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ASIC Australian Securities & Investments Commission 29 criminals jailed for fraud, criminal breach of duties and insider trading $506 million in fun protected, compensation orders or assets frozen new initiatives targeting insolvency, financ reporting and disclosure 29 criminals jailed for fraud, criminal breach of duties and insid trading $506 million in funds protected, compensation orders or assets frozen new initiativ targeting insolvency, financial reporting and disclosure 29 criminals jailed for fraud, crimin breach of duties and insider trading $506 million in funds protected, compensation orders assets frozen new initiatives targeting insolvency, financial reporting and disclosure 2 criminals jailed for fraud, criminal breach of duties and insider trading $506 million in fun protected, compensation orders or assets frozen new initiatives targeting insolvency, financ reporting and disclosure 29 criminals jailed for fraud, criminal breach of duties and insid trading $506 million in funds protected, compensation orders or assets frozen new initiativ targeting insolvency, financial reporting and disclosure 29 criminals jailed for fraud, crimin breach of duties and insider trading $506 million in funds protected, compensation orders assets frozen new initiatives targeting insolvency, financial reporting and disclosure 2 criminals jailed for fraud, criminal breach of duties and insider trading $506 million in fun protected, compensation orders or assets frozen new initiatives targeting insolvency, financ reporting and disclosure 29 criminals jailed for fraud, criminal breach of duties and insid trading $506 million in funds protected, compensation orders or assets frozen new initiativ targeting insolvency, financial reporting and disclosure 29 criminals jailed for fraud, crimin breach of duties and insider trading $506 million in funds protected, compensation2 ‘enforcement is an essential part of effective regulation’ David Knott, ASIC Chairman annual report 2002–03 fighting fraudand misconduct

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  • 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

  • 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

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    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

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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

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  • 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.

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    ASIC report of operations 2002–03

  • 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

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    ASIC report of operations 2002–03

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    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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    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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    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

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    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.

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    Financial report 2002–03

  • 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

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    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

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    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.

  • ASIC report of operations 2002–03

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    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.

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    ASIC

    directorates

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    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.

  • 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.

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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.

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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.’

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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.

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    ASIC report of operations 2002–03

    governanace, ethics and audit

  • 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

    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

  • 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.’

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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

  • 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

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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.

  • 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

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    ASIC report of operations 2002–03

  • 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

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    ASIC report of operations 2002–03

  • 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.

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    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.]

  • 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

  • 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.

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    ASIC report of operations 2002–03

  • 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.

  • 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

  • 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.

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    ASIC report of operations 2002–03

  • 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%

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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.

  • 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

  • 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.

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    ASIC report of operations 2002–03

  • 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

    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.

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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.

  • 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