-
A S I CAustralian Securities &
Investments Commission
29 criminals jailed for fraud, criminal breach of duties and
insider trading $506 million in funprotected, compensation orders
or assets frozen new initiatives targeting insolvency,
financreporting and disclosure 29 criminals jailed for fraud,
criminal breach of duties and insidtrading $506 million in funds
protected, compensation orders or assets frozen new
initiativtargeting insolvency, financial reporting and disclosure
29 criminals jailed for fraud, criminbreach of duties and insider
trading $506 million in funds protected, compensation orders assets
frozen new initiatives targeting insolvency, financial reporting
and disclosure 2criminals jailed for fraud, criminal breach of
duties and insider trading $506 million in funprotected,
compensation orders or assets frozen new initiatives targeting
insolvency, financreporting and disclosure 29 criminals jailed for
fraud, criminal breach of duties and insidtrading $506 million in
funds protected, compensation orders or assets frozen new
initiativtargeting insolvency, financial reporting and disclosure
29 criminals jailed for fraud, criminbreach of duties and insider
trading $506 million in funds protected, compensation orders assets
frozen new initiatives targeting insolvency, financial reporting
and disclosure 2criminals jailed for fraud, criminal breach of
duties and insider trading $506 million in funprotected,
compensation orders or assets frozen new initiatives targeting
insolvency, financreporting and disclosure 29 criminals jailed for
fraud, criminal breach of duties and insidtrading $506 million in
funds protected, compensation orders or assets frozen new
initiativtargeting insolvency, financial reporting and disclosure
29 criminals jailed for fraud, criminbreach of duties and insider
trading $506 million in funds protected, compensation2
‘enforcement is an essential part of effective regulation’David
Knott, ASIC Chairman
annualreport2002–03
fighting fraudand misconduct
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ASIC’s profile
The Australian Securities and Investments Commissionenforces and
regulates company and financial serviceslaws to protect consumers,
investors and creditors.
An independent Commonwealth government body, ASIC has
regulatedfinancial markets, securities, futures and corporations
since January1991. From 1998, we became responsible for consumer
protection insuperannuation, insurance, deposit taking and, from
2002, credit. ASIC works with other financial and law enforcement
agencies inAustralia and internationally.
For our statutory aims and where we fit in the regulatory
picture, see page 12.
In 2002–03, ASIC:
� employed 1,396 full time equivalent staff around Australia,
see page 58
� outputs cost $173 million and we collected $405 million in
fees forthe Commonwealth, see page 10
� operated under full time Commissioners appointed by the
Governor-General on the nomination of the Treasurer, see page
16.
-
ASIC report of operations 2002–03
2002–03� Achieved record enforcement outcomes, including 29
criminals jailed for fraud, criminal breach of duties andinsider
trading, page 25.
� $506 million in funds protected, compensation orders orassets
frozen for the public and creditors, page 27.
� Launched new initiatives targeting insolvency,
financialreporting and disclosure, and secured additional
budgetfunding to develop them, page 51.
� More consumers turned to ASIC. Visits to our consumerwebsite
up 79%, reports of misconduct up 19%,database searches up 20%,
pages 42, 52.
� More than 1,400 approvals to facilitate commercialtransactions
and reduce business costs, page 5.
highlights
1
fighting fraud and misconduct
-
Highlights 1
Chairman’s report ASIC Chairman David Knott reports. 3
ASIC effectiveness Achieving our statutory aims over the past 3
years. 7
Objectives, plans Implementing our 3 year plan. 8and results
Financial report Meeting expanding demands. 10
Organisation chart Key reporting lines. 11
The regulatory picture ASIC’s role, financial regulation: who’s
involved, 12who it protects and how it’s carried out.
ASIC directorates Summary of our 7 operational directorates.
14
Commissioners Commissioners’ qualifications, experience, photos.
16
Governance, ethics How ASIC is run, ethical standards and
audit.and audit 18
Community involvement Relations with consumers, business and
professionals. 22
Enforcement Criminals jailed, civil actions, bannings and
disciplinary actions. 23
Financial services Financial services reform, licensing and
compliance, 32regulation fee disclosure and legal issues.
Markets regulation Company accounts checked, market operators
inspected, 36and policy and policy on financial services and cross
border issues.
Consumer protection Financial advice, mortgage brokers, consumer
and 41Consumer Advisory Panel report.
International relations and International enforcement and
cooperation. 46regional coordination State and Territory service
maintained.
Public and commercial Reforms for companies, company
information, helping 49services liquidators and complainants,
enquiry services.
Infrastructure Costs reviewed, unclaimed money, faster company
54documents, sharing information and a new certified agreement.
Our staff Merit and equal opportunity, staff profile,
occupational 58health and safety.
Audit Audit Committee report and internal audit. 62
Appendices Publications, Freedom of information, Disability
strategy, 63Electoral Act disclosure, cost comparisons.
Six year summary Data on business, ASIC performance and finance.
66
Financial statements Reporting on operational and administered
finances. 67
Index 119
Inside this report
About this reportThis report was produced under the Commonwealth
Authorities and Companies Act 1997.The members of the Commission
are responsible under section 9 of that Act for thepreparation and
content of the report of operations in accordance with the Finance
Minister’sorders.
To meet high standards of disclosure, we used feedback from
Parliamentarians and thepublic. Last year’s report won ASIC’s
fourth Gold Award from the Australasian ReportingAwards Inc.
ASIC report of operations 2002–03
insi
de t
his
repo
rt
2
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In this section:� enforcement� combining strategies� consumer
education� financial services reform� facilitating commerce�
effectiveness measures� the Commission� ASIC staff
ASIC report of operations 2002–03
EnforcementEnforcement is an essential part of
effectiveregulation.
In the current domestic and internationalenvironment, the fight
against fraud andmisconduct has pervaded much of our work.ASIC has
responded strongly to Australia’scorporate failures and market
abuses,including insider trading, as outlined in thisreport. These
measures have been critical tothe restoration of investor
confidence and tothe good reputation of the Australianequities
market.
Enforcement is demanding and challengingwork, and the results to
date reflect credit onASIC’s enforcement officers. That work
nowincludes the 53 referrals to ASIC from the HIHRoyal Commission,
in addition to the criminaland civil actions ASIC had already
taken.
Successfully combining strategiesWe have also combined
enforcement withwider regulatory strategies, for example, inaction
we have taken on insolvency andmarket disclosure.
There has been a substantial increase incomplaints about
corporate insolvenciessince 2000. Last year, ASIC responded tothis
increase by:
• helping liquidators to obtain books andrecords
• requiring companies to properly maintainsuch records
• visiting companies that appeared to be atrisk of failure,
and
• pursuing legal proceedings whereappropriate, including
insolvent tradingproceedings against directors.
Chairman’s report
‘Enforcement is an essential part ofeffective regulation.’
chairman’s report
3
-
Encouraged by the positive feedback fromthe insolvency
profession, we sought andobtained additional, dedicated funding in
thisyear’s budget to extend our pilot project intoa continuing
regulatory program.
Similarly, in financial reporting and marketdisclosure, we
combined more assertiveintervention with other measures designedto
raise standards. Our audit of Australia’slisted companies for
‘Enron’ style reportingabuses suggested that there is no reason
tobelieve that the type of accounting abusesidentified in the
United States pose amaterial risk in Australia, but it
raisedawareness of other issues and resulted insome financial
restatements.
We also used a combination of strategies topromote a stronger
culture of marketdisclosure among companies, including:
• regulatory intervention that led in manycases to the release
of additionalinformation to the market
• closer cooperation with the AustralianStock Exchange Ltd
(ASX), and
• extensive industry consultation.
The Government recognised the importanceof these disclosure and
financial reportinginitiatives by including an additional
budgetappropriation to expand them over the next3 years. The
Government’s CLERP 9legislative package, expected later this
year,will further support these regulatory andenforcement
programs.
Consumer educationConsumer education and protection plays aless
direct, but equally important, role infighting fraud and
misconduct.
Many of the worst abuses we encounteredwere financial frauds
targeting unsophisticatedconsumers. Realistically, enforcement
actionswill only ever catch a relatively small numberof offenders,
often after the horse hasbolted. In the long term, the best policy
forprotecting consumers is to raise their ownknowledge of the
issues and their skill indealing with them.
ASIC has recently sought to place financialliteracy firmly on
the national educationagenda. This has attracted strong
cross-sectoral support and, hopefully, will lead tothe adoption of
a coordinated and cohesiveapproach to this issue in our
schools.
Financial services reformConsumers of financial products and
servicesare entitled to expect a regulatory frameworkthat includes
systemic safeguards andaccessible redress against misconduct.
The Financial Services Reform Act 2001 iscentral to these
objectives. After a somewhatslow start, industry licensing is
gainingmomentum and will reach a peak by theend of this calendar
year. The Treasurer’srecent statements that the Government willnot
extend the transition period, whichexpires in March 2004, have
provided afurther incentive for financial servicesbusinesses to
lodge their licenceapplications.
On behalf of the Commission, I wishexpressly to acknowledge the
outstandingwork of ASIC officers on this project.
4
chai
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’s r
epor
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ASIC report of operations 2002–03
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While this report accurately describes ourprogress, it cannot
adequately reflect thecomplexity and challenge that this reformhas
posed for ASIC’s management and staff.They have made a huge
commitment toconsulting industry on policy andimplementation, a
commitment that hasbeen both appreciated and reciprocated
byindustry.
ASIC’s collateral initiatives to protect andinform investors
have also won publicattention and support, including our work
toenhance the quality and credibility ofinvestment advice and our
proposals toimprove fee disclosure. The 79% increase invisits to
our consumer website indicates toothat we are reaching more
consumers andproviding them with valuable assistance.
Facilitating commerceIn the past financial year, we approved
morethan 1,400 applications for waivers of ormodifications to the
law that reducedbusiness costs. In some 90 cases, weconsidered and
approved innovative andcomplex transactions that might
otherwisenever have proceeded.
Although that is not high profile work, it isimportant to the
competitiveness ofAustralian enterprise and the long terminterests
of Australian investors. It forms partof our statutory mandate to
help improve theperformance of Australia’s financial system.
We also prepared to implement theGovernment’s CLERP 7 reforms,
which willfurther reduce the compliance costsassociated with
lodging annual returns forapproximately 1.3 million
registeredcompanies.
Finally, we contributed substantially tointernational efforts to
facilitate cross-bordercapital and business flows,
particularlythrough the International Organization ofSecurities
Commissions (IOSCO).
New effectiveness measuresFor the first time this year, we have
soughtto measure explicitly our regulatoryeffectiveness, against
both our statutorymandate and our 2003–2005 strategic plan,see
pages 7–9. This stands in addition to afull account of our
activities and ourstewardship of public moneys.
Measuring regulatory effectiveness ischallenging. Statistics or
‘heads on sticks’portray activity levels, but do not fully
reflectthe effectiveness of that activity. For example,how do you
prove that successful resultsagainst fraud and misconduct deterred
otherwould be offenders? Yet without overstatingthe significance of
specific measuresincluded in this report, we strongly believethese
new measures will contribute to abetter assessment of our
performance. Wewill develop these measures in future reports.
The CommissionIn February 2003, Mr Jeffrey Lucy, AM,
wasappointed Deputy Chairman for a 3 yearterm. Mr Lucy brings
significant experience inaccountancy and expertise in
financialreporting to the Commission, and has takenup residence in
Sydney.
Pending Mr Lucy’s appointment, Mr IanJohnston (Executive
Director, FinancialServices Regulation) acted for extendedperiods
as a Commission member. Hissupport and assistance were
muchappreciated.
chairman’s report
5
ASIC report of operations 2002–03
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chai
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6
ASIC report of operations 2002–03
This will be my last annual report, as I intendto retire from
ASIC at the end of 2003. Mydecision has been made in the
knowledgethat ASIC is well prepared and structured todeal with its
outstanding enforcement andregulatory issues.
During my term at ASIC, the Treasurer hasbeen a strong supporter
of effective and well resourced corporate and securitiesregulation.
The considerable achievements of the agency over that time could
not havebeen delivered without his support.
I also express my appreciation to theCommission members and ASIC
staff fortheir professionalism and hard work inensuring that the
agency is so well placed tocarry out its mandate, and to the
ParliamentarySecretary to the Treasurer, Senator the HonIan
Campbell, for his ongoing support.
Our staffThis year workloads have risen right acrossthe
organisation as a result of major lawreforms, numerous large and
complexinvestigations and increased public demandfor our
assistance. Our staff have risen to theoccasion and coped admirably
with thesepressures and demands.
The Commission is also pleased with theprogress that has been
made inimplementing new staff training programsand improved systems
for capturing andsharing information across the agency. Thesekey
components of our 2003–2005strategic plan were foreshadowed in
lastyear’s report, and remain critical to ASIC’scontinuing
development as a nationallyfocused, knowledge based agency. We
tooka further step towards their achievement byincluding
information sharing strategies asperformance requirements for staff
in ourrecently negotiated Certified Agreement.
My report, and the rest of this annual reportexcept for the
financial statements,constitutes ASIC’s report of operations
inaccordance with a resolution ofCommissioners made on 12 August
2003.
David KnottChairman
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7
ASIC report of operations 2002–03
ASIC
effectivenessStatutory aims (from the ASIC Act, see page 12)
2002–03 2001–02 2000–01Upholding the law effectively and
quickly
• Criminals jailed 29 19 25
• Civil orders against people or companies 151 140 n/a
• Successful litigation (target 70%) 94% 92% 71%*
• Additional disclosures achieved through ASIC intervention 311
n/a n/a
Promoting confident and informed consumers• $ millions
protected, frozen or compensation orders $506m $401m $530m
• Public complaints about misconduct finalised 9,292 7,827
6,646
• Use of our consumer website FIDO 875,000 488,000 241,000
• Callers assisted through our Infoline 142,284† 161,000
123,000
Making company information available quickly and efficiently
• Total use of our databases (free and paid) 10,997,500
9,095,600 7,260,700
• Company data lodged on time 93% 93% 93%
• Availability of database 99.9% 99.9% 99.9%
Improving the performance of the financial system and the
entities within it
• Approvals of commercial transactions or products that reduced
costs 1,360 n/a n/a
• Approvals of innovative transactions or innovative financial
products 90 204‡ 80
• Australian financial services licences issued 604 35 n/a
* Success rate understated.† Calls fell because company document
lodgement enquiries were re-routed, see page 53.‡ Financial
services reform triggered an unusually high number of special
applications.
Staff, expenses and revenue 2002–03 2001–02 2000–01
Staff (full time equivalents) increased for enforcement and
financial services reform
No of staff 1,396 1,284 1,221
Annual change 9% 5% –1%
Operating expenses rose to pay for extra workload$ millions
$173m $160m $143m
Annual change 8% 12% nil
Revenue collected for the Commonwealth up$ millions $405m $379m
$363m
Annual change 7% 4% 1%
ASIC effectiveness: 3 year perspective
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obje
ctiv
es, p
lans
and
res
ults
8
Fight fraud and misconduct.
The public rates enforcement asour highest priority and
hasacknowledged that ASIC is morecredible and more visible.
We plan to:
• produce results that willjustify this shift in opinion
• seek support for moreflexible enforcementremedies
• act against misleading anddeceptive conduct
affectingconsumers, and
• promote awareness aboutscams and fraud.
This year, ASIC:
• tackled crucial issues andsucceeded in 94% oflitigation, page
24
• sought power to fine forbreaches of marketdisclosure rules
• acted against 43 illegalschemes, and obtained 311corrective
disclosures, pages 7, 24, and
• increased publication anddistribution of warnings, page
42.
Objectives and context 3 year plan for 2002–05 Results in
2002–03
Raise standards in financialservices and further buildour
expertise.
Parliament has given us a majortask to implement its
financialservices reforms smoothly.
We plan to:
• raise standards in theindustry
• become more active andmore skilled insuperannuation
andinsurance, and
• enhance confidence inAustralian financial markets.
This year, ASIC:
• licensed 604 businesses,assessed quality of adviceand ran
targeted campaigns,pages 33–34, 42
• boosted compliance checks,and set up staffsuperannuation
andinsurance communities ofpractice, pages 34, 55, and
• inspected market operatorsand clearing houses andreported to
the Minister, page 39.
Make a greater impact inthe boardroom and improvethe financial
system.
The market needs effectivedisclosure, but some companyboards and
company auditorshave not delivered.
We plan to:
• encourage a culture ofdisclosure and compliance bydirectors
and others withfinancial reporting and auditobligations
• encourage improvedcorporate governance andgreater compliance
with theCorporations Act, and
• assist Australian marketoperators and maintainAustralia’s
relevance as acapital market.
This year, ASIC:
• reviewed accounts of alllisted companies to check
foraccounting abuses, page 37.
• targeted directors’ duties andwon extra funding to focus
oninsolvent trading, pages 24, 26,51, and
• represented Australianinterests internationally andassisted
cross-borderbusinesses, pages 47, 39–40.
Objectives, plans and results
‘We have sought explicitly to measure effectiveness against our
2003–05 strategic plan.’
ASIC report of operations 2002–03
-
ASIC report of operations 2002–03
9
objectives, plans and results
Detect and act on earlywarning signs.
We have responded well toevents but in the past someimportant
issues have jumpedout unexpectedly.
We plan to:
• build systems that captureand synthesise data, and
• upgrade significantly our skillsin managing and
applyingknowledge.
This year, ASIC
• established a nationalframework to analyse andreport on key
risks, page 43,and
• launched a new intranet andsponsored cross-disciplinaryteams
to share information,page 55.
Maintain optimal funding,relevance and efficiency.
Our responsibilities andworkload have increased overthe past few
years.
To achieve our other objectives,we plan to:
• assist Government decisionsabout our funding and
ourresponsibilities, and
• press on with greaterefficiencies in our
operations,infrastructure and decisionmaking.
This year, ASIC:
• secured additional funding forwork on HIH, corporatedisclosure
and insolvency,and
• reviewed and cutadministrative costs, andboosted efficiency of
staffaccommodation, pages 55, 57.
Strengthen the skills of our staff.
Our increased workload andresponsibilities mean we
muststrengthen the skills within theorganisation.
We plan to:
• maximise our performance
• retain knowledge and skills,manage costs of retrainingand
recruitment, and minimisethe risk of losing key skills,and
• develop, support and recruitstaff in a demanding
andcompetitive market.
This year, ASIC:
• maintained our performancemanagement system, page 61
• negotiated a new CertifiedAgreement emphasisinginformation
sharing, page 56,and
• extended our leadershiptraining, and recruited 18new
graduates, page 61.
Objectives and context 3 year plan for 2002–05 Results in
2002–03
-
In 2002–03, ASIC received an appropriationof $162.8 million.
This included an increaseof $16.8 million, provided principally
toimplement the Financial Services Reform Actand to supplement our
general enforcementcapability.
Some $10.6 million of our appropriation wascollected by the
Government as a levy onvarious deposit taking,
superannuation,retirement savings and insuranceorganisations. The
levy was used for ASIC’sconsumer protection, regulatory
andenforcement activities relating to theproducts and services
these organisationsoffer, and for the Superannuation
ComplaintsTribunal. ASIC spent approximately $9.8million on these
activities, and theSuperannuation Complaints Tribunal spent$3.1
million, bringing the total amountexpended against the levy to
$12.9 million.See also page 65.
We also generated more than $9 millionfrom external sources
including $2 million inrecoveries for court and investigation
costs.Our combined revenue funded ourregulatory, enforcement and
consumerprotection activities.
We incurred a small operating deficit of$0.112 million, an
improvement on lastyear’s deficit of $5.599 million.Benchmarking
our infrastructure servicesagainst public and private sectors
continuedto demonstrate that we managed resourcesefficiently.
Total fees and charges collected for theCommonwealth amounted to
$405 million.
Our financial statements begin on page 67.
Cost of outputsASIC’s outputs in 2002–03 cost $172.6million, up
from $159.9 million. The increasereflected the cost of new
financial servicesreform and enforcement activities.
Output* Cost
1 Policy and guidance about laws $9.7madministered by ASIC
2 Comprehensive and accurate $46.1m information on companies and
corporate activity
3 Compliance monitoring and $47.7mlicensing of participants in
the financial system to protect consumer interests and ensure
market integrity
4 Enforcement activity to give effect $69.0mto the laws
administered by ASIC
Total $172.6m
*Infrastructure costs are apportioned to theseoutputs
Employee expenses, our major outlay,increased 14% to $96.9
million. Some 112additional full time equivalent staff wereengaged
to meet our financial servicesreform and enforcement
responsibilities.These extra staff also contributed toincreased
supplier expenses, excludingproperty costs, of $43.6 million.
Expenditureon enforcement matters and litigation alsoincreased.
Property expenses of $18.9million fell by $0.9 million, a cost
wecontinued to manage tightly byaccommodating all additional staff
withinexisting premises.
10
fina
ncia
l re
port
ASIC report of operations 2002–03
Financial report 2002–03
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ASIC report of operations 2002–03
organisation chart
11Organisation chart
EnforcementPeter Wood
FinancialServices
RegulationIan Johnston
Policy &Markets
RegulationMalcolmRodgers
ConsumerProtectionPeter Kell
Public &Commercial
ServicesMark Drysdale
RegionalCoordination& International
RelationsGreg Tanzer
InfrastructureCarlos Iglesias
Chairman David Knott
Deputy Chairman Jeffrey Lucy
Commissioner Berna Collier
Commission
Executive Directors
Regional Commissioners
Peter Kell (NSW)
Mark Drysdale (VIC)
Greg Tanzer (QLD)
Michael Gething (WA)
Simon Dwyer (SA)
Ron Ladlay (ACT)
Julie Read (TAS)
Anthony Beven (NT)
General CounselBrendan Byrne
Chief AccountantGreg Pound
Commission Secretariat &Strategic Planning &
Analysis
Katerina Speer
Office of Public AffairsKate Harvey
-
ASIC’s legislationASIC regulates companies and
financialservices, and promotes investor, creditor andconsumer
protection under the AustralianSecurities and Investments
Commission Act2001; Corporations Act 2001; Insurance Act1973;
Insurance (Agents and Brokers) Act1984; Insurance Contracts Act
1984;Superannuation (Resolution of Complaints)Act 1993; Life
Insurance Act 1995;Retirement Savings Accounts Act 1997; andthe
Superannuation Industry (Supervision)Act 1993.
In brief, section 1(2) of the ASIC Act requiresus to:
• uphold the law uniformly, effectively, andquickly
• promote confident and informedparticipation by investors and
consumersin the financial system
• make information about companies andother bodies available to
the public, and
• improve the performance of the financialsystem and entities
within it.
Who does ASIC regulation protect?We protect consumers, investors
andcreditors of corporations, including anestimated*:
• 15.4 million people with a depositaccount
• 9.9 million investing throughsuperannuation or annuities
• 9.5 million with credit or charge cardsincluding debit
only
• 6.1 million with a home, personal orinvestment loan
• 4.3 million directly owning shares
• 2.3 million having invested through afinancial adviser,
and
• 1.4 million investing in managed funds.
*Roy Morgan Research, 12 months to March 2003people aged 14+
Other financial regulatorsThese government bodies also
regulateAustralia’s financial system and financialservices:
• Australian Prudential Regulation Authority(APRA) regulates
prudential standards fordeposit taking institutions,
insurancecompanies, and larger superannuationfunds designed to
ensure, under allreasonable circumstances, that they meettheir
financial promises
• State and Territory fair trading or consumeraffairs agencies
regulate consumer creditunder the Uniform Consumer Credit
Code,and
• Reserve Bank of Australia (RBA) regulatesmonetary policy and
the stability of thefinancial system.
ASIC cooperated with these bodies throughconsultation at senior
level and regularcontact by operational and policy staff.
In this section:� ASIC’s legislation� who we protect� other
financial regulators
12
the
regu
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ictu
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ASIC report of operations 2002–03
Where ASIC fits in the regulatory picture
‘ASIC regulates companies and financial services, and
promotesinvestor, creditor and consumer protection.’
-
ASIC report of operations 2002–03
the regulatory picture
13
Who we regulate How we regulate them
1.3 million companies. Register each company with a unique
number, and record the number,name, directors and other information
on a public register.
Investigate and act against misconduct by company directors and
officers.
Grant or refuse requests for relief from the law.
Receive prospectuses before money is raised.
Uphold the law on financial reporting and company mergers and
acquisitions.
7,025 company auditors,832 registered liquidatorsand 363
official liquidators.
Register them before they start operating.
Investigate and act against misconduct.
5 financial marketsauthorised by theMinister, including: •
Australian Stock
Exchange Ltd (ASX)• Sydney Futures
Exchange Ltd.
Investigate and act against misconduct by listed companies,
brokers andtraders.
Assess and report to the Minister on market supervisory
arrangements.
Advise the Minister about rule changes and whether to approve
newmarkets.
Monitor what ASX does as a listed company, and trading in its
shares.
3,899 financial servicesbusinesses regulated byASIC, including:•
fund managers • stockbrokers • financial advisers • insurance
brokers.
License or register them before they start operating.
Set standards for education, training and operations.
Investigate and act against misconduct.
Record their details and their authorised representatives on a
publicregister.
3,487 managedinvestment schemes,registered by ASIC.
Register them before they start operating.
Investigate and act against misconduct.
Record their details on a public register.
APRA regulated financialservices businesses,including:• banks
and deposit
taking institutions• superannuation funds• life and general
insurance companies.
Report on how they comply with codes of practice.
Approve consumer complaint resolution schemes.
Investigate and act against misconduct affecting consumers
ormisconduct as corporations.
Cooperate with APRA.
Credit providers operatingunder State and Territorylaws.
Investigate and act against misleading and deceptive conduct
affectingconsumers.
Cooperate with State and Territory regulators.
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ASIC report of operations 2002–03
14
Staff†
Role
Key events
Results
Targets for next 2 years
Enforcement
336 staff
Investigate and actagainst misconduct.
HIH Royal Commissionreferred matters toASIC for
possibleprosecution.
29 people gaoled for84 years; 16 directorsbanned; 39 bannedfrom
financial services.
Successful proceedingson insolvent trading,directors’
duties,insider trading.
Acted against 43 illegalschemes involvingmore than
$200million.
Manage high profilecases and achievesuccessful outcomes.
Seek more flexibleenforcement remedies.
Act against misleadingconduct affectingconsumers.
Financial servicesregulation
178 staff
Regulate financialadvice and retailfinancial products.
Industry transition tofinancial servicesreform started
slowly.
Issued 604 financialservices licences.
Boosted compliancechecks, producingcorrective action.
Worked to rationalisepresentation of feesand charges in
offerdocuments.
Manage a challengingtransition for financialservices reform.
Achieve consistentindustry regulation andconsumer
protection.
Use licensing andsurveillance to raiseindustry standards.
Markets regulation & policy
125 staff
Regulate markets,fundraising, takeoversand financial
reporting;develop policy.
Governmentforeshadowed stricterrules for companydirectors and
new ASICpowers.
Reviewed 1,225 listedcompany accounts tocombat
accountingabuses.
Inspected marketoperators and clearinghouses and reportedto the
Minister.
Guided industry onfinancial servicesreform, and crossborder
regulation.
Encourage a culture ofdisclosure andstrengthen
corporategovernance.
Increase transparencyand accountability inour markets.
Participate in andinfluence internationalstandard setting.
Description of ASIC directorates
* The work of these directorates received substantial support
from other directorates.† Full time equivalents, not including 34
staff supporting the Commission, General Counsel, Chief Accountant,
and 35 staffsupporting the Superannuation Complaints Tribunal and
other statutory bodies.‡ Includes 21 full time graduates working
for other directorates.
ASI
C di
rect
orat
es
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ASIC report of operations 2002–03
ASIC
directorates
15
Consumerprotection*
25 staff
Identify and act onconsumer issues,approve complaintsschemes,
review codesof practice.
Expert assessment ofconsumers’ financialplans issued a wakeup
call to the industry.
875,000 visits to ourconsumer website, up79%. 270,000consumer
publicationsdistributed.
Mortgage brokersreport began reformprocess to
protectconsumers.
ASIC called for afinancial literacyorganisation to
boostfinancial education inschools.
Promote publicawareness of domesticand internationalscams and
fraud.
Help consumers makemore informeddecisions
aboutsuperannuation.
Establish anindependent, crosssector financial
literacyorganisation.
Internationalrelations & regionalcoordination*
12 staff
Coordinateinternational matters,State and Territoryoffices.
World financialregulators sought moreconsistent
globalstandards.
Assisted HIH andOne.Tel investigationsand promoted fastercross
border exchangeof information.
Contributed tointernational principlesfor disclosure, auditand
auditorindependence.
Maintained servicelevels in all States andTerritories.
Work on internationalstandards of disclosure,audit, clearing
andsettlement.
Improve internationalenforcement capacity.
Maintain service levelsin all States andTerritories.
Public & commercialservices
366 staff
Maintain companydata, assesscomplaints, answerinquiries, sell
imagingservices.
Parliament simplifiedrequirements forupdating
companyinformation.
Implemented easierways for smallcompanies to updateinformation
and payfees.
Total use of ourdatabases jumped20% to 11 millionsearches.
9,292 publiccomplaints aboutmisconduct, up 19%.Resolved 66%.
Implement law reformaffecting smallcompanies.
Implement campaignto reduce insolventtrading.
Further improve accessto Australia’s corporatedatabase.
Infrastructure
285 staff‡
IT and knowledgemanagement, HR,finance, managementservices.
Government approvedadditional specialpurpose funding.
Obtained increasedGovernment fundingfor special projects.
Reunited more peoplewith their unclaimedmoney through newsearch
engine.
Initiated program toshare information,supported by a
newCertified Agreement.
Develop andimplement knowledgemanagementstrategies.
Implement strategiesto manage staffretention anddevelopment.
Increase internalefficiencies andaccountability for costs.
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ASIC report of operations 2002–03
David Knott LLB
ASIC Chairman from November 2000 for a5 year term. (In August
2003, he announcedhis intention to retire at the end of 2003).
David Knott is a lawyer and Fellow of theAustralian Institute of
Company Directors. In 2002, he was elected Chairman of theTechnical
Committee of the InternationalOrganisation of Securities
Commissions.Member: Companies and Markets AdvisoryCommittee,
Council of Financial Regulators,Australian Crime Commission.
PreviouslyASIC Deputy Chairman from July 1999.
His career covers 13 years in private legalpractice,
specialising in company andcommercial law, 10 years in senior roles
ininvestment banking, and 9 years in thepublic sector. He has been
a partner atArthur Robinson and Co, Senior ExecutiveDirector Capel
Court, Executive Director ofthe Australian Financial
InstitutionsCommission, Chief Executive ofCommonwealth Funds
Management andChief Operating Officer of APRA.
Jeffrey Lucy, AM FCA
ASIC Deputy Chairman from February 2003for a 3 year term.
Jeffrey Lucy is a Chartered Accountant and aFellow of the
Institute of CharteredAccountants in Australia, the
NationalInstitute of Accountants, and the AustralianInstitute of
Company Directors. He was mostrecently the Chairman of the
FinancialReporting Council and head of LucyConsulting.
He is a former member of the BusinessRegulation Advisory Group,
a former National President of the Institute ofChartered
Accountants in Australia, and a former Managing Partner
ofPricewaterhouseCoopers, Adelaide. He wasmade a Member of the
Order of Australia forhis contribution to the accounting
professionand to the business sector as an adviser oncorporate and
taxation reform.
16 Commissionersco
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Berna Collier BA, LLB (Hons)(Qld), LLM (Melb)
ASIC Commissioner from November 2001for a 3 year term.
Professor Berna Collier is a lawyer and amember of the
Insolvency, the CompanyLaw and the Banking and FinanceCommittees of
the Law Council of Australia.She serves on the Advisory Board of
AxissAustralia, and was ASIC’s nominee on theAPRA board until 30
June 2003.
She has worked in and written extensivelyabout commercial and
insolvency law for 15 years. Professor Collier was most
recentlyProfessor of Commercial Law at theQueensland University of
Technology and aneducational consultant with CPA Australia.She
previously practised law in Melbourneand Brisbane. During 1999 and
2000,Professor Collier chaired the CommonwealthGovernment’s
Taskforce on Industry Self-Regulation.
Ian Johnston
Acting Commissioner from July 2002 untilFebruary 2003.
Ian Johnston is a lawyer and ASIC’s ExecutiveDirector, Financial
Services Regulation. Hepreviously served in other senior ASIC
roles,and has been a company director in thefinancial services
sector and CEO of a majortrustee company. The Treasurer
appointedhim to serve as Acting Commissioner untilthe appointment
of Deputy Chairman JeffreyLucy.
17
ASIC report of operations 2002–03
comm
issioners
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GovernanceThree full time Commissioners directedASIC’s affairs.
Full time membership:
• enabled Commissioners to monitor anddirect ASIC’s complex and
wide rangingactivities, and
• avoided conflicts of interest that mightotherwise affect part
time Commissionersstill active in business, law or accounting.
The Commission held 17 formal meetings toconsider and set goals
and strategy,including ASIC’s strategic plan (page 8)
anddirectorate business plans. Meetings alsoreviewed operational,
financial and AuditCommittee reports, and discussed key
issuesaffecting human resources, governance anddelegations.
Commissioner Eligible Attendedto attend
David Knott 17 17
Jeffrey Lucy 6 6
Berna Collier 17 15
Ian Johnston (acting) 10 10
Independent legal and accounting expertsadvised on specific
matters. Wherenecessary, an individual Commissioner mayobtain
independent legal advice at ASICexpense.
ASIC’s Executive Committee, the seniormanagement forum of
Commissioners andExecutive Directors of our 7
operatingDirectorates, met monthly to discuss currentand emerging
issues, to plan and makepolicy across the organisation, and
tomaintain high level communications.
Commissioners’ appointment andremunerationThe Governor-General,
on the nomination ofthe Treasurer, appointed Chairman David Knottin
November 2000, Deputy Chairman JeffreyLucy in February 2003 and
Professor BernaCollier in November 2001 on fixed terms thatmay be
terminated earlier only for reasonsset out in section 111 of the
ASIC Act.
The Treasurer may nominate asCommissioners only people who
arequalified by knowledge or experience inbusiness, administration
of companies,financial markets, financial products andfinancial
services, law, economics oraccounting.
The Remuneration Tribunal set Commissioners’remuneration; see
also page 99.
Reporting to ParliamentASIC reported to Parliament through
itsannual report, replies to Parliamentaryquestions and inquiries
on behalf ofconstituents, and 12 appearances before 5Commonwealth
Parliamentary Committees:Joint Committee on Corporations &
FinancialServices (5); Joint Committee of PublicAccounts &
Audit (1); Senate Committee onEconomics (4); Senate Select
Committee onSuperannuation (1); House of RepresentativesCommittee
on Environment & Heritage (1).
In this section:� governance and the role of Ministers� ethics�
audit
ASIC report of operations 2002–03
18 ASIC governance, ethics and audit
‘All ASIC staff must comply with the Australian Public Service
Code of Conduct.’
gove
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Role of the responsible MinisterThe Ministers responsible for
ASIC are theTreasurer, the Hon Peter Costello MP and, in matters
determined by him, theParliamentary Secretary to the
Treasurer,Senator the Hon Ian Campbell.
Under the ASIC Act, the Minister nominatesCommission members for
appointment bythe Governor-General. Commissionersreported formally
to the Minister throughtheir annual report of operations,
briefings,submissions and meetings with the Treasureror
Parliamentary Secretary. ASIC also briefedthe Treasury about
current issues andproposed changes to the law.
ASIC’s legislation permits the Ministerformally to direct ASIC
in specificcircumstances. Consistent with Ministerialpractice
across most statutory authorities,such powers have been exercised
rarely.
Under section 12 of the ASIC Act, theresponsible Minister may
direct ASIC aboutpolicies and priorities in using our powers
orperforming our functions, but may not directus about a particular
case. Only one suchgeneral direction has been given, inSeptember
1992, about collaboration andconsultation between ASIC and the
Directorof Public Prosecutions in the investigationand prosecution
of serious corporatewrongdoing.
Under section 137, the Minister mustapprove contracts exceeding
$1 million(recently raised from $250,000) and leasesof land
exceeding 10 years.
Under section 28 of the CommonwealthAuthorities and Companies
Act, the Ministermay also notify Commissioners in writing ofgeneral
policies of the Commonwealth
Government that will apply to ASIC. No suchnotifications have
been received. However,as with other agencies,
CommonwealthMinisters and Departmental Secretaries fromtime to time
asked ASIC to conform toGovernment policies affecting our
generaladministration, for example, staffemployment practices.
Relationship with the StatesThe Commonwealth assumed
responsibilityfor corporate regulation from the States in1991. The
relationship between theCommonwealth, States and NorthernTerritory
in corporate regulation is governedby the Corporations Agreement
2002.
Under that agreement, the Commonwealthconsults the Ministerial
Council forCorporations (MINCO), comprisingCommonwealth, State and
Northern TerritoryMinisters in appointing ASIC Commissioners,and
ASIC must:
• consult the relevant State or NorthernTerritory Minister in
appointing RegionalCommissioners
• maintain certain minimum service levels ineach State and the
Northern Territory
• maintain offices in each State capital andDarwin, and
• maintain regional liaison committees ineach State and the
Northern Territory toconsult the local business community, anduse
our best endeavours to have aCommission member present at
everymeeting, see page 22.
ASIC attended MINCO as an observer and toanswer questions about
the administration ofthe corporations legislation.
19
ASIC report of operations 2002–03
governanace, ethics and audit
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EthicsAll ASIC staff must uphold the AustralianPublic Service
Values and comply with theAustralian Public Service Code of Conduct
asset out in the Public Service Act 1999. Thevalues and code
require impartiality, honesty,diligence and service.
In addition, formal procedures requiredisclosure of any real or
apparent conflict ofinterest. Commissioners and staff arerequired
to take no part in decisions wherereal or apparent conflicts of
interest mayarise. We set up special reporting anddecision making
procedures to maintain theintegrity of our decisions.
The Chairman and Commissioners disclosedto the Minister all
direct or indirect pecuniaryinterests in businesses, companies,
orfinancial products regulated by ASIC.
Staff were required to keep registers ofinterests that
supervisors may inspect at anytime. Commissioners appointed
seniordisclosure officers to advise managers andstaff on how to
handle possible conflicts.
Investigating complaints about staffAs our staff have
significant publicresponsibilities, we have maintained
internalprocedures for investigating complaintsabout how they carry
out thoseresponsibilities.
During this financial year, ASIC completedinquiries into 8
substantive complaints. Fourinquiries remain on foot. In one of the
8completed inquiries, the complaint wasfound to be substantiated.
That complaintrelated to the standard of service provided toa
member of the public.
Complaints about the way in which ASICadministers its powers may
also be made to,and investigated by, the CommonwealthOmbudsman.
DisclosureTo operate transparently, while protectingconfidential
information, ASIC:
• observed the requirements of theFreedom of Information Act
1982, see page 63.
• met high standards of disclosure throughour annual report, see
page 2
• published up to date information on ourwebsites, and through
the ASIC Digestand other publications, see page 63, and
• issued media releases, subject to writtenguidelines, about
enforcement andregulatory issues, while respecting therights of
people subject to investigation oradministrative action.
Fraud controlASIC reviewed its fraud risks andimplemented the
strategies outlined in its2001–03 fraud control plan. The
planoutlines strategies and processes to avoid,detect, investigate
and minimise the effectsof fraud. We maintained reporting and
datacollection mechanisms that met our needsand complied with
Commonwealth FraudControl Guidelines.
Indemnity and insurance policiesConsistent with the
CommonwealthAuthorities and Companies Act, ASIC:
• paid a premium of $47,025 for directorsand officers’ insurance
(includingemployment practices insurance), which
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ASIC report of operations 2002–03
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21
ASIC report of operations 2002–03
covered all current and formerCommission members and ASIC
staffmembers for liabilities, including legalcosts, incurred by
them in theperformance of their duties, and
• provided indemnities to Commissionmembers for liabilities,
including legalcosts, incurred by them in the course oftheir
duties.
AuditThe Commonwealth Auditor-General auditedASIC’s financial
statements, see page 68.
The Commission’s Audit Committeeexamined internal and external
audit mattersand risk assessment, see page 62. Themajority of
members are independent ofASIC, including the Chair, Ms Merran
Kelsall,who is a senior chartered accountant andcompany director in
private practice. TheCommittee’s charter conforms withAustralian
National Audit Office andAustralian Institute of Company
Directorsguidelines.
governanace, ethics and audit
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ASIC report of operations 2002–03
Presenting ASIC to the communitySenior ASIC staff gave more than
300presentations to an estimated 21,000people from the markets,
financial servicesindustry, companies, government agenciesand
consumer groups about how to complywith the law and how the law
protects usersof financial markets, products and advice.
Consulting regions and businessTo ensure that we understood
specific needsin all the States and Territories, we convenedliaison
committees representing the businesscommunity in each State and
Territory. Eachcommittee met about 4 times, receivedinformation on
our performance and service,and offered ideas. A Commissioner
usuallyattended these meetings.
To build support for compliance and goodpractice, we met
regularly with some 18peak industry and professional
associations,and consulted other organisations,companies and
professionals on proposedpolicies. We helped thousands of
companyoffice holders and professionals over thephone.
Supporting a consumer voiceWe funded a 10 member
ConsumerAdvisory Panel, including consumer and
investor advocates experienced in financialservices and an
independent Chair. Itrecommended research, alerted us to issuesand
commented on policy affecting investorsand consumers. Read the
Panel’s report onpage 44. We also consulted other investorand
consumer organisations.
Building relationshipsASIC’s ninth Summer School broughttogether
24 speakers and 77 participantsfrom overseas and Australia selected
fromindustry, the professions, government,regulators and our own
staff. The theme,‘Borderless boards – a changing globalparadigm in
ethics and governance’, focusedon recent Australian and
internationaldevelopments.
Supporting professional standardsTo encourage professional
education in thefinancial industry, we sponsored prizes fortwo
Securities Institute courses: FinancialMarkets Law, Regulation and
Compliance,and Financial Advising Essentials. We alsosponsored the
Australian Securities andInvestments Commission Prize
forProficiency in Corporate Law at the Universityof Sydney, and the
ASIC prize in CorporateLaw at the University of Wollongong.
Community involvement
‘Senior ASIC staff gave more than 300 presentations to
anestimated 21,000 people.’
22
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ASIC report of operations 2002–03
Overview336 enforcement staff investigatedsuspected breaches of
the law and:
• had 29 criminals jailed as part of 43people convicted from
briefs prosecutedby the Commonwealth Director of
PublicProsecutions
• took 67 civil proceedings, resulting inorders against 151
people or companies,$121 million in recoveries andcompensation
orders and $2 millionfrozen
• fined or banned 16 people from directingcompanies, and 39
people from offeringfinancial services, and
• disciplined 8 company auditors andliquidators for
misconduct.
Enforcement
Peter Wood, Executive Director, appointed 2001, previously
Victorian Solicitorfor Public Prosecutions and Jan Redfern, Deputy
Executive Director, appointed
2001, previously ASIC's NSW Regional Counsel.
In this section:� overview� criminal matters� civil action and
compensation� banning and disciplinary
proceedings� outlook
enforcement
23
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ASIC report of operations 2002–03
Key results
Issue Result
Investment frauds 10 investment fraudsters jailed. Acted against
43 illegal schemes involving morethan $200 million.
Insider trading Stockbroker and adviser Rene Rivkin* and former
investment banker SimonHannes jailed.
Insolvent trading Waterwheel Chairman William Harrison, CEO
Bernard Plymin*, and director JohnElliott* banned as directors for
letting the company trade while insolvent.
Directors duties One.Tel Ltd’s director Bradley Keeling banned
for 10 years for failing to apprisehimself of its true financial
position.
Continuous disclosure AMP settled proceedings by paying $100,000
for training in corporategovernance. We commenced civil action
against Southcorp Ltd for allegedbreach of the continuous
disclosure provisions.
*subject to appeal
Main activities This year Last year % change
Litigation concluded 222 205 8%
General investigations commenced 302 n/a –
Complex investigations commenced 40 n/a –
General investigations completed within 12 months 236 205
15%
Complex investigations completed within 12 months 27 included
above –
% general investigations completed within 12 months 85% 83%
–
% complex investigations completed within 12 months 42% included
above –
24
ASIC enforcement staff set their sights on fighting fraud and
misconduct, making an impacton standards of corporate governance
and ensuring the integrity of Australia’s financialmarkets. We also
assisted the HIH Royal Commission extensively.
We conducted numerous criminal, civil and administrative
proceedings where ASIC judgedthat a meaningful impact could be
achieved.
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Criminal mattersWe had 29 criminals jailed as part of 43 people
convicted from briefs prosecuted by theDirector of Public
Prosecutions (DPP). Staff investigated and obtained evidence for
the DPP,which then decided and prosecuted all indictable matters.
We involved DPP officers inconsidering evidence on potentially
serious criminal investigations at an early stage.
29 criminals jailed
What they did Names and details of crime Sentence
Investment fraudsters Director Anthony Eustace Senese stole 7
years, with a $5.4 million and falsely accounted for money minimum
of 5from a company managing superannuation funds.
Director James Gordon Kearns defrauded 6 years, with a investors
in Nambucca Investments. minimum of 4 years
6 months
Financial advisers who Michael Frank Simich promoted a Ponzi
style fraud 6 years, with acheated their clients involving $31
million. minimum of 4
John Melville McKenney, CEO of an investment 4 years 6 months,
withcompany, for dishonesty involving more than a minimum of 3
years$5 million.
John Lloyd Caust, employee of an investment 2 years 6 months,
withcompany, made improper and dishonest use of his a minimum of 18
position. months
Director Graeme Geoffrey Milner for dishonesty and 2 years, with
a illegal fundraising. minimum of 6 months
Director Terrence John Hunter for dishonesty and 2 years, with a
illegal fundraising. minimum of 6 months
Paul Grant Stuart defrauded 2 investors of 1 year$35,500
promising shares in return for their investment — they received
nothing.
Stephen John Taylor took $535,000 from an 1 year, with a
investor for property projects without a prospectus. minimum of 6
months
Hans Jakob Jost for contempt of a Court order 1 monthrestraining
him from contacting investors.
Joachim Prehn, financial and insurance adviser, 6 years, with
amisappropriated $1.7 million from clients. minimum of 4
Douglas Gordon Johnston, accountant, 4 years 9
monthsmisappropriated or intended to misappropriate with a minimum
of $1.1 million from clients. 3 years 6 months
Daryl John McGuire fraudulently induced dealings 3 years, with a
in securities worth $200,000. minimum of 1 year
ASIC report of operations 2002–03
enforcement
25
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What they did Names and details of crime Sentence
Laurence John Tobin, investment adviser, defrauded 2 years 6
months, with clients of $314,000. a minimum of 12
months
David Paul Mudge withdrew almost $200,000 from 2 years 3 months,
with an elderly client’s account for himself. a minimum of 1
year
Joseph Francis McNeany for theft of $78,260 in 3 years, with a
insurance premiums. minimum of 1
John Charles Freeman, financial adviser, used 2 years, with a
$174,000 of client funds for himself. minimum of 9 months
Peter Robert Neilson, insurance broker, received but 15 months,
with a failed to pass on clients’ premiums. minimum of 10
Dishonest company Hiromi (Henry) Kawada, company officer, 10
years, with a directors and officers misappropriated funds
involving $27 million. minimum of 3 years
and 4 months
Harunobu Fukusato, company officer, forged 4 years, with a
documents with intent to deceive a creditor. minimum of 1
Philip James Davies for giving false information to a 2 years 6
months, with creditor about debts of $2.86 million. a minimum of
12
months
Sebastian Mark Tomarchio, company director, 2 years 6 months,
with created false invoices worth $1.3 million. a minimum of 8
months
John Phillip Gorcilov, company director, for false 2 years, with
a pretences in relation to $144,000. minimum of 15
months
Michael Roussi (Misagh Roussi), company officer, 3 months
periodic defrauded the company of $991,000. detention
Damien Parkes misused $150,000 of investors 1 yearmoney placed
in a merchant bank.
Brian Patrick Khan, company director, dishonestly 12 months,
with a obtained $282,000 without authorisation. minimum of 6
Insider trading Simon Gautier Hannes, merchant banker, for
insider 2 years 6 months, with trading and related offences a
minimum of
10 months
Rene Rivkin for insider trading in Qantas Ltd shares 9 months
periodic detention
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ASIC report of operations 2002–03
Editor's note: This text has been edited in accordance with the
spent convictions scheme.
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Referrals to the DPPWhen we conclude a criminal investigation,
the briefs of evidence are referred to the DPP.
Months between resourcing investigation and requesting
handover
Months 0–3 3–6 6–9 9–12 12+ Total
Number of briefs 5 18 10 7 19 59
Briefs concerned 73 potential defendants. The DPP accepted
handover of a brief forprosecution once it decided that the
evidence was sufficient to support a conviction andwarranted
prosecution. In many cases, charges were laid within 3 months of
handover beingaccepted by the DPP.
Civil action and compensation
We took 67 civil proceedings resulting in orders against 151
people or companies. Courtsordered $121 million in compensation and
froze $2 million for investors and creditors, andwound up illegal
schemes. We also took proceedings for civil penalties against
directors,company officers and others who failed in their
duties.
Major matters are listed below.
Respondents Results Amount
Bradley Keeling Liable for compensation to One.Tel Ltd
creditors. $92 million
Karl and Vivian Suleman Compensation to a company for the
benefit of creditors. $20 million
John McKenney and Compensation for investors in the Lifestyle
group of $5 millionJohn Caust companies.
Coogi group of companies Employee entitlements to be paid. $2.5
million
We saved investors from potentially losing at least another $390
million by stoppinginvestment offers that inadequately disclosed
material information and unlawful investmentschemes.
enforcement
27
ASIC report of operations 2002–03
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Bannings, fines and disciplinary proceedings
To protect the public, we banned, or obtained Court orders
banning, 16 people from directingcompanies, 39 people from offering
financial services, and disciplined or deregistered 8company
auditors and liquidators for misconduct through the Courts,
administratively, orthrough enforceable undertakings.
16 company directors and officers banned
Name What they did Period of banning
Ian Francis Cole Operated an unregistered managed investment
Permanentlyscheme.
James Stanley Phillips Operated an unregistered managed
investment Permanentlyscheme.
Charles Edward Platcher Growthcorp. Found to be not competent,
with 25 yearsserious and recurrent breaches.
Vivian Suleman Operated an unregistered managed investment 25
yearsscheme, while unlicensed.
Allan Endresz CTC Resources NL. Breached his duties through 16
yearsvarious payments and loan approvals.
Bernard Plymin Waterwheel Holdings Ltd CEO let company trade 10
years, fined and to while insolvent. pay compensation
Bradley Keeling One.Tel Ltd. Failed to take reasonable steps to
10 yearsapprise himself of its true financial position.
Josef Endresz CTC Resources NL. Breached his duties through 8
yearsvarious payments and loan approvals.
Dawn Endresz CTC Resources NL. Breached her duties through 8
yearsvarious payments and loan approvals.
William Forge CTC Resources NL. Breached his duties through 8
yearsvarious payments and loan approvals.
William Harrison Waterwheel Holdings Ltd Chairman let company 7
years and to pay trade while insolvent. compensation
John Elliott Waterwheel Holdings Ltd director let company 4
years, fined and to trade while insolvent. pay compensation
Gerald Leonard Parker Failed to exercise care and diligence as
director of 4 yearssuperannuation trustee company.
Alan David Doyle Chile Minera NL. Improperly used his position.
2 years, stayed awaiting appeal
Derek William Chile Minera NL. Failed to act with care and 2
years, stayedSatterthwaite diligence. awaiting appeal
Peter Rocky Errichetti Cabcar and Swan River Timber Co director.
1 year
enfo
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ASIC report of operations 2002–03
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In addition, a further 40 people were automatically disqualified
from managing corporationsfor 5 years from the date of conviction
(or release from prison) as a result of convictions
ASICobtained.
39 banned from financial adviceTo protect the public, 20 people
were permanently banned, and another 19 advisers werebanned or
undertook to stay out of the industry for shorter periods of
time.
Permanently banned What they did
Michael Andrew Smith Lost $400,000 of client money. Failed to
fully disclose commission.
Timothy Myles Austin, Transferred $1 million of clients’ money
without authority. Issued incorrect undertook never to client
statements.advise or deal
Ian Thomas Campbell Jailed director of Lateral Trading Ltd,
misused $1.5 million.Westcott
James Bernard McDonnell Jailed director of Lateral Trading Ltd,
misused $1.5 million.
Arif Fareed, undertook Made unauthorised recommendations, failed
to disclose fees and never to advise or deal commissions.
Danh Van Misappropriated $885,000 of clients’ money.
Janice Lee Lewinski Received clients’ insurance premiums but
failed to pass them on to insurers.
Leslie Reginald Nelson Misled and deceived investors in a unit
trust.
Kevin Alan Trezona Misled and deceived clients by failing to
disclose benefits to himself and making recommendations without a
reasonable basis.
Stefan Capo Unauthorised trading and breached ASX Business
Rules.
Michelle Louise Put client money into her own account for her
own benefit.Eggmolesse
Robert Huston Reynolds Convicted and jailed for serious
fraud.
Robert Andrew Street, Lost $700,000 of clients’ money, including
to entities overseas suspected undertook never to of running a
‘Nigerian letter’ scam.advise or deal
John Michael Higgins Misappropriated $2 million from
clients.
Robert Keith Ridley, Operated an unregistered general insurance
brokerage.undertook never to advise
David Paul Mudge Also jailed, see page 26.
Robert Thomas Lister Stole money from employer for gambling.
(Jailed in July 2003.)
Vittorio Ziegelaar Failed to pass on insurance premiums and
superannuation payments.
enforcement
29
ASIC report of operations 2002–03
[Deleted text. This text has been deleted in ac-cordance with
the spent con-victions scheme in Part VIIC of the Crimes Act.]
[Deleted text.]
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8 company auditors and liquidators disciplined or surrendered
registration
Name What they did Orders made
Ian Melville West, Deficiencies in his liquidation of 8
companies. Cancelled by consentliquidator
John Greer, auditor Failed to carry out his duties properly.
Suspended for 4 yearsand liquidator
Paul Mervyn Meldrum, Failed to carry out his duties properly in
relation to Suspended for 4 yearsauditor Clifford Corporation
Ltd.
Linden John Gulson, Failed to qualify Holyman Ltd half year
accounts Suspended for 60 daysauditor concerning shares issued and
overstated profit.
John William Bye, auditor Owed more than $5,000 to company he
audited. Reprimanded
Dennis Ronald Beed, Failed to meet audit standards and other
Voluntarily surrendered auditor requirements. registration
Michael John Sanders ASIC expressed concern over conduct of
audits. Voluntarily surrenderedregistration
John Desmond Failed to qualify financial statements. Voluntarily
surrendered Taubman, auditor registration
6 financial services licences revoked
Company Reason
ARG Finance Group Ltd Placed in liquidation following concerns
as to solvency.
Entitle Ltd Failed to exercise care and diligence as manager of
investment schemes.
Landmark Property Securities Material omissions and false and
misleading statements in a prospectus.Ltd, voluntarily
surrendered
Landy DFK Securities Ltd, Mismanaged and operated unregistered
managed investment schemes.voluntarily surrendered
NKH Securities Ltd Failed to comply with obligations as manager
of investment schemes.
Worldstocks.Com Breached licence condition and ceased
business.
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ASIC report of operations 2002–03
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4 insurance brokers deregistered or restrained
Name What they did Result
Colin Fisher & Associates Failed to exercise reasonable care
in running Refused renewal Pty Ltd the business. of
registration.
Blundell & Associates Carried on business without required
insurance. Permanently restrained Pty Ltd from conducting
business in contravention of the law.
Hedley Goodridge May have continued operating without
registration. Permanent undertaking Insurance Agencies not to carry
on business,Pty Ltd or apply for a licence.
AC Insurance Brokers Significant deficiency in insurance broking
account. Liquidator appointed. (SA) Pty Ltd Refused renewal of
registration.
Three insurance agents were prosecuted under the Insurance
(Agents and Brokers) Act: 2 were convicted, and one is still before
the courts.
31 Court enforceable undertakingsASIC accepted 31 enforceable
undertakings to obtain more wide ranging remedies, and oftenon
behalf of more people, than can usually be obtained in Court
proceedings. For example,Retireinvest Pty Ltd undertook to improve
compliance standards and give redress to clientswho had been
affected by the company’s poor compliance standards.
OutlookThe HIH Royal Commission referred various matters arising
from its inquiries for possibleenforcement action. Our special
taskforce will face a challenging task to deal with thesematters
swiftly and effectively.
Several high profile matters in which we have succeeded are now
subject to appeal. We willalso face challenges in enforcing laws
relating to corporate reporting and disclosure.
Our broader objectives are to:
• manage our high profile investigations to achieve timely and
successful results
• seek Government and Parliamentary support for more flexible
enforcement powers andremedies
• act against misleading and deceptive conduct affecting
consumers, and
• promote public awareness about scams and fraud as part of our
consumer educationstrategy.
enforcement
31
ASIC report of operations 2002–03
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Overview178 financial services regulation staff:
• licensed 604 financial services advisersand product
issuers
• conducted 803 compliance checks offinancial advisers and
financial productissuers to test compliance with legalrequirements,
and obtained significantcorrective or enforcement action
• approved 514 applications for relief fromthe law concerning
licensing, disclosure,managed investments and relatedprovisions
• achieved additional disclosure in 143financial product
disclosure statementsand prospectuses, and
• registered 497 managed investmentschemes.
Financial services regulation
‘We devoted significant resources to guide the industry.’
In this section:� overview� licensing and financial services
reform� regulatory operations� legal and technical� outlook
ASIC report of operations 2002–03
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ASIC report of operations 2002–03
Key results
Issue Result
Implementing financial Significant resources devoted to guiding
industry. 604 new licences issued.services reform
Raising industry standards Increased compliance checks resulting
in significant corrective action. Targeted action on tax driven and
wealth creation schemes.
Fees and charges Worked with industry to rationalise
presentation of fees and charges in offer documents.
Main activities This year Last year % change
Australian financial services licences issued* 604 35 *
Compliance reviews 803 570† 40%†
Corrective disclosure achieved in prospectuses 139 130 10%and
product disclosure statements
Managed investment schemes registered 497 600 -17%
Commercial relief applications approved 514 380 35%
* First issued from 11 March 2002, subject to a 2 year
transition period.
† Estimated, because legal nature of some activities
changed.
financial services regulation
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Ian Johnston, Executive Director, appointed 2000, previously
servedin senior roles within ASIC and the financial services
industry.
Transition to financial servicesreform
The financial services industry made limitedprogress in changing
over to new financialservices licences, with 604 new licences
issued.
To licence or re-licence an expected 7,000applicants by 10 March
2004, we alsodevoted significant resources to guide andencourage
the industry. We:
• met more than 100 times with industryassociations, gave 170
presentations toindustry conferences, and conducted anational
seminar series attended by 1,732people
• answered more than 9,000 specificquestions and 36 frequently
askedquestions, placed 20 articles in industrymagazines, and issued
regular FSRupdates to 4,570 subscribers
• wrote specialised industry guides rangingfrom financial
advisers andsuperannuation trustees, to insurancemulti-agents, as
well as licensingbrochures and a mail out to existinglicensees,
insurance brokers andsuperannuation trustees
• registered approved training courses, and
• upgraded the online licence applicationand licensing kit.
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Raising standardsWe completed 803 compliance checks onmarket
participants. In most cases, thesechecks resulted in significant
correctiveaction. For example, we asked 79 insurancebrokers to
detail their professional indemnityarrangements and took
enforcement actionagainst those that breached legalrequirements. To
check how investmentbanks managed conflicts of interest
andmaintained the integrity of their researchanalysts, we reviewed
the practices of 8investment banks and have recommendedrelevant law
reform.
Staff also registered managed investmentschemes, auditors and
liquidators;maintained insurance broker registrations;and granted
variations to licences still heldunder old law. Four insolvencies
byinsurance intermediaries came to ASIC’snotice: AC Insurance
Brokers, Blundell &Associates, Investment Taxation
SpecialistsLimited and Stockford Financial Services Ltd.
Agricultural schemesWe examined the correlation between
highcommissions for financial advisers and theprovision of
inappropriate or misleadingadvice to encourage investors to invest
insuch schemes. We found that there wasoften poor disclosure of
commissions andpoor advice given to enter the scheme. Wehave
investigated a number of suspectedbreaches of the law and taken
enforcementaction as appropriate.
‘Wealth creation’ seminarsexaminedWe conducted surveillances of
8 promotersof wealth creation seminars to check if theywere
complying with laws for which ASIC is
responsible. As a result, ASIC beganproceedings alleging
misleading anddeceptive conduct against Henry Kaye andAlan Meagher,
National Investment InstitutePty Ltd and Novasource Consulting Pty
Ltd.(In July 2003, these entities agreed to anenforceable
undertaking requiring significantchanges to their seminars.) Others
mattersare under consideration. Schemes thatspecialise in real
estate lay mostly outsideASIC’s jurisdiction.
Financial product offer documentsWe intervened to obtain
corrective disclosurein 88 matters involving managed
fundsprospectuses, and in 51 matters involvingproduct disclosure
statements. Correctivedisclosure resulted in supplementary
andreplacement offer documents or a final stoporder preventing the
offer from being made.Unlike equity prospectuses, managed fundsand
other financial products usually set noparticular amount of capital
to be raised,because they are open-ended offers. For thatreason, it
has not been possible to quantifythe funds at risk from poor
disclosure.
Fees, charges and good disclosureTo help consumers understand
fees andcharges for investment related products, weworked with
industry to rationalise andimprove the presentation of fees
andcharges in offer documents, aiming for acommon format using
standard terminology.(A template and best practice discussionpaper
were released in July 2003.) We alsoassisted industry associations
to develop amodel product disclosure statement formanaged funds,
and best practice disclosureguidelines for superannuation.
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ASIC report of operations 2002–03
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Policy work to protect investorsThe more significant policy
initiatives tomaintain investor protection included:
• regulation of mutual risk providers
• approval of excesses on professionalindemnity insurance,
pending release ofFSR compensation arrangements
• differential fees
• protection of land underlying primaryproduction managed
investment schemes
• rights offerings in managed investmentschemes, and
• law reform proposals for managedinvestments and financial
services reformregulations.
Relief grantedWe considered 679 applications for relief,and
approved 514 to facilitate commercialactivities and transactions
that wouldotherwise not have been possible due to theapplication of
certain provisions of the law.The diversity and complexity of
reliefapplications presented unique challenges,which have been
partly addressed by thecreation of specialist teams.
ASIC made one instrument under Part 29 ofthe Superannuation
Industry Supervision Actand no instruments under Part 15 of
theRetirement Savings Accounts Act.
OutlookWith most of the financial services industrystill to
apply for licences under the financialservices legislation before
the announced cutoff date of March 2004, the task of
smoothtransition may prove very challenging. Wenonetheless remain
committed to raisingstandards in the industry. We will increaseour
presence in superannuation andinsurance, where consumers have a
weakunderstanding of the system.
Our main objectives are to:
• provide as much assistance as possible toindustry to
transition to the FinancialServices Reform Act in the most
efficientmanner
• raise financial services industry standardsthrough regulatory
operations, and
• enhance our capacity in superannuationand insurance to
increase consumerconfidence and participation in thesemarkets.
financial services regulation
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ASIC report of operations 2002–03
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Overview125 staff in markets, corporate finance andpolicy:
• regulated corporate finance, covering 888equity fundraisings,
55 takeovers, 45schemes of arrangement, financialreporting and
market disclosure
• achieved 51 additional disclosures to themarket from listed
companies
• obtained 121 additional disclosures inprospectuses
• regulated Australia’s 5 authorised financialmarkets, and
• issued 25 guidance documents (13 newor updated policies, 5
guidance and 7consultation papers) to regulate or guideindustry and
professionals.
In this section:� overview� corporate finance� authorised
financial markets� policy development� outlook
36 Markets regulation and policy
‘To check accounting abuses, we reviewed annual
financialstatements of listed companies.’
ASIC report of operations 2002–03
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ASIC report of operations 2002–03
Key results
Issue Result
Potential accounting abuses 1,225 company financial statements
reviewed showing no reason tobelieve Australia faced a material
risk.
Market supervision Inspected 5 authorised markets and 3 clearing
houses, and reported tothe Minister.
Guidance to industry Financial services reform, cross border
regulation, and updates oncorporate finance.
Main activities This year Last year % change
Additional disclosures to the market obtained 51 n/a n/a
Corrective disclosure achieved in prospectuses 121 n/a n/a
Authorised financial markets regulated 5 5 Nil
Equity prospectuses lodged 888 941 -6%
Takeovers received 55 67 -18%
Schemes of arrangement 45 32 41%
Commercial relief applications approved 936 1198 -22%
New regulatory policies issued 13 9 33%
markets regulation and policy
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Malcolm Rodgers, Executive Director, appointed 2001,previously
ASIC Director, Regulatory Policy.
Potential accounting abusescheckedTo check if accounting abuses
like thoseemerging overseas posed a material risk inAustralia, we
reviewed 1,225 annual financialstatements of listed companies with
balancedates between 30 June 2002 and 29 June2003. The review
focused on capitalised anddeferred expenses, recognition of
revenue,and recognition of controlled entities andassets.
We found no reason to believe Australiafaced a material risk.
However, we did findparticular accounting issues of concern thatwe
followed up with companies involved
and their auditors. Seven companieschanged accounting policies,
and enquiriesare continuing with another 15 companies.We sought a
supplementary prospectus fromFlight Centre Ltd to deal with our
concernsabout how the company recognised revenue.
Late lodgement of listed companyaccountsWe also followed up
non-lodgement ofaccounts by listed companies. Some 221 latelodging
companies lodged their accounts,most following ASIC inquiries. ASIC
made 91orders prohibiting companies from raisingcapital by short
form prospectus becausethey had not lodged their accounts on
time.
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Continuous disclosure to the marketWe also took action, in
cooperation with ASX,to obtain 51 additional disclosures fromlisted
companies. More prominent examplesincluded Tower Ltd, Federation
Group Ltd,Powerlan Ltd, Redflex Ltd and AinsworthGame Technology
Ltd.
Corporate governance in Coles Myer LtdWe monitored the proxy
battle for theelection of directors to this company in late2002.
ASIC urged shareholders to participatein the election and
encouraged the partiesinvolved to provide shareholders with asmuch
information as possible. To assistColes Myer process proxies at the
AGM in anorderly way, ASIC requested and SolomonLew agreed to
provide the algorithmunderlying the barcodes to his proxy
forms.
Facilitating corporate transactionsPromina Ltd was reported as
the largest floatin the world for the first few months of2003. To
assist, we gave a no action letterfor potential market
stabilisation followingthe float and relief for
pre-lodgementadvertising and secondary trading. We alsofacilitated
major schemes of arrangementincluding CSR Ltd, Mayne Group Ltd,
MIMHoldings Ltd and BRL Hardy Limited.
Prospectuses reviewedOf 888 prospectuses lodged for
companysecurities, we reviewed 175 and obtainedadditional
disclosure in 121 cases, primarilythrough the use of our stop order
powers.During the year, we issued 72 interim and17 final stop
orders on 80 prospectuses.
The value of funds protected was at least$383 million, exceeding
last year’s figuredespite an overall drop in funds beingsought. A
higher proportion of prospectuseswere issued by smaller companies,
andthose prospectuses tended to be of loweraverage quality.
Significant matters included:
Company Action we took
AMP Ltd Additional information releasedto the market about
thecompany’s exposure toregulatory capital issues in the UK.
TelEurope Ltd Stop orders by consent on adebenture prospectus
thatinsufficiently disclosed thevalue of TelEurope’s mainasset.
Child Care Following a significant profit Centres Australia
downgrade, granted relief to Ltd allow investors to withdraw
funds subscribed under a recent prospectus.
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ASIC report of operations 2002–03
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TakeoversThere were 55 takeovers, an 18% drop inmarket and
off-market bids from last year.
Company Action we took
Online Advantage Successfully applied to Ltd Takeovers Panel to
have a
matter heard where the original applicant had withdrawn its
request for a declaration of unacceptable circumstances.
Cobra Resources Successfully applied to Ltd Takeovers Panel to
prevent
substantial disclosure and procedural breaches in a purported
bid for the company.
In the cases of Anaconda Nickel Ltd andFlinders Diamonds Ltd, we
were authorisedto conduct sales of shares vested in ASIC bythe
Takeovers Panel and the South AustralianSupreme Court
respectively.
Markets supervision assessedUnder the Financial Services Reform
Act,ASIC must inspect and report to the Ministereach year on
supervisory arrangements,including arrangements for handling
conflictsof interest, for all licensed markets andlicensed clearing
and settlement facilities.
ASIC inspected 5 market operators and 3clearing and settlement
facilities, includingreviews of ASX, ASX Futures, Sydney
FuturesExchange, Bendigo Stock Exchange andNewcastle Stock
Exchange. On the basis ofthose assessments, we believe that
Australia’smajor exchanges do have appropriatesupervision
structures and procedures inplace. There can be a high degree
ofconfidence in their ability to operate theirmarkets in a fair,
orderly and transparentmanner.
ASX clearing and settlementASIC worked closely with ASX,
Treasury andthe Reserve Bank on the first stage ofregulatory
approvals needed for ASX torestructure its clearing and
settlementarrangements and to provide a single centralcounterparty
for clearing across all ASXmarkets. These changes are expected
toultimately improve ASX’s internationalcompetitiveness and enhance
themanagement of systemic risk across ASX’smarket.
ASX share trading and complianceASX shares trade on its own
market. To avoidconflicts of interest, ASIC directly monitoreddaily
trading and compliance by ASX with itslisting rules in much the
same way as ASXoversees other listed entities. No tradinghalts were
required this year.
Guidance on financial servicesreformMost of our policy work
focused on financialservices reform, concentrating on 3 areas:
• consulting on and finalising new guidance,for example,
guidance on advisers’conduct and disclosure obligations
• updates to take into account financialservices reform
regulations, and
• assisting Treasury to develop regulationsand proposed
legislative amendments toclarify the law.
markets regulation and policy
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ASIC report of operations 2002–03
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New policies for cross borderregulationWe released new policy
and new proposalsto recognise cross border regulation.
Our‘Principles for cross border regulation’ set outthe broad
framework for recognisingregulation of financial services offered
acrossinternational borders. We also released policyproposals on
cross border matters dealingwith:
• foreign financial services providers,
• foreign collective investment schemes, and
• Australian market licenses: overseasoperators.
Corporate finance policies updatedThese publications included
‘truth intakeovers‘; disclosure and secondary sales ofsecurities;
and compliance with financialreporting and annual general
meetingobligations (including by companies inexternal
administration). We also updatedour policies on share purchase
plans andemployee share schemes.
OutlookFollowing public concern over corporatecollapses and
shortcomings in disclosure, theGovernment announced important
changesto boost continuous disclosure, and rebuildmarket and public
confidence in financialreporting, audit, corporate governance,
anddisclosure. We will need to implement manyof these reforms, if
enacted.
Our broader objectives are to:
• make a greater impact, especially on thedirectors and auditors
of Australia’s listedpublic companies
• maintain the relevance and credibility ofAustralia’s markets
in a global context, and
• develop our role in regulating andreporting on how market
operators havefulfilled their licence obligations.
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ASIC report of operations 2002–03
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ASIC report of operations 2002–03
Overview25 consumer protection staff:
• identified compliance issues affectingconsumers and worked
with enforcementand regulatory staff
• carried out consumer policy and educationprojects, and
• researched and analysed consumer issuesand risks.
In this section:� what we did� compliance and campaigns� policy
and education� research and analysis� outlook� Consumer Advisory
Panel
report
Consumerprotection
Peter Kell, Executive Director, also NSW Regional Commissioner;
and Delia Rickard, Deputy Executive Director appointed 2001,
previously co-directors of ASIC's Office of Consumer
Protection.
consumer protection
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Key results
Issue Result
Survey of financial planners Expert assessment of consumers’
financial plans issued a wake up callto the industry.
Mortgage brokers Our report on the industry triggered action to
better protect consumers.
Consumer education 875,000 visits to our consumer website FIDO,
up 79%. 270,000consumer publications distributed. Higher media
profile.
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Financial planning surveychallenges the industryASIC and the
Australian Consumers’Association had genuine consumers obtain124
financial plans from licensed advisers,and then had industry
experts assess theplans against legal and good practicestandards.
One quarter of the plans failed,another quarter was borderline. The
resultsdemonstrated to the industry the need toimprove standards
and address conflicts ofinterest.
To rectify weaknesses and reinforce legalstandards, ASIC met all
licensees who had aplan score of ‘very poor’, and required someto
certify their compliance with relevant legalobligations. We have
targeted problem areasin the industry, and begun work with
theFinancial Planning