ASIC looking ahead – greenwashing, climate-risk disclosures, crypto, scams and more – Knowledge

ASIC President Joseph Longo revealed last week what we can expect from the regulator in the coming year and it will be very challenging.

ASIC released its business plan for 2022-2026 on August 22, 2022, followed by Longo’s speech to the Economic Development Committee of Australia (CEDA) where he revealed his vision for ASIC as an “ambitious and confident regulator”, focused on the future.

During the discussion, the ASIC’s desire to prioritize the areas of greatest harm and to take action to protect vulnerable consumers echoed. For Mr. Longo, this means directly addressing “hot” issues like greenwashing, revelations about climate risks, cryptocurrencies (or cryptocurrencies), scams and more.

Here are some key takeaways from the Business Plan and comments from Mr Longo during his discussion at the CEDA event.

Strategic priorities and projects

The ASIC has identified four external strategic priorities for the next 4 years:

  • Product design and distribution;
  • Sustainable finance;
  • Pension decision; And

Mr. Longo focused on ASIC’s approach to four of its eight core strategic projects to advance strategic priorities:

  • improve sustainable finance practices and dissemination of climate risks;
  • supervise and enforce design and distribution obligations (DDO);
  • addressing market integrity issues and investor harms in relation to cryptocurrencies (or cryptocurrency); And
  • stop and fight financial scams to protect consumers.

Sustainable Finance Practices

As one of ASIC’s four external strategic priorities, we can expect a multi-pronged approach to ASIC’s focus on sustainable finance in the coming year.

Longo pointed out two issues arising from sustainable finance on the regulator’s radar and that executive action from ASIC should be expected:

Climate risk information

The ASIC aims to ensure that entities comply with their disclosure requirements and do not mislead customers. It will seek to support market integrity through proactive oversight and application of governance, transparency and disclosure standards in relation to sustainable finance.

ASIC strongly supports the development of globally comparable standards. However, Mr. Longo noted that this was a medium- and long-term priority for the ASIC. While the ASIC is encouraged by the recently published standards proposals by the International Sustainability Standards Board, it recognizes that the implementation of the standards in Australia will take time. In the meantime, companies are encouraged to continue to be proactive in their reporting and disclosure on climate risk with reference to the framework of the Climate Financial Information Task Force.

Greenwashing

Recently the ASIC has focused heavily on how financial products are marketed and the need for products to remain “loyal to the label”. The ASIC has continually warned issuers (particularly those in the managed funds industry) about the risk of making misleading claims or misrepresentations and has sought to take action against issuers who according to the ASIC have made misleading or deceptive claims in advertising .

It is therefore not surprising that ASIC is now shifting attention to how issuers represent their “green credentials”. Longo reiterated that the ASIC is actively monitoring the market, testing “green” investment offers and monitoring misleading and deceptive claims. This is a short-term priority goal for ASIC and will complement its work already in this space through the recent publication of the ASIC fact sheet (INFO 271) “How to avoid greenwashing when offering or promoting sustainability related products” in June 2022. This fact sheet focuses on sustainability-related products issued by the funds, but the ASIC said its principles may apply to other entities offering or promoting financial products that take sustainability considerations into account.

Longo revealed that executive action against greenwashing should be expected and it was reported that the ASIC has at least two ongoing greenwashing investigations underway (and is currently conducting investigations into several super funds, managed funds and listed companies). . Additionally, this month Market Forces filed a formal complaint with ASIC regarding potentially misleading statements by Santos president and chief executive officer at Santos’ annual meeting. The ASIC has not publicly commented on this investigation other than to say that any reports of misconduct were received in confidence. We can expect to hear more from ASIC about the results of its greenwashing investigation in the coming months.

Product design and distribution

The ASIC has reported on several occasions that the grace period given to industry to reduce the implementation of design and distribution obligations (DDO) it’s over. Mr. Longo clarified that the ASIC’s focus has now shifted to active supervision and enforcement of the DDO regime. Even on August 29 alone, the ASIC released its findings following a review of the pension trustee compliance sample that found some misconduct.

Under the DDO regime, the ASIC can act swiftly to issue interim stop orders in relation to financial products where the ASIC deems the obligations relating to the processing and review of a target market determination (TMD) or taking reasonable steps to ensure that distribution is consistent with a TMD have been breached. The ASIC recently used its arrest warrant powers for the first time to prevent three companies from issuing related interest or shares of managed investment schemes to retain investors. Mr. Longo has identified the executive action against the Responsible Body Services (RES), noting that it would intervene where the products do not meet the needs of investors in the reference market.

Longo also clarified the ASIC’s expectation that companies are proactive, noting that DDO is not a case of “set and forget“. Product issuers are required to collect, evaluate and respond to consumer performance data from their products, and to the extent the ASIC identifies poor consumer performance, it will intervene to stop selling products using stop orders or enforcement actions. judicial. The idea that issuers should regularly review and take corrective action against TMDs was reiterated by the ASIC in its recent press release.

We can expect the ASIC to take further law enforcement measures if it identifies misconduct in relation to complex, high-risk products it is targeting for oversight, including over-the-counter derivatives and cryptocurrencies. The same can be said for the small credit and buy now pay later sectors for which the ASIC is currently reviewing product governance arrangements to see how TMDs have been developed and data, metrics and other considerations. to the base.

Technological risks for consumers deriving from cryptocurrencies and scams

In line with ASIC’s desire to prioritize areas of greatest harm and take action to protect vulnerable consumers, ASIC focuses on becoming a “digital savvy regulator” to address the regulatory challenges associated with technological developments to ensure the protection of consumers, in particular with reference to cryptographic assets and investment scams.

While promising that regulation was on the way for cryptocurrencies, Mr. Longo acknowledged that cryptocurrency would be very difficult to regulate. The president of the ASIC warned that cryptocurrencies are “highly volatile, inherently risky and complex” and expressed concern over the growing popularity of cryptocurrencies in circumstances where research has shown that 80% of cryptocurrency investors did not consider it. a risky product.

The ASIC is expected to continue to prioritize cryptocurrency surveillance and take enforcement measures to stop and discourage malicious products. Mr. Longo also noted that the ASIC was collaborating with national and international colleagues as part of its oversight and development of an effective regulatory framework. This follows the federal government’s announcement that it will soon begin an industry consultation as part of a cryptocurrency industry review.

ASIC is also expected to continue to stop scams using innovative, data-driven approaches in response to the growing prevalence of digitally-enabled scams and fraud. Mrs Longo referred to another of the ongoing initiatives to combat scams, including a process with the ACCC to block fraudulent websites.

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