ASIC looks to the future – greenwashing, climate risk disclosures, crypto, scams and more – Knowledge

ASIC Chairman Joseph Longo revealed last week what we can expect from the regulator over the coming year – and it’s going to be busy.

ASIC released its Corporate plan for 2022-26 on August 22, 2022 followed by Speech by Mr. Longo to the Committee for the Economic Development of Australia (CEDA) where he unveiled his vision for ASIC to be an “ambitious and confident regulator”, looking to the future.

Throughout the discussion, ASIC’s desire to prioritize the most harmful areas and take action to protect vulnerable consumers resonated. For Longo, that means dealing squarely with “hot topic” issues like greenwashing, climate risk disclosures, cryptoassets (or cryptocurrencies), scams and more.

Below are some key elements of the business plan and Mr. Longo’s comments during his discussion at the CEDA event.

Priorities and strategic projects

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

• Design and distribution of products;
• Sustainable finance;
• Retirement decision making; and

Mr. Longo focused on the ASIC approach in four of his eight core strategic projects to advance strategic priorities:

• improving sustainable finance practices and climate risk disclosure;
• supervising and enforcing design and distribution obligations (DDO);
• address market integrity issues and investor harm related to crypto-assets (or cryptocurrency); and
• disrupt and combat 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.

Mr. Longo highlighted two issues arising from sustainable finance on the regulator’s radar and that ASIC enforcement action is to be expected:

Information on climate risks

ASIC ensures that entities comply with their disclosure requirements and do not mislead customers. It will seek to support market integrity through proactive oversight and enforcement of sustainable finance governance, transparency and disclosure standards.

ASIC strongly supports the development of globally comparable standards. However, Mr. Longo noted that this is a medium to long-term priority for ASIC. While ASIC is encouraged by the proposed standards recently published by the International Sustainability Standards Board, it recognizes that implementing the standards in Australia will take time. In the meantime, companies are encouraged to continue to be proactive in their climate risk reporting and disclosures by referring to the Task Force Framework on Climate-Related Financial Disclosures.

Greenwashing

ASIC has recently focused on how financial products are marketed and the need for products to stay “true to label”. ASIC has continually warned issuers (particularly those in the managed fund industry) of the risk of making misleading or misrepresentations, and has sought to take action against issuers that ASIC believes have made misrepresentations. misleading or misleading statements in advertising.

It is therefore not surprising that ASIC is now focusing on how issuers represent their “green certificates”. Mr Longo reiterated that ASIC is undertaking active market surveillance, testing “green” investment offerings and monitoring misleading and false claims. This is a near-term priority for ASIC and will complement its work already in this space thanks to the recent release of ASIC Fact Sheet (INFO 271) “How to avoid greenwashing when offering or promoting sustainability-related productsin June 2022. This factsheet focuses on sustainability-related products issued by funds, but ASIC said its principles may apply to other entities that offer or promote financial products that take into account sustainability considerations.

Mr Longo revealed that enforcement action against greenwashing is to be expected and it was reported that ASIC had at least two ongoing greenwashing investigations on foot (and is currently investigating several super funds, managed funds and listed companies). Also, this month Market forces filed a formal complaint with ASIC on potentially misleading statements by Santos’ Chairman and CEO at the Santos Annual Meeting. 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 on the results of its greenwashing investigations in the coming months.

Product design and distribution

ASIC has repeatedly pointed out that the grace period granted to the industry to establish its implementation of the design and distribution obligations (DDO) is finished. Longo clarified that ASIC’s focus has now shifted to actively monitoring and enforcing the DDO regime. Even as recently as August 29, ASIC released its findings following a sample review of superannuation administrator compliance that found some poor practices.

Under the DDO regime, ASIC may take prompt action to issue provisional stop orders in respect of financial products where ASIC considers that the obligations relating to making and reviewing a determination of the target market (TDG) or taking reasonable steps to ensure that the distribution complies with a TDG have been breached. ASIC used its stop-loss order powers for the first time recently to prevent three companies from issuing the interests or shares of the relevant managed investment program to retain investors. Mr. Longo pointed to the coercive action against the services of the responsible entity (RES), noting that she would take action when products do not meet the needs of target market investors.

Mr. Longo also made it clear that ASIC expects companies to be proactive, noting that DDO is not a case of “set and forget”. Product issuers are expected to collect, evaluate and respond to data on the consumer outcomes of their products, and to the extent ASIC identifies poor consumer outcomes, it will intervene to disrupt the sale of the products using arrest orders or judicial enforcement measures. . The idea that issuers should regularly review and take corrective action on TMDs was reiterated by ASIC in its recent Press release.

We can expect ASIC to take further enforcement action if it identifies misconduct with respect to the high-risk and complex products it targets for monitoring, including OTC derivatives. over-the-counter and cryptography. The same can be said for small credits and buy now pay later sectors for which ASIC is currently reviewing product governance agreements to see how TMDs were developed and the data, metrics and other considerations that underlie them. -tend.

Consumer Tech Risks from Crypto and Scams

In line with ASIC’s desire to prioritize the most damaging areas and take action to protect vulnerable consumers, ASIC is focused on becoming a “digitally savvy regulator” to address the regulatory challenges associated with technological developments in order to provide consumer protection, particularly with regard to crypto assets. and investment scams.

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

ASIC should continue to prioritize surveillance of cryptocurrencies and take enforcement action to disrupt and deter harmful products. Mr. Longo also noted that ASIC was collaborating with national and international peers in its monitoring and developing an effective system. regulatory framework. This follows the federal government’s announcement that it will soon begin industry consultation as part of a review of the crypto sector.

ASIC should also continue to disrupt scams using innovative, data-driven approaches in response to the growing prevalence of scams and digital fraud. Mr. Longo referred to another of the initiatives underway to combat scams, including a lawsuit with the ACCC to remove fraudulent websites.