Oak Capital sued for alleging unconscionable conduct – October 30, 2024
Proceedings have commenced against Oak Capital (Oak Capital Mortgage Fund Ltd and Oak Capital Wholesale Fund Pty Ltd) for allegedly engaging in unconscionable conduct to avoid the National Credit Code (which applies to loans to individuals where it is wholly or predominantly for a personal, domestic, or household purpose).
Allegedly, between March 2019 and October 2023, Oak Capital made up to 47 loans totalling over A$37m ($24.3m) in a way that avoided the application of the Code and the National Consumer Credit Protection Act 2009. Therefore, ASIC alleges that Oak Capital rather provided loans to companies than individuals to avoid the operation of the Code and the Credit Act.
“As a result of loans being treated as unregulated, we allege Oak Capital deprived its clients of important consumer protections.”
Sarah Court, Deputy Chair, ASIC
Three high volume SMSF auditors suspended – October 30, 2024
The self-managed superannuation fund (SMSF) auditors Wuzhao Fang, Huiting Li, and Xuan Wu have been suspended for one year.
All were found breaching independence requirements by auditing thousands of SMSF clients from a single referral source – a SMSF administration provider. By receiving more than 99% of their overall audit fees from that provider, ASIC found that it created “self-interest and intimidation threats to the SMSF auditors’ independence that were not able to be safeguarded against.”
Constandinos Ganatzos disqualified five years – October 30, 2024
The NSW director Constandinos Ganatzos has been disqualified for five years from managing corporations due to his involvement in the failure of 21 companies.
At the time of ASIC’s decision, the 21 companies owed a combined total of A$71,144,235 ($46,831,423) to unsecured creditors, including A$21,727,914 ($14,302,620) to the Taxation Office, A$1,285,894 ($846,453) to the Office of State Revenue and A$1,287,138 ($847,279) for workers compensation debt.
Between October 2016 and November 2021, Ganatzos was the director of:
C.N. 616 870 627 Pty Ltd;
Premier Holdings Group Pty Ltd;
Seville Optimised Solutions Pty Ltd;
Phalanga A Pty Ltd;
Grace Management Holdings Pty Ltd;
MF069ESL Pty Limited;
Southern Logistics Pty Ltd;
Capitol Property Services Pty Ltd;
TKT9M Pty Ltd CAN;
DK North Pty Ltd;
ACN 144 496 042 Pty Ltd;
Rio Hire Systems Pty Ltd;
Newcastle Building Manpower;
Project Service Holdings Pty Ltd;
Statewide Manpower Solutions;
Newcastle Tiling and Bathrooms Pty Ltd;
Kas Sussex Pty Ltd;
Palisade Kingsway Pty Ltd;
Phthia Pty Ltd ACN;
NSH East Pty Ltd;
Kerr Flowers Pty Limited.
Court updates
HCF Life mislead public with contract term – October 28, 2024
HCF Life Insurance Company Pty Ltd has been found to have mislead the public with a ‘pre-existing condition’ term in three contracts under a range of products.
Justice Jackman of the Federal Court dismissed the allegations of the term being an unfair contract term under the Australian Securities and Investments Commission Act 200.
ASIC news week 44
Speech
In the Opening Statement at the Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into the Oversight Of ASIC, the Takeovers Panel and the Corporations Legislation on November 1, Chair Joe Longo called the Commission a “modern, confident, and ambitious regulator”, and addressed some of the recent “important regulatory firsts” and ASIC’s transformation journey. It resembled the Opening Statement he made on October 25, and he added that more enforcement actions are due over the coming months.
Longo also talked about ASIC’s investigation relating to ANZ’s role in AOFM bonds – with concerns of suspected market manipulation and contraventions of multiple provisions of the ASIC Act and the Corporations Act.
“We are giving this investigation the highest priority given the seriousness of the alleged misconduct and the potential for the alleged conduct to impact the interest payments of the Commonwealth on the bonds issued and therefore Australian taxpayers.”
He also touched on the maturity of governance and risk management of AI, and the quality of audits, which the Commission has recently released publications on (see more below).
Warning that governance gap could emerge around AI
The Commission is urging financial services and credit licensees to make sure that their governance practices are keeping pace with the increasing use of AI.
Understanding and responding to the AI usage is a key focus for ASIC, and its findings showed that close to half of licensees do not have policies in place relating to consumer fairness or bias, and even less than that have policies governing the disclosure of AI use to consumers.
“Our review shows AI use by the licensees has to date focussed predominantly on supporting human decisions and improving efficiencies. However, the volume of AI use is accelerating rapidly, with around 60% of licensees intending to ramp up AI usage, which could change the way AI impacts consumers,” said Chair Joe Longo.
He added that that adding policies need to be done – and quickly – to make sure that governance is adequate for the potential surge in consumer-facing AI.
“Without appropriate governance, we risk seeing misinformation, unintended discrimination or bias, manipulation of consumer sentiment and data security and privacy failures, all of which has the potential to cause consumer harm and damage to market confidence.”
FY 2023–24 financial reporting and audit report results, and new surveillance launch
Report 799 ASIC’s oversight of financial reporting and audit 2023–24 has just been published and outlines findings from ASIC’s financial reporting and audit July 1, 2023 to June 30, 2024 June 2024.
The report includes enforcement actions, and findings from reviewing 188 financial reports and 15 related audit files at 11 audit firms. During the period, ASIC:
- discovered findings in 25 financial reports, resulting in entities making adjustments of A$1,886m ($1,240m) – 16 of those 25 entities have also made or agreed to make changes to operating and financial review disclosures;
- restricted Energy World Corporation Limited from issuing a reduced-content prospectus until May 21, 2025 after it failed to comply with AASB 136 Impairment of assets requirements;
- contacted nine audit firms after findings in 12 audit surveillances, with the aim of improving future practices;
- issued the first infringement notices to Nicholas Benbow, the director of William Buck Audit (Vic) Pty Ltd for alleged breaches of audit rotation requirements. He paid A$20,625 ($13,575) to comply with the three infringement notices;
- suspended registered company auditor Rocco (Roy) Luciano Spagnolo for a year, through the Companies Auditors Disciplinary Board (CADB), after he failed to comply with auditing standards.
- Ordered, through the CADB, James Mooney, an audit partner of BDO East Coast Partnership, not to perform as an auditor for seven months due to failing to meet minimum standards in his audit of ASX-listed technology company Engage: BDR Limited.
In addition, the Commission has also launched a proactive surveillance focused on auditors’ compliance with independence and conflicts of interest requirements. The authority has written to auditors and CEOs of large audit firms, advising them of the new focus.
“Our surveillance will focus on the behavior of auditors, particularly in how they comply with independence and conflicts of interest obligations. ASIC is using new regulatory approaches as we continue to evolve and improve our program designed to enhance the integrity and quality of auditing in Australia,” said Commissioner Kate O’Rourke.
Reportable situations regime update
A third publication on information lodged under the reportable situations regime has been published, and this one covers reporting trends July 1, 2023 to June 30, 2024. The information includes:
- licensee population reporting;
- breach identification and investigation;
- root causes; consumer impact; and
- remediation efforts.
During the period, a total of 12,298 reports were submitted, and around A$92.1m ($60.8m) was paid in compensation to about 494,000 customers for breaches during the reporting period by licensees.