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Answers to questions on
on Notice 1
1 (Hansard p. 5) – public complaints
am assuming it is not the same people complaining every year. The figures
almost seem to be constant, but they grow each year by almost a constant amount
with a bit of variation. It does not really tell me a lot. It just says things
are as they are. There is no analytical data which says there is a variance: in
this year the reason it varied by this much is because of external factors, or something
that explains the numbers; otherwise, the numbers are a bit meaningless in that
sense. They are just numbers.
D’Aloisio—We run some stats. For example, there have been increases in more
recent times around the insolvency area and around issues of corporate
governance and so on with companies that have gone insolvent. Again that is
more related to the market itself and where we are at the time. I think we will
take that on board and have a look at whether we can distil anything from the
numbers. The reasons people complain are many and varied—they are to do with
the particular time and also a heightened awareness and education process with
this thing being available and they can go to ASIC which does do things—
are the sort of measures. You might say that you got more complaints because
you advertised more. There might be some analytical data to show that you had a
quiet year with fewer complaints but since you advertised more you got more
D’Aloisio—Yes. Let us take it on board and we will have a look to see if we can
run some other things.
to ASIC regarding crime and misconduct have varied in number since 2002-2003,
as set out below.
difficult to see these as a constant and consistent increase, but it is true to
say that there was a significant increase in complaints to ASIC in the previous
improving its information classification processes. In line with this, our
complaints handling unit (Misconduct and Breach Reporting) has since the start
of 2009 evaluated complaints by keywords. This improvement will facilitate
more specific reporting by ASIC of the nature of the complaints received by
ASIC. This will allow ASIC to better evaluate and identify any trends that
occur in received complaints, e.g. have they occurred after a specific
announcement or event. However for the previous year, without the benefit of
such keyword analysis we can only estimate there are a range of possible
factors that has led to this 19% increase in complaints (and an accompanying
12% increase in calls ASIC’s Infoline) in the 08/09 financial year from the
07/08 financial year which include:
- The Global
Financial Crisis and the increased uncertainty for investors and consumers have
led to stock-takes of their investments and increased concerns about particular
- An increase
in failures of Pty Ltd companies. There has been an increase in inquiries and
complaints to ASIC following the collapses of a small to medium companies
including seeking to better understand the insolvency process (ASIC’s on-line
insolvency portal has assisted greatly in this area);
- An increased
awareness of ASIC's role through high profile collapses of companies such as
Westpoint, Opes Prime (that have resulted in compensation for investors),
Chartwell, Octaviar (formerly MFS), Allco Finance Group, ABC Learning Centres,
Babcock and Brown; the failures of Storm Financial, Great Southern and
Timbercorp; and the freezing of funds - Pacific First Mortgage Fund (formerly
the Citi Pacific First Mortgage Fund), Wellington Premium Income Fund, LM
Investment Management, Colonial First State Mortgage Income Fund, Perpetual
Trustees, Challenger Howard Mortgage Fund etc; and
- In addition,
the matters referred to above involved a large number of complaints regarding
on Notice 2
2 (Hansard p. 8) – criminal proceedings
MASON—I know Mr Robert has some questions before he goes, but I have a couple
of areas to ask about. I take up where the chairman left off. On page 16 of the
ASIC annual report—I suppose this question has evolved from the OneTel
investigation, but I do not want to go to that at the moment—you say:
year, in collaboration with the CDPP, we completed 39 criminal proceedings,
with 34 criminals convicted, including 19 jailed.
face of it that seems like a very high percentage, but in those 39 criminal
proceedings were there co-defendants? I notice you have 34 criminals convicted.
How many co-defendants were there all up?
D’Aloisio—If you go to page 18, I think, it is all set out there. There were 18
jailings and eight suspended sentences.
MASON—The people who were convicted are all mentioned; you are quite right. How
many co-defendants were charged?
D’Aloisio—You mean how many of these were one matter as opposed to the same
matter having three or four defendants?
D’Aloisio—I do not have that readily here, but we can get that for you.
1. How many defendants were there in aggregate in ASIC's 39 completed
criminal proceedings in 2008-2009?
a total of 46 defendants in the 39 completed criminal proceedings. 34
defendants were convicted. In addition, in the case of three defendants, the
case was found proven but no conviction was recorded and the defendant was
placed on a good behaviour bond. Consequently, in total, a successful outcome
was achieved in respect of 37 of the 46 defendants.
many criminal proceedings completed in 2008-2009 involved co-defendants?
seven proceedings in which, in each case, there were two co-defendants. In four
of those proceedings all defendants were convicted. In one of those proceedings
the case was found proven, but no conviction was recorded and both defendants
were placed on a good behaviour bond. In two of those proceedings all
defendants were acquitted.
on Notice 3
3 (Hansard p. 9) – civil proceedings
MASON—Not a very good one! We completed 35 criminal proceedings and obtained
over $14½ million in recoveries, costs and fines, with $13.8 million in assets
frozen for investors and creditors. How many civil proceedings did you bring?
D’Aloisio—There is a number on that as well. We would typically have brought
well over 100 civil proceedings.
Gibson—It would not be so many, I do not think.
MASON—It was 35. How many of those were successful?
Gibson—How many of those did we lose in that time period? We would have to come
back on that.
D’Aloisio—Hopefully, it was elsewhere in the report. I will have to take that
many civil enforcement proceedings did ASIC commence in 2008-2009?
commenced civil enforcement proceedings in respect of 27 distinct matters or
investigations against a total of 72 individuals and companies.
many civil enforcement proceedings completed in 2008-2009 were successful?
enforcement proceedings against a total of 88 defendants were completed in
2008-2009. A successful outcome was achieved against 83 of the 88 defendants.
on Notice 4
4 (Hansard p. 10) – further litigation statistics
D’Aloisio—I agree that we have to answer that. Also, percentage of successful
litigation does not break up civil and criminal, which is something you have
asked about as well.
MASON—Indeed, but it is something.
MASON—Could you give that on notice?
D’Aloisio—Yes, we will take that on notice.
the percentage of successful litigation broken down between civil and criminal?
criminal proceedings were completed against a total of 46 defendants with a
successful outcome being achieved against 37 defendants. (In the case of three
defendants the successful outcome did not involve a conviction, but the case
was found to be proven and the defendant was placed on a good behaviour bond.)
The success rate was 80%;
enforcement proceedings were completed against a total of 88 defendants with a
successful outcome being achieved against 83 defendants. The success rate was
on Notice 5
5 (Hansard p. 10) – margin calls
MASON—That would be useful. My last question relates back to margin lending.
Again, just touching on Storm Financial and the committee’s recent report, one
of the major issues from the committee’s report was that margin calls were not
passed on to the client via the financial planner. You will recall that in
evidence. Section 985M—amendments to the Corporations Legislation Amendment
(Financial Services Modernisation) Bill—provides that a client can still elect
to have a financial planner pass on margin calls. One of the concerns reflected
by the committee and, indeed, in evidence from some of the witnesses, was that
the same problem could occur again. I think you even said that yourself.
Another issue—and I would like your comment on this—was the response time to
margin calls. We heard evidence from the Commonwealth Bank that they waited for
over 11 weeks to notify clients directly of margin calls. Under the corporations
amendment, specifically 985M, ASIC has the power, I believe, to determine the
time frame of advising a client of a margin call. Is ASIC going to provide what
is regarded as a reasonable time to notify a client of a margin call?
D’Aloisio—What we are doing at the moment in terms of the legislation is that
we are in the process of working through the sort of guidance we would give and
so on. I do not think we have made a decision on that issue at this point. It
is something that we can look at. I would take it on notice and look at it
to notify retail clients of a margin call
amendments to the Corporations Act either the issuer of a margin lending
facility or the financial advisor must take reasonable steps to notify a retail
client when a margin lending facility goes into margin call. The notification
must be given at a time determined by ASIC, or if no time is determined by
ASIC, as soon as practicable.
currently considering our policy position to ensure that a client receives the
notification of a margin call in a timely manner.
formulate our policy prior to the commencement of the new margin lending regime
on 1 January 2011.
on Notice 6
6 (Hansard p. 11) – credit regulation
ROBERT—Without holding you to it, cognisant that you are still waiting for
advice from the minister, what is it that you are looking to put out into the
market prior to 1 July 2010? What is your vision of 1 July 2010 and what do you
expect to have out there?
D’Aloisio—You would want to ensure that at that point you have covered all the
issues around licensing and registration. We are developing a full suite of
regulatory guides that we think are going to be needed on such issues as
responsible lending, the way conflicts are managed and training. There is a
list of those. Again, we can provide the committee with a list of all the
consultations we will do and the additional regulatory guides we are going to
issue to ensure that there is a smooth transition to the new system.
committed to providing as much upfront guidance to industry as is possible
before the commencement of the National Consumer Credit regime. Consistent with this, ASIC has to
date issued 7 new and 2 updated regulatory guides and 2 information sheets in
relation to credit. These are listed below. They are designed to help industry
understand the requirements of the regime, to prepare their registration and
credit licence applications and to be aware of licensee obligations. The
information sheets provide a broad overview of how to prepare for the regime
(Getting Ready for Credit) and a more specific guide for small businesses
(Guidance for small credit businesses).
the release of these guides, ASIC published a suite of consultation papers to
ensure the industry's input and feedback was considered. These are also listed
below. As part of that consultation process ASIC held a number of forums with
industry and consumer groups. That process is continuing.
first quarter of 2010, ASIC will publish an additional further regulatory
guides related to credit, covering dispute resolution (both internal and
external), the new responsible lending requirements, and compensation and
of a broad communication and consultation plan, ASIC representatives have been
speaking on the new National Consumer Credit regime at industry conferences and
forums over the last 12 months. That process will escalate in early 2010 as we
conduct a national Credit Roadshow with 35 to 40 presentations to industry on
the regime, covering both metropolitan and regional centres.
consultation paper and regulatory guide is published on ASIC's credit website
ASIC's Guidance on Credit
Paper 110 ,
General conduct obligations for credit licensees
Paper 111, Compensation
and financial resources arrangements for credit licensees
Paper 112 Dispute
resolution requirements for consumer credit and margin lending
Paper 113 Competence
and training for credit licensees
Paper 115 Responsible
Paper 125 Compensation
requirements for credit licensees: Further consultation
ready for credit
for small credit businesses
Credit registration and transition
Do I need a credit licence?
Applying for and varying a credit licence
Credit licensing: General conduct obligations
Credit licensing: Competence and training
Credit licensing: Financial requirements
How ASIC charges fees for credit relief applications
, Applications for relief
, No-action letters
be released in 2010
Regulatory Guides 139 and 165 on dispute resolution
guide on responsible lending
guide on compensation and insurance arrangements for credit licensees
on Notice 7
7 (Hansard p. 13) – gender pay equity
BOYCE—You say in your report that 45 per cent of your senior executives are
women and 59 per cent of total employees are women. Have you undertaken a
gender pay equity analysis of your positions?
D’Aloisio—We have, but I would have to provide you with the numbers on notice.
and Executive Levels
pay analysis of remuneration for staff below the senior executive level
indicates that the gender gap in remuneration ranges from between -2% to 3%
across the classification levels.
senior executive level the gender pay gap is 4%.
salary gap amounts are well below published benchmarks for both the public
sector and comparable industry sectors.
on Notice 8
8 (Hansard p. 13) – frozen mortgage funds
BOYCE—Have you got statistics on the people who sought to make withdrawals from
the frozen mortgage funds? You have in the past provided us with the number of
people who applied, how many were successful et cetera
Medcraft—As you know, we extended the hardship relief a few months ago. We can
come back to you with statistics on exactly what the numbers are.
as at Jan 5th, 2010. Numbers are cumulative from the date Hardship
Relief was available.
19 Responsible Entities have hardship relief in respect of 61 registered
made under Hardship: 3,385
Applications that successfully satisfied the hardship criteria: 2,746 (81%)
dollars applied for: $126,430,170
amount subsequently paid: $67,699,472 (54%)
Many different factors may influence this statistic, such as the cap/limit
imposed on amount able to be redeemed under hardship. Members may apply for
their entire investment when they are only able to redeem a maximum of $100,000
/ calendar year.
Assets under Management (Frozen Mortgage Funds with Hardship Relief):
of Hardship paid relative to AUM: 0.39%
on Notice 9
9 (Hansard p. 14) – frozen mortgage funds
BOYCE—Has the level of withdrawals increased or decreased, or wouldn’t you
Medcraft—We can come back to you on that.
applications for redemption under hardship were made between November &
December 2009. From those 140 applications successfully met the criteria. From
our statistics, the amount of applications being made has decreased. September
– October 2009, 333 new applications were made with 262 of them being
on Notice 10
10 (Hansard pp 20-21) – ASIC field officers
D’Aloisio, going back to some process issues about how complaints are dealt and
particular field officers—and I am assuming you have a number of field
officers—is there a specific category of person who is employed as a field
officer working for ASIC?
D’Aloisio—I will get some advice on that.
is okay. I do not know either.
D’Aloisio—We do have analysts within that figure of 95 that I gave you earlier
who are full-time equivalents. In that group we have analysts, largely lawyers,
who would be ASIC level three and above, right up to senior executive leaders
or senior leaders. They do the analysis of the complaints and the issues and
what needs to be handled.
I give it to you as a question on notice for you get to back to the committee
with. I am wanting to understand the number of field officers you have—those
who go out to the companies, seek further information and look at specifically
what happens after a complaint is received and ASIC has made a determination
that it warrants further assessment. I am really after that specific detail.
What I would also like to know—and you can answer this now or take it on
D’Aloisio—I will take it on notice.
the process by which they work. Do they work to a set process? Do they got
through and analyse specific things based on specific criteria or do they make
judgment calls in terms of what they see? How flexible are they in how they
approach a particular organisation? If you can answer that now, that would be
great. If not, I am happy for you to take it on notice.
D’Aloisio—I will take it on notice and give you a more specific answer, but the
answer is that there is likely to be both a public answer and a confidential
answer, because there are a number of processes we would want to protect.
not have a concept of specifically dedicated 'field officers', rather all our
staff in the Financial Economy and Deterrence teams are available and will be
engaged with the market on specific matters by way of surveillance with or
without the referral of a complaint to ASIC. This flexibility in the
allocation of ASIC resources means that the number of staff an individual team
will have engaged in surveillance activity is dependent upon the breadth and
seriousness of a particular matter.
complaints and referrals will be directly through our Misconduct & Breach
Reporting Team or via one of our Financial Economy or Deterrence teams. The
stakeholder team will undertake its own assessment of the complaint and
determine whether a reactive surveillance or firm visit is necessary.
currently developing its methodology for conducting risk-based surveillance
across all financial economy teams.
involved in actioning a complaint and determining whether a reactive
surveillance or firm visit is required will always depend on the circumstances
of the complaint. Having said that, stakeholder teams will generally
consider taking the following steps:
Review and initial scoping
stakeholder team will undertake an initial review of the complaint and allocate
the matter for further analysis. This initial review may involve:
a. assessing the alleged misconduct
against established criteria regarding the specific issue or industry;
b. assessing whether the areas of
concern are restricted to what is alleged in the complaint, or whether there
are broader concerns;
c. considering whether and to what
extent the issue is consistent with ASIC's priorities.
Research and intelligence gathering
stakeholder team will undertake the necessary research and intelligence
gathering, which may include:
a. undertaking compliance history
checks on relevant subjects relating to the complaint including companies,
directors, licensees and other persons of interest;
b. using ASIC's information
gathering powers - under section 30 and 33 of the ASIC Act - to obtain relevant
books and records from companies and other persons;
c. meeting with the subject,
company, its directors and other relevant persons to discuss the matters that
gave rise to the complaint.
often not necessary to conduct an on-site surveillance visit, as sufficient
information can often be obtained by requesting information from the subject or
via the issue of notices requiring the production of books.
an on-site surveillance visit may be appropriate in certain circumstances, such
as where clarification of information is required from key people and ASIC
needs to view how processes work in practice.
assessed all of the available information and undertaken any necessary on-site
surveillance visit, the stakeholder team will determine whether the subject has
met their legal and professional obligations. Where a breach is identified, the
stakeholder team will look closely at the extent and effect of that breach and
consider whether further action should be taken.
Determination of outcome
a range of outcomes that could follow, depending on the severity and potential
impact of the breach:
a. If there is no breach, no further
action will be taken and all books obtained under notice will be returned to
b. The stakeholder team may request
the issue to be rectified/ corrected voluntarily. In such cases the
stakeholder team will continue to liaise with the subject to ensure
rectification is prompt and appropriate;
c. The matter may become the subject
of deterrence action, for further investigation exercising ASIC's power to
compel production of information.
on Notice 11
11 (Hansard p. 22) – communicating with complainants
it one way or the other, in making a determination on the outcome, you are
saying that there is a process and that it is understood, but often the
breakdown of that communication is that people at the other end do not
understand what will happen and when it will happen. Could you get back to me
D’Aloisio—We can do that. We will do some sampling to show you what happens and
All complaints received by ASIC
are acknowledged (within three business days of receiving the complaint) and
assessed by ASIC’s misconduct and breach reporting unit.
In respect to consumers/investors
understanding of ASIC’s role and how ASIC will deal with their complaint, at
acknowledgement (for all complaints) we send a copy of ASIC’s ‘How ASIC deals
with your complaint’. This publication was introduced in mid December 2009 and
explains in detail what ASIC does and does not do, timeframes, the types of
issues we consider, the types of issues we do not consider etc. The
publication is available to anyone free of charge, whether they have lodged a
complaint with us or not, from our call centre or our website.
Prior to ‘How ASIC deals with
your complaint’ publication we sent a copy of ASIC’s 'Your Complaint Counts'
brochure which provided a complainant with information about ASIC processes..
ASIC has also issued a brochure called 'You Can Complain' which provides tips
and advice to investors/consumers about what to do at each stage of the process
and includes sample letters of complaint as a guide for formulating their own
complaints. The 'You Can Complain' brochure is available in three community
languages: Arabic, Chinese and Vietnamese. The publication remains available
and complements our ‘How ASIC deals with your complaint’ publication and is
available, again free of charge, from our call centre or our website.
The right to complain to ASIC is
open to anyone. This can be done on-line or in written form. If a person does
not have access to the internet they can obtain a hard copy complaint form by
contacting ASIC’s call centre for the cost of a local call (the complaint form
is sent out free of charge). ASIC’s call centre routinely responds to
questions about how to complain about a financial product or service, our role
and how to lodge a complaint with ASIC.
In assessing complaints, it is
common for ASIC to contact the complainant to seek further detail or
clarification and explain our process (although we do not seek to contact every
complainant as it is not required in every complaint).
In the event that a complainant
is dissatisfied with ASIC’s decision about their complaint they may request a
review of their complaint that is conducted by a separate team that sits within
the misconduct and breach reporting unit. A second acknowledgement letter is
sent providing the complainant with the contact details of the analyst who will
conduct the review. A review involves conducting a fresh assessment of the
original complaint in light of any new information available to ASIC. A review
complaint recommendation is approved by a staff member of a higher level than
the original analyst and team leader. If a recommendation changes upon review,
feedback is provided to the original analyst and his or her supervisor in order
to identify any training needs. The new decision will be communicated to the
complainant. In the event that the recommendation is to confirm the original
decision, this will also be communicated to the complainant, however further
information will be provided about the reasons for ASIC's decision when it is
possible to do so. In the review complaint finalisation letter, complainants
are provided with the contact details of the Commonwealth Ombudsman in the
event that they are still dissatisfied with ASIC's handling of their complaint.
Where a complaint is assessed and
referred to ASIC’s deterrence (enforcement) unit or to one of the specialised
teams (i.e. financial services/insolvency practitioners/markets) for
surveillance, the complainant will be advised that their matter has been
referred, and that they will be contacted in the future if ASIC requires
anything further from them. In order to protect the integrity of our
investigative processes, ASIC does not discuss the status of its investigations
with complainants. Complainants may however seek information about whether the
matter is ongoing or has been finalised by contacting the analyst who assessed
their complaint. They may also be able to obtain information about why ASIC
has not taken action through contacting the analyst who assessed their
complaint who can make internal inquiries on their behalf.
on Notice 12
12 (Hansard p. 26) – phoenix companies
suppose the question I am asking is not around that. I accept what you are
saying. My question around that is, (a) do you have a program which identifies
individuals that fall into this category, and (b) do you increase surveillance
on those particular individuals that reappear because they are much more likely
perhaps to reappear, as statistics and research demonstrate? Also, although it
is not an offence to fail, perhaps some of these individuals do deliberately
carry too much with the intent of not carrying out their duties as directors.
My concern is where there are individuals that reappear on the books time and
time again because they specifically have intent to do these things.
PEARCE—Mr D’Aloisio, ASIC were given extra funding by the previous government
to implement a new program, weren’t you? This pot of money was so that ASIC
could go back and identify directors who had been down this line and who had
deliberately structured their affairs to put a company into—
is what our concern is.
D’Aloisio—There are a range of tools that we use through the Assetless
Administration Fund. We identify people through the court proceedings I talked
about earlier and through the disqualification where you have been involved in
two or more companies that have failed. We do directors insolvent training
programs and other surveillances. We use a range of tools to deal with those
individuals that might have a propensity to fail more than once. Again, rather
than stay with this general answer I am quite happy to take it back with us and
give you the specifics of what we have actually done. It is an area, certainly
at the commission level where we see the reports, where we think our people are
doing a very good job in minimising that recurrence that you are concerned with
through a range of initiatives. I think we will explain it to you in more
a) Does ASIC have a program that
identifies individuals with more than one failure
ASIC has 2
programs in place that identify directors with more than one company failure:
Administration Fund; and
Assetless Administration Fund (AA Fund) was announced by the Federal Government
in October 2005. The fund was launched on 23 February 2006 and involves
funding liquidators to investigate and prepare supplementary s533 reports when
s206F director disqualification proceedings (banning proceedings) may be
appropriate. A particular focus of the AA Fund is to curb fraudulent phoenix
can apply for funding under the AA Fund for banning candidates if they satisfy
certain funding criteria. The criteria includes but is not limited to:
must have been involved with two or more companies which have gone into
liquidator has concerns about the directors conduct in relation to the
management, business or property of the company;
liquidator believes it is in the public interest for ASIC to take banning
proceedings under section 206F of the Corporations Act.
AA Fund commenced, ASIC has been involved in educating liquidators to utilise
the AA Fund in order for directors with multiple failures to be banned from
Up to 30
June 2009, 436 banning applications from liquidators were approved by ASIC with
$2.3m in funding approved for payment to those liquidators.
198 directors have been banned by ASIC for managing corporations and of those
128 were funded by the AA Fund.
Phoenix was launched on 1 July 2009 with the objective of increasing our focus
on disqualification of directors with a history of corporate failure.
launched on 1 July 2009, a new electronic sweeping tool to assist in better
detecting director disqualification candidates under s206F. ASIC's systems can
now more easily identify potential disqualification subjects using a variety of
information held on our register as well as documents lodged with ASIC by
b) does ASIC increase surveillance
on individuals with more than one failure
runs a program called the National Insolvent Trading Program (NITP). The NITP
is a proactive program that identifies and undertakes reviews of companies
showing signs of financial distress. The program aims to help directors focus
on their duties to prevent their companies from trading while insolvent.
program encourages directors of 'at risk' companies to act promptly to give a
better return to creditors and allow the business to continue to trade if
viable, so as to avoid, where possible, a winding up of a company.
of sources of information are used to identify the companies selected under the
program. This includes identifying previous history of failures; potential
previous phoenix activity; credit ratings data; and industry intelligence.
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