential?

(b) If so, does ASIC intend to take any action against Mr Healy for publicly disclosing privileged discussions about settlement? If not, why not?