ASIC roundup: GenZ finance, investor alert list, and cybersecurity focus

The Australian Securities & Investments Commission’s latest actions and news, November 6 – 17, 2023.

AFS licence suspended for JB Markets – November 16, 2023

The Australian financial services (AFS) licence has been suspended for JB Markets Pty Ltd until April 30, 2024 by:

  • failing to comply with the financial requirements of the AFS licence; and
  • not having proper resources to provide the financial services covered by the licence, and not carrying out supervisory arrangements.

With the suspension, JB Markets and its representatives will not be able to provide financial services unless it is to terminate ongoing arrangements with customers.

Suspended licence for First City Corporate Advisory Services – November 16, 2023

First City Corporate Advisory Services Pty Limited has had its AFS licence suspended for failing to lodge its annual financial statements and audit reports.

If First City does not comply with its outstanding obligations by March 27, 2023, ASIC may cancel the licence in full.

Infringement notices for misleading marketing – November 10, 2023

H.E.S.T. Australia Limited, the trustee of HESTA superannuation fund, has paid $48,600 ($31,041) to comply with three infringement notices of alleged false or misleading marketing statements.

The statements were regarding its Balanced Growth superannuation investment option, and referenced 10-year performance figures but did not note the period the figures related to – which in fact ended between five and 14 months prior to publication.

Because of that, customers were believed to gain higher returns than were actually accurate for that period.

“Advertising involving performance figures needs to be clear and transparent about how those figures are calculated.”

ASIC Deputy Chair Sarah Court

Director disqualified for five years – November 8, 2023

Mohamed Aly Ismail Khalaf has been disqualified from managing corporations for five years due to his involvement in the failure of:

  • Qld Protection Security Pty Ltd;
  • Power Protection Services Pty Limited; and 
  • Insight Cleaning Solutions Pty Limited.

As an officer between July 29, 2013 to September 16, 2019, ASIC states that Khalaf acted improperly and failed to meet his obligations when he:

  • made frequent transfers between related entities with no documentation to verify that they were for business purposes;
  • failed to lodge statutory Business Activity Statements and income tax returns, plus failing to pay statutory entitlements; and
  • failed to maintain books and records to make accurate financial statements.

At the time of ASIC’s decision, the three companies owed a combined estimated total of A$738,888.90 ($471,813) to unsecured creditors, including A$724,580.90 ($462,677) to the Australian Tax Office and other statutory creditors.

Civil penalty action against Telstra Super – November 6, 2023

Civil penalty proceedings have begun against Telstra Super over alleged failure to comply with internal dispute resolution requirements – a first ever proceeding under the new regime which came into effect on October 5, 2021.

Allegedly, between October 22, 2021 and January 13, 2023, Telstra Super received 337 superannuation complaints but failed to respond within the 45-day timeframe. Nor did they inform 85 complainants why there was a delay, or inform 22 complainants about their right to take their compliant to the Australian Financial Complaints Authority.

With the proceedings, ASIC seeks declarations, pecuniary penalties and other orders against the company.

ASIC news weeks 45-46

In an article, ASIC Deputy Chair Sarah Court writes about the Commission’s continued work against greenwashing, and says that ASIC aims to assist the industry with both guidance and published findings of its surveillance work around the issue. “This month, we will announce our 2024 enforcement priorities at the ASIC Annual Forum in Melbourne. Greenwashing will continue to be a priority.”

ASIC Chair Joe Longo also said that another focus will be to target misconduct in superannuation sector, and that the Commission will “look to take strong, targeted enforcement action in the coming months and into 2024”.

Last week, Chair Longo and Australian Financial Security Authority (AFSA) Chief Executive Tim Beresford also signed a refreshed Memorandum of Understanding (MoU). The last update was in 2014, and the updated MoU lay out a framework for continued cooperation to facilitate liaison, assistance and the exchange of information between the agencies.

People walk near the Westfield shopping center in Sydney, Australia.
Financial position of Gen Zs in Australia worse than other generations, research shows.
Photo: Getty Images

New research shows Gen Zs are feeling financially stressed, with high levels of debt including Buy Now Pay Later use. Research by ASIC’s Moneysmart program shows that about seven in ten (68%) of Gen Zs have a major cause of concern regarding finances – more than any other generation. They also have an average personal debt of A$8,188 compared to non-Gen Zs with A$6,730 ($5,291 – $4,349).

With the rising cost of living, 82% of Aussie Gen Zs – 18- to 26-year-olds – feel financially stressed, yet are twice as likely to want to better manage their finances, and boost their money skills and financial confidence.

To help, Moneysmart has launched a new consumer awareness campaign aimed at Gen Z. It includes tasks to help manage income and budgets, pay depts and set savings goals.

“Gen Zs are driven to learn more and improve their finances but there’s a clear need to engage and help them feel more confident about money,” said ASIC Chief Executive Officer, Warren Day.

Since March 2021, ASIC has overseen more than A$17.4m ($11.3) in combined compensation payments to over 2,000 retail clients that were affected by breaches of financial services laws by eight retail over-the-counter (OTC) derivative issuers.  

This compensation figure, paid or agreed to be paid, includes:

  • about A$13.1m to 523 derivatives clients of Oztures Trading Pty Ltd – trading as Binance Australia Derivatives – due to incorrect classification of retail clients as wholesale clients, which breached various financial services laws; and
  • a combined A$4.3m to over 1,500 retail clients of seven different issuers of contracts for difference (CFDs), due to issuing CFDs that exceeded the leverage ratio limits permitted by the ASIC Corporations (Product Intervention Order – Contracts for Difference) Instrument 2020/986 (PIO).

All seven* CFD issuers (self-reported the breaches, and proposed remediation programs to ASIC.

(*Capital Com Australia Pty Ltd, CMC Markets Asia Pacific Pty Ltd, Eightcap Pty Ltd, IG Australia (IG Markets Limited and IG Australia Pty Ltd), Pepperstone Group Limited, Saxo Capital Markets (Australia) Limited and StoneX Financial Pty Ltd trading as City Index.)

Yet, ASIC’s review found that three of the CFD issuers used certain behavioral assumptions to estimate losses caused by the breaches of the PIO, which resulted in a lower compensation than an amount calculated as if the provider had not issued the over-leveraged CFDs at all.

The trio, and one other CFD issuer, had also not compensated clients for fees or charges incurred on CFDs issued in breach of the PIO or interest on these amounts.

The four will pay an additional compensation of more than A$2.8m ($1.8m) to the clients.

New tools, proposals and changes

To strengthen its scam prevention tools, ASIC has published a new investor alert list – which will replace the previous ‘Companies you should not deal with’ list. The investor alert list includes both domestic and international entities which ASIC is concerned over, which include “impostor” entities, and those who could be operation without appropriate licenses, exemptions, authorization or permission.

“At launch, our investor alert list includes 52 unlicensed entities and 25 websites impersonating legitimate entities,” said Deputy Chair Sarah Court.

A consultation on the Australian Banking Association’s (ABA) proposed changes to its Banking Code of Practice (the Code) opened last week, and seeks feedback from consumers, small businesses, and subscribing banks.

The consultation focuses on feedback and insights on the proposed Code by the following key issues:

  • if it imposes obligations on subscribers that are beyond those required by the law and address potential key potential consumer harms;
  • if it provides for effective administrative systems for monitoring compliance and whether the obligations are capable of being enforced;
  • whether any review recommendations that the ABA has not supported should be included too;
  • whether the recommendations are appropriately reflected in the proposed Code and proposed Charter;
  • if it strikes an appropriate balance between simplifying the Code and minimising regulatory duplication whilst promoting consumer awareness of protections applicable to their banking relationship; and
  • the role of industry guidelines.

Feedback on the consultation can be submitted until January 15, 2024.

The Unfair Contract Terms (UCT) reforms commenced on November 9, and update the former UCT law which came into effect in 2010 (which contained within the Australian Consumer Law and mirrored provisions in the ASIC Act). The reforms will make UCTs illegal, and attract substantial penalties under the Competition and Consumer Act 2010 and the ASIC Act 2001.

The reforms will also expand the class of small business that can rely on UCT protections, which will be those who either employ fewer than 100 people or have a turnover of less than A$10m ($6.4m) for the previous income year.

ASIC proposes to extend the exemption from the consistency obligations in ASIC Class Order [CO 14/541] for two years until January 1, 2026.

An extended exemption in [CO 14/541] would provide RSE licensees (superannuation trustees) continued exempt from complying with the disclosure obligations in subsection 29QC(1) of the Superannuation Industry (Supervision) Act 1993. 

Feedback can be submitted to December 4.

The two legislative instruments, ASIC Corporations (Auditor Independence) Instrument 2021/75 and ASIC Corporations (Parent Entity Financial Statements) Instrument 2021/195, which are currently due to expire in April 2024, are also proposed to be extended for five years.

Feedback can be submitted to December 8.

Following the commencement of the Treasury Laws Amendment (2023 Measures No. 3) Act 2023, financial advisers who are both working as a relevant provider and a registered tax agent now qualifies as a ‘qualified tax relevant provider’ without having to meet the requirements of Division 3 of Part 3 of the Corporations (Relevant Providers—Education and Training Standards) Determination 2021 (Relevant Providers Determination).

Amended banning order

An earlier ban from engaging in credit activities and providing financial services against Mark Babbage has been amended form 10 years to six years by the Administrative Appeals Tribunal (AAT).

In 2021, Babbage was convicted of three charges for failing to comply with a direction under the Emergency Management Act 2005, and one charge of gaining a benefit by fraud in contravention of the Criminal Code WA.

The AAT’s Senior Member O’Donovan said: “Given the nature of the dishonesty, which included forging bank statements and misleading public officials, the applicant’s lack of insight and the need to emphasise to participants in the financial and credit industries the fundamental importance of honesty in the work that they do, a significant ban which excludes the applicant from participation in the industry is appropriate”. 

Call to prioritise cybersecurity

On November 13, ASIC called on organizations to prioritise their cybersecurity after finding significant gaps in its Report 776 Spotlight on cyber: Findings and insights from the cyber pulse survey 2023.

“For all organisations, cyber security and cyber resilience must be a top priority. ASIC expects this to include oversight of cyber security risk throughout the organisation’s supply chain – it was alarming that 44% of participants are not managing third-party or supply chain risks,” ASIC Chair Joe Longo said.

Longo also spoke at the Australian Financial Review Cyber Summit in September where he highlighted the importance of cybersecurity and cyber resilience.

Air Marshal Darren Goldie AM CSC, the National Cyber Security Coordinator, welcomed the Commission’s work to map out key gaps in corporate Australia’s cyber resilience.

“The 2023-2030 Australian Cyber Security Strategy will enable Australia to build and strengthen its cyber shields and develop our resilience to bounce back quickly.”