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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

ASIC's 'why not litigate?' strategy alive and well, with multiple new proceedings commenced against major organisations

The Australian Securities and Investments Commission (ASIC) has announced a number of significant enforcement proceedings for breaches of the Corporations Act 2001 (Cth) (Corporations Act) and ASIC Act 2001 (Cth) (ASIC Act), including criminal charges laid against Alliance and AWP, and civil penalty proceedings against NAB, CommSec and AUSIEX, and REST.

R v Allianz Australia Insurance Ltd; R v AWP Australia Pty Ltd

On 23 February 2021, ASIC announced that Allianz had been charged with seven counts, and AWP with one count, of making false or misleading statements regarding the sale of Allianz domestic and international travel insurance products in contravention of s1041E of the Corporations Act.

The alleged contraventions relate to advertising on Allianz's website between 2016 and 2018, which ASIC says misrepresented the features and level of coverage of travel insurance offered to consumers. Allianz was the underwriter of the relevant products, which were distributed by AWP.

It is relatively unusual for ASIC to seek criminal convictions for corporate misconduct. If convicted, Allianz and AWP face significant penalties under the new regime for corporate penalties which took effect from 13 March 2019. The maximum penalty for each charge is the greater of:

  • $8.1 million;
  • three times the benefits obtained (where the total value of the benefits can be assessed); or
  • 10 per cent of the company's turnover over a 12-month period preceding the commission of the offence (where the total value of the benefits cannot be assessed).

This is the first example we have seen of ASIC seeking criminal sanctions using this 'greater of' formulation for the calculation of penalty.

The Commonwealth Director of Public Prosecutions – Australia's independent prosecutorial agency for federal crimes – is prosecuting the matter, which was referred to ASIC by the Hayne Banking Royal Commission.

ASIC has separately commenced civil penalty proceedings against Allianz and AWP in relation to allegedly misleading advertisements on Expedia travel websites.

ASIC v NAB

On 24 February 2021, ASIC announced that it had commenced civil penalty proceedings against NAB (the National Australia Bank) in the Federal Court in relation to alleged unconscionable conduct and misrepresentations concerning account fees.

ASIC alleges that between February 2015 and February 2019, NAB made false or misleading representations, engaged in unconscionable and misleading or deceptive conduct, and contravened its obligation to comply with financial services laws by charging periodic payment fees to which it was not entitled (at times and in circumstances where it knew it had no right to do so), and failing to advise customers about incorrect charges and to have adequate systems in place to ensure that overcharging did not happen.

ASIC is seeking a range of declarations in relation to the alleged conduct, including that NAB made false and/or misleading representations in contravention of the ASIC Act, and that NAB contravened its obligation as an Australian financial services licensee to comply with the financial services laws in breach of s912A of the Corporations Act.

The alleged misconduct dates back much longer than the period the subject of the proceedings – NAB had already agreed to remediate customers impacted by the charges as far back as August 2001. The proceedings may be seen as further evidence that an agreement to compensate customers will not prevent the regulator seeking a court-imposed financial penalty.

ASIC v CommSec and AUSIEX

On 1 March 2021, ASIC announced it had commenced civil penalty proceedings against CommSec (Commonwealth Securities Limited) and AUSIEX (Australian Investment Exchange Limited) for alleged systemic compliance failures in the delivery of financial services in breach of s912A(1)(a) of the Corporations Act, the ASIC Act and the Market Integrity Rules.

ASIC alleges that the contraventions occurred across a number of systems and business areas over a "significant period of time".

CommSec and AUSIEX, which provide broking and execution services to customers, have agreed a statement of facts with ASIC and admitted some contraventions, indicating extensive negotiations took place between the parties prior to the commencement of proceedings. CommSec and AUSIEX have also agreed to review all systems and controls relating to financial services and to enter into a compliance programme, including a review of remediation by an independent expert.

ASIC v REST

On 2 March 2021, ASIC announced that it had commenced civil penalty proceedings against superannuation trustee REST (Retail Employees Superannuation Pty Ltd). ASIC alleges that REST made false or misleading representations about the ability of its members to transfer their superannuation out of the Retail Employees Superannuation Trust, of which REST is trustee.

More specifically, ASIC alleges that between March 2015 and May 2018, REST made representations that discouraged, delayed or prevented members from transferring their superannuation to another fund, which denied members the right to choose their lawful rights to superannuation portability and choice of superannuation fund, causing members to suffer financial loss, resulting in REST retaining a higher level of funds under management than would otherwise have occurred.

ASIC is seeking declarations, pecuniary penalties, and other orders against REST.

In a statement released shortly following ASIC's announcement, REST stated that it was "disappointed with ASIC’s decision to launch proceedings about a matter that Rest reported to the regulator, and for which Rest is remediating affected members".

ASIC v Statewide Superannuation Pty Ltd

ASIC's most recent civil penalty proceeding, announced on 4 March 2021, is against a second superannuation trustee, Statewide Super (Statewide). Statewide is the trustee of the Statewide Superannuation Trust.

ASIC alleges that from May 2017 to June 2020, Statewide:

  • sent annual statements and warning letters to approximately 12,500 members, representing they held insurance cover at a time when those members did not have cover under a Statewide insurance policy; and
  • deducted monthly insurance premiums (worth a total of approximately $1,500,000) from superannuation accounts of certain Fund members when those members did not have cover under a Statewide insurance policy.

ASIC is seeking various declarations and orders on the basis of alleged breaches of Statewide's obligation as an Australian financial services licence holder to act efficiently, honestly and fairly and to comply with the financial services laws, and in relation to a failure to lodge a breach report within the required timeframe of 10 business days.

ASIC is also seeking an injunction under s1101B(1) of the Corporations Act requiring Statewide to establish and implement a review and remediation program to identify and compensate customers impacted by the alleged breach, and to appoint an independent expert to report to ASIC on the remediation program.

We expect the superannuation industry to increasingly be an area of focus for ASIC and other regulators, given the significant funds held on trusts for individuals and the increasing competition in that market.