ASIC's whistleblowing demands too extreme: ACSA
Tuesday, 12 November 2013 12:25pm

Whistleblowing requirements for custodians proposed by the Australian Securities and Investments Commission (ASIC) are too stringent, according to David Braga, the new chair of the Australian Custodian Services Association (ACSA).

In a consultation paper released in December last year on holding scheme property and other assets, ASIC proposed that custodians be more assertive in their monitoring of unlawful activity in the sometimes-murky world of property schemes. But Braga, who took over as chair of ACSA from Pierre Jond last month, said the proposed requirements go too far.

"We've had a lot of discussion about whistleblowing and the types of activity we see, and under what conditions ASIC would expect a custodian to whistle-blow," he said. "Our expectation is that ASIC will quite reasonably say that if we come across something in our normal course of business that we think doesn't look right, they'd expect us to escalate that back to them."

However, ASIC has been of the view that custodians could take a more assertive role in reporting dubious activity. "We felt it was compromising the integrity of the role of the single responsible entity (SRE) - the old idea of the trustee. From the custodial level, we think there was some risk of ambiguity regarding what the SRE should do and what the custodian should do. But we think through consultation we've been able clarify that."

In December 2012 ASIC released a consultation paper, CP 197, ASIC writes: "We propose to require by class order that a responsible entity, licensed custody provider, MDA operator or IDPS operator must ensure that an agreement with any asset holder they engage in connection with the scheme obliges the asset holder to have adequate arrangements to report to ASIC within 10 business days if it suspects that the client may be in breach of s601FC(1)(l)  (for responsible entities only )  or s912D of the Corporations Act. This requirement would not apply to a sub-custodian engaged by the asset holder."

Later in the consultation paper, ASIC outlines areas in which custodians should conduct initial and ongoing inquiries. The list is comprehensive, and includes credit assessments, a review of the scope of business and breadth of the operation for which custody is provided, and a review of corporate records, licence and other regulatory documents, including disclosure documents.

ASIC said it wants "to foster a whistleblowing culture and framework, where misconduct, or suspected misconduct, of clients is reportable to ASIC under their risk management arrangements."

In its March 2013 submission, ACSA argued that the proposal "places custodians in a difficult position and could result in less frank and honest communication between custodians and their clients."

Braga said through consulation ASIC had taken ACSA's input on board, and believes the final regulations, due to be released imminently, will be less stringent for custodians.

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