ASIC Annual Report 2014-2015

ANNUAL REPORT 2014–2015 investor and financial consumer trust and confidence fair, orderly, transparent and efficient markets efficient and accessible registration Contents Letter of transmittal 1 3. People, community Chairman’s report 2 and the environment 83 3.1 ASIC’s people 84 Key outcomes 2014–15 6 3.2 Diversity at ASIC 90 Government priorities and parliamentary inquiries 12 3.3 ASIC in the community 94 Commissioners 15 3.4 Indigenous awareness and action at ASIC 96 1. About ASIC 17 1.1 ASIC’s role 18 3.5 Environmental performance 97 1.2 Corporate structure 4. Financial statements 99 at 30 June 2015 23 5. Appendices 153 1.3 Regulated populations and 5.1 The role of Commissioners 154 key responsibilities 25 5.2 Audit Committee and audit, 1.4 ASIC’s surveillance coverage assurance and compliance of regulated populations 28 services 155 1.5 ASIC for all Australians 30 5.3 External committees and panels 156 1.6 Financial summary 5.4 Portfolio budget and expenditure 32 statement outcomes 161 2. Outcomes in detail 33 5.5 Six-year summary of 2.1 Priority 1 – Investor and financial key stakeholder data 167 consumer trust and confidence 34 5.6 Reports required under statute 2.2 Priority 2 – Fair, orderly, transparent and other reporting requirements 169 and efficient markets 50 5.7 Consultancies and expenditure 2.3 Priority 3 – Efficient and on advertising 172 accessible registration 64 5.8 ASIC’s use of its 2.4 Unclaimed money and managing significant compulsory property vested in ASIC 70 information-gathering powers 175 2.5 Assessing misconduct and Glossary 177 other reports 72 Compliance index 179 2.6 Performance against General index 185 Service Charter 78 Contact details inside back cover 2.7 Regional activities 80 Investor and financial consumer trust and confidence Fair, orderly, transparent and efficient markets Efficient and accessible registration GREG MEDCRAFT 15 October 2015 The Hon Scott Morrison MP Treasurer Parliament House CANBERRA ACT 2600 Dear Minister I am pleased to give you the annual report of the Australian Securities and Investments Commission for the year ended 30 June 2015. The report has been prepared in accordance with section 136 of the Australian Securities and Investments Commission Act 2001 and the ‘Requirements for Annual Reports’ guide, approved by the Joint Committee of Public Accounts and Audit, and published by the Department of the Prime Minister and Cabinet on 30 June 2015. I note that you are required under section 136 to cause the report to be tabled in each House within 15 sitting days of receiving it. Yours faithfully Greg Medcraft Chairman ASIC ANNUAL REPORT 2014–15 LETTER OF TRANSMITTAL 1 Chairman’s report ASIC’s fundamental objective is to allow markets those who are simply approaching or going to fund the real economy and, in turn, promote through a life event such as buying a home, economic growth. This contributes to improved divorce or retirement. living standards for all Australians. For example, ASIC’s MoneySmart website – But markets cannot achieve their purpose www.moneysmart.gov.au – has over 500 pages in funding the real economy without trust of information, and was visited over 5 million and confidence in them. times in 2014–15. That is a 15% increase on the year before. As Australia’s integrated corporate, markets, financial services and consumer credit regulator, With the MoneySmart Teaching program, ASIC contributes to Australia’s economic our target is embedding financial literacy in reputation and wellbeing. Ensuring investors and the National Curriculum. So far 34% of the financial consumers have trust and confidence nation’s schools have engaged in the program. in the financial system is at the heart of In addition, 14,000 teachers have undertaken everything we do. professional development in financial literacy. It is why our strategic priorities are to: Our gatekeepers are those who have a legal responsibility in the financial system, for instance, Priority 1: Promote investor and financial product manufacturers, responsible entities, consumer trust and confidence lenders, advisers, directors and auditors. The behaviour of these gatekeepers is driven by Priority 2: Ensure fair, orderly, transparent culture, incentives and deterrence. and efficient markets Each of these drivers of gatekeeper behaviour Priority 3: Provide efficient and can affect trust and confidence in the financial accessible registration system, and whether our markets are fair, orderly, transparent and efficient. Operating in this Our free-market system is based on the environment, we work to ensure gatekeepers principles of investor responsibility, gatekeeper fulfil their legal responsibilities through our responsibility and the rule of law. guidance, our surveillance and our enforcement. Understanding the behaviour of investors, We seek to ensure the rule of law operates in the consumers and gatekeepers, and applying the way intended, and we provide policy advice to right interventions including ‘nudges’, is central Government to ensure the right deterrents are to achieving our priorities. in place. While investors must take responsibility for their decisions, we know their behaviour is influenced Challenges by their financial literacy – their knowledge, Our environment continues to change and we are skills and attitudes – and their behavioural faced with new opportunities and emerging risks. biases. This is why ASIC is focused on providing ASIC’s long-term challenges are: education and tools to help Australians with their financial decisions. 1. Conduct risk and the balance We assist investors and financial consumers to between a free market-based participate confidently in our financial system system and investor and financial by providing financial education through consumer protection multiple channels recognising the information We want to make sure participants in our financial asymmetry between them and financial system are focused squarely on customers first. services gatekeepers. And this focus should be reflected in their culture This education is targeted at a wide cross-section and conduct. Where culture, incentive structures of our community, from primary and secondary and risk management are poor or misaligned, students and apprentices and trainees to people then conduct risk can crystallise and conflict with with limited English-language skills, Indigenous the interests of customers. For customers, this people and military personnel, not to mention can lead to poor outcomes. 2 CHAIRMAN’S REPORT ASIC ANNUAL REPORT 2014–15 We also need to balance the need for intervention with helping business and allowing businesses to take risks. In this regard, we have cut red tape by almost $470 million since September 2013. 2. Digital disruption and cyber resilience in our financial services and markets Digital innovations are disrupting business models in financial services and markets. To keep pace with these changes, in 2015 ASIC launched its Innovation Hub. The hub helps financial technology start-ups navigate the regulatory system, without compromising our strategic priorities. Greg Medcraft, Chairman We also set up a Digital Finance Advisory Committee to help us monitor and for shorter periods of time. We also conducted understand these developments. Digital 321 funds management surveillances, including platforms that enable crowd-sourced equity reviewing risk management practices. funding, marketplace lending, advice and digital currencies have grown. For instance, 4. Complexity driven by financial ‘blockchain’ technology has the potential to innovation alter fundamentally settlement and registration The breadth of financial innovation is creating processes and trading in financial markets. more complexity in products and markets. 3. Structural change driven To deal with this growing complexity, we are by superannuation using behavioural insights to better understand Structural change continues to test the how consumers and gatekeepers really behave. regulatory environment, particularly with the We continue to monitor the marketing of financial growth in superannuation savings. products to make sure people are not misled. ASIC regulates many of the financial products We have been active in this area. In 2014–15, in which superannuation funds invest and the our work resulted in 54 advertisements being gatekeepers that manage and advise on super. changed or withdrawn. The spread of market-based financing, driven by 5. Globalisation growth in super, an ageing population and an Developments in technology, innovation evolving funds management industry, impacts and international regulation are making the our work. global financial system more integrated, more We are meeting this challenge by stepping up competitive and more complex. Encouraging our surveillances, responding where clients further cross-border activity and integration are getting poor-quality financial advice, of international markets will mean significant and addressing incentives and poor risk benefits to our Australian markets, our providers management, particularly in large, vertically and to consumers. integrated institutions. We are implementing G20 commitments to We set up a special project to focus on the reform our over-the-counter (OTC) derivative conduct of large financial advice firms with some markets and our involvement in the International investigations ongoing. In 2014–15, 14 individuals Organization of Securities Commissions (IOSCO) were permanently banned from providing has resulted in a cross-border

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