“So dignified in your well-pressed suit
So strategised, all the eyes on you.” Mr. Perfectly Fine aka ASIC (Taylor’s Version) [From the Vault], Fearless

Your ASIC Primer

Although Taylor Swift’s assertion that ‘Band-aids don’t fix bullet holes’ might simply depress insurers and product manufacturers, it’s an important reminder for Australian Financial Services Licensees to acknowledge that superficial measures won’t (and don’t) fix big problems. The Australian Securities and Investments Commission (ASIC) – Swifties all – knows this “all too well”. In fact, ASIC recently confirmed the proactive steps it intends to take to address the structural and emerging challenges facing Australia’s financial services industry. 

Although people take shots at ASIC like it’s Patrón, the regulator plays a critical role in policing conduct. ASIC is often criticised for prioritising media releases and applying temporary fixes, but ASIC also acts strategically, planning to implement comprehensive and meaningful reforms aimed at protecting consumers and maintaining financial stability. The Economics References Committee recently released a report on ASIC’s capacity and capability to carry out their responsibilities in which they found that ASIC does have some serious limitations and failures that should be addressed. Regardless, ASIC does have an important role, and we need to keep an eye on what they have going on. 

Consider ASIC’s latest report, REP 797: Licensing and Professional Registration Activities, published on 11 October 2024. This report offers valuable insights into the regulator’s activities for the 2023-24 financial year, highlighting licensing trends, reforms, and initiatives aimed at improving service delivery. This article unpacks the key aspects of ASIC’s latest report and discusses the implications for Australian Financial Services (AFS) and credit licensees.

ASIC Funding Overview: Context for Expanding Obligations

Understanding ASIC’s funding is critical for appreciating its priorities and regulatory decisions. As ASIC faces expanding obligations, the allocation of resources from government funding and industry levies provides critical context for its regulatory strategies and choices.

The funding data for this graph, detailing government appropriations and industry levies, was verified using the ASIC Annual Reports for the years 2018 to 2024.

The graph above shows ASIC’s funding breakdown by source from 2018 to 2024, with contributions from government funding and industry levies. The funding data for this graph, detailing government appropriations and industry levies, was verified using the ASIC Annual Reports for the years 2018 to 2024. Over the six-year period from 2018 to 2024, industry levies have increased by approximately 36%, rising from AUD 110 million to AUD 150 million, while government funding increased by 25.8%, from AUD 310 million to AUD 390 million. This gradual growth reflects ASIC’s efforts to distribute regulatory costs effectively across both government and industry participants, maintaining financial stability and accountability. In 2022-23, there were approximately 7,800 financial services licensees and 1,400 credit licensees contributing to the levy. Data sourced from ASIC Annual Reports.

ASIC’s 2023-2024 Annual Report declared a $31 million surplus, attributed to factors including court cost recovery revenue. ASIC also reported $2,062 million collected for the Commonwealth from fees (including industry funding), charges and supervisory cost recovery levies in the past year. This is a 12% increase from the last financial year (2022-2023). 

Overview of Licensing and Registration Activities

Licensing Trends and Key Issues

ASIC reiterated, “Our licensing processes adopt a risk-based approach, dedicating more resources to complex and higher-risk applications to uphold consumer protection and financial system stability” (REP 797, p. 6).

For instance, ASIC has imposed additional regulatory outcomes on approved applications where appropriate. In 2023-24, 48% of AFS licence applications and 62% of credit licence applications were subject to at least one additional regulatory outcome, such as imposing a key person condition or appointing additional responsible managers.

ASIC confirmed, “We consult widely, both internally and externally, to ensure decisions about applicants are informed by a comprehensive understanding of the risks involved” (REP 797, p. 6). This ongoing engagement ensures that licensing decisions are balanced and maintain regulatory integrity.

One of the significant achievements in this reporting period is ASIC’s improved performance against its service charter metrics. ASIC noted, “We achieved eight of our nine service charter metrics, with a slight shortfall in AFS licence variations due to prioritising claims handling and debt management applications” (REP 797, p. 4). Here, ASIC achieved 89% against an objective of 90% within the 240-day timeframe. 

In the preceding years, ASIC’s performance against this metric varied: in 2022-23, ASIC achieved 91% against the same 90% objective; in 2021-22, the achievement was 92%; and in 2020-21, the performance was 90%, successfully meeting the objective. These variations reflect the ongoing adjustments ASIC has made in allocating resources to different types of applications (REP 797, p. 4).

Modernisation of Licensing Processes

A significant initiative announced in the report is the upcoming introduction of a new digital portal, the AFS Licensing Portal, scheduled for launch in early 2025. The portal aims to modernise and simplify the application process for AFS licences, allowing applicants to access a more user-friendly and efficient digital experience.

The portal will pre-fill information already available to ASIC, reducing administrative burdens on applicants and minimising delays. The human-centred design (HCD) approach has been integral to the development of the portal, involving extensive user testing to ensure that the new system addresses pain points identified by stakeholders. This move to digital efficiency represents ASIC’s broader efforts to bring greater transparency, accountability, and service improvements to its licensing functions.

Proposed Licensing Reforms and Regulatory Changes 

ASIC’s report highlighted several significant reforms, signalling shifts in the regulatory landscape that will impact various financial services participants.

Regulation of Digital Assets

One of the key proposed reforms is the regulation of digital asset platforms. In October 2023, the Treasury released a consultation paper proposing a new regulatory framework categorising certain digital asset facilities as financial products under the AFS licensing regime. This would require relevant entities to obtain an AFS licence, which is intended to mitigate consumer harm while allowing room for innovation. ASIC has indicated it will consult on updates to Information Sheet 225 regarding when crypto-assets are considered financial products.

Buy Now Pay Later (BNPL) and Payments System Reforms

Another major area of reform is the regulation of Buy Now Pay Later (BNPL) providers. The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 proposes that BNPL providers must hold a credit licence, subject to transitional arrangements. This change is designed to align BNPL services with other forms of credit and improve consumer protection in the sector. For more information, please visit the ASIC BNPL information page. The BNPL information page outlines ASIC’s approach to regulating Buy Now Pay Later products, focusing on mitigating consumer risks associated with unregulated credit. The reforms are intended to align BNPL products with existing credit laws, ensuring that providers meet licensing obligations, maintain financial stability, and protect consumers from potentially harmful lending practices. By requiring BNPL providers to hold a credit licence, ASIC aims to introduce greater accountability and transparency in the sector, thereby enhancing consumer protection.

Additionally, the Treasury is proposing reforms to modernise the payments system by requiring many payment service providers, who are currently exempt, to apply for and obtain an AFS licence. This change will affect many entities, including those offering digital payment solutions, non-bank financial services, and other payment facilitators currently operating without a formal licensing requirement. These entities must comply with the AFS licensing obligations, which include meeting standards of conduct and financial resource requirements and implementing appropriate risk management frameworks. The reforms are intended to enhance consumer protection, ensure consistent regulation across the payments industry, and mitigate risks associated with unlicensed operators. The licensing requirement is expected to come into effect 18 months after the commencement of the enabling legislation.

Enhancements to Regulatory Processes

ASIC clarified, “From October 2023, we adjusted the reportable situations regime to remove the requirement to report certain non-significant breaches, such as administrative errors with no client impact or isolated non-material non-compliance” (REP 797, p. 10). This change was implemented to allow licensees to focus their resources on significant breaches that pose a greater risk to consumers or the financial system. The types of breaches no longer required to be reported include minor administrative oversights, such as clerical errors or delays that do not adversely affect consumers, and isolated instances of non-material non-compliance where there is no systemic issue. This adjustment aims to streamline reporting obligations and ensure that ASIC receives timely and relevant information regarding breaches that may indicate deeper compliance issues or potential consumer harm. By reducing the reporting burden for minor issues, ASIC encourages licensees to concentrate on identifying and addressing breaches that have a meaningful impact on consumers or the integrity of the financial system.

The Financial Accountability Regime (FAR) will also be extended to the insurance and superannuation sectors starting in March 2025, marking a significant expansion from its initial application to banking institutions. FAR establishes clear responsibilities for senior executives and directors of financial entities to ensure greater accountability in decision-making processes. This regime will affect entities such as insurers, superannuation funds, and their responsible managers, who must demonstrate compliance with the regime’s accountability standards. The aim is to enhance governance practices, prevent misconduct, and ensure that entities act in the best interest of consumers. 

FAR applies under circumstances where financial entities must ensure they have systems to hold senior managers accountable for their actions. This reinforces the emphasis on responsible conduct and sound governance across the financial services industry.

New Registration Requirements for Financial Advisers

ASIC stated, “From 1 February 2024, all financial advisers providing personal advice to retail clients must be registered with ASIC, ensuring greater oversight and consistency in the quality of financial advice” (REP 797, p. 11).

ASIC has released information sheets, INFO 276 and INFO 277, to assist AFS licensees and advisers in understanding and complying with these new registration obligations. These new registration requirements affect financial advisers who provide personal advice to retail clients on financial products. Specifically, advisers must now be registered with ASIC to ensure they meet the standards set out for consumer protection, which include minimum education qualifications, ongoing professional development, adherence to ethical conduct standards, and maintaining sufficient competence to provide financial advice. These requirements are designed to ensure that advisers act in the best interests of their clients and are accountable for the quality of advice provided. 

This applies to all relevant financial advisers as of February 2024, excluding provisional advisers who are still under supervision. The reforms aim to bring consistency to the registration process, enhance oversight of advisers, and ensure that consumers receive advice from qualified and accountable professionals. These changes reflect ASIC’s commitment to strengthening consumer trust in the financial advisory sector by ensuring only those meeting stringent standards can offer personal financial advice.

A Focus on Stakeholder Engagement

ASIC’s report also highlighted its continued efforts to improve engagement with stakeholders. Throughout 2023-24, ASIC offered applicants and service providers opportunities to discuss novel or complex applications early in the assessment process, aiming to proactively address potential issues. This initiative aligns with ASIC’s broader strategy of fostering open communication and ensuring a clear understanding of regulatory expectations.

Furthermore, ASIC highlighted, “Our applicant surveys indicated that 90% of respondents were either very satisfied or satisfied with how we handled their AFS licence applications, with particular praise for the speed of assessments and expertise of our licensing analysts” (REP 797, p. 8). Additionally, ASIC’s corporate plan emphasises protecting vulnerable consumers and addressing risks such as scams, digitally enabled misconduct and predatory lending practices. ASIC’s strategic initiatives, including enforcement actions, aim to ensure consumer confidence and regulatory integrity. However, stakeholders have indicated that there is still significant work to be done in responding to emerging threats and adapting regulatory frameworks.

Future Direction: Continuing to Modernise and Simplify

Looking ahead, ASIC is committed to continuing its modernisation program. Beyond the new AFS Licensing Portal rollout, ASIC’s Regulatory Systems Program will also modernise the professional registers for auditors, liquidators, and managed investment schemes, building on the advances made with the new Professional Registers Search tool launched in 2024. The goal is to make ASIC’s regulatory systems more accessible, transparent, and efficient for all users.

Implications for Licensees and Advisers

For financial service providers, the updates provided in ASIC’s report are an important reminder of the evolving regulatory landscape and the need to stay compliant with emerging requirements. The push for greater digitisation, including developing the AFS Licensing Portal, reflects ASIC’s efforts to streamline processes, reduce administrative burdens, and enhance user experience.

The proposed licensing reforms for digital assets, BNPL, and payment systems will require entities involved in these activities to adapt quickly to the changing regulatory framework. Preparing for these changes now is essential for maintaining compliance and avoiding disruptions to business operations.

Licensees should also be prepared for increased scrutiny through mechanisms like the Financial Accountability Regime and more rigorous registration requirements for financial advisers. Adapting to these changes will require proactive compliance management and potentially seeking legal or consultancy assistance to navigate the new requirements effectively.

Anticipating and adapting

ASIC’s 2024 Licensing and Professional Registration Update highlights the regulator’s continued focus on protecting consumers, ensuring market integrity, and modernising its processes to make compliance more efficient. The introduction of the AFS Licensing Portal, regulatory reforms impacting digital assets and BNPL, and the extension of the Financial Accountability Regime underscore ASIC’s evolving approach to regulating Australia’s financial landscape.

For licensees and advisers, staying ahead of these changes is vital. The emphasis on user-centred digital improvements, proactive stakeholder engagement, and a risk-based assessment process offers opportunities for us all to engage more effectively with ASIC, ultimately fostering a more efficient and predictable financial services sector.

To stay informed and be proactive about upcoming regulatory changes, consider subscribing to Assured Support’s Three Hit Tuesday or our Regulatory Updates.

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