An extension of ASIC's powers is designed to overcome a number of practical obstacles the corporate regulator has encountered in granting financial services licences or banning financial services staff who break the law.
The first tranche of the draft legislation of the Future of Financial Advice (FOFA), which was released yesterday, indicated ASIC would not only be able to refuse a licence or ban a person where it was certain the person would not comply with the obligations or would break the law, but also where it suspected they might do so.
In the past, ASIC found it was nearly impossible to prove it was certain an applicant was not going to comply with the obligations as a licensee.
"In the 10 years since the introduction of the Financial Services Reform Act, interpretation of this provision has tended to a view that ASIC is required to believe, as a matter of certainty, that the person will contravene the obligations in future," the explanatory memorandum to the draft legislation said.
"Such a standard would be so onerous that it could result, in practice, in ASIC never being able to refuse a licence using this part of the test.
"This new formulation is designed to ensure that ASIC can more appropriately account for the likelihood or probability of a future contravention."
But the new phrasing in the draft legislation has caused some concern about the application of the regulator's powers.
"ASIC can actually refuse a licence for a likely breach. That is quite interesting; we don't put people in jail for them being likely to commit a criminal act," Henry Davis York partner Liz Gray said.
"So I would like to see that have some objectives tests around that or at least a level of materiality.
"The policy under the current legislation is that ASIC will grant a licence and if that licensee has a minor breach of the law, nothing will need to be done. If there is a significant breach, they will need to notify ASIC of the breach, but that doesn't necessarily lead to the licensee suspended or banned, so this [draft legislation] is quite a big leap from where we are at the moment."
Gray said she expected the new legislation would lead to an increase in regulatory action.
"ASIC was very keen to get these powers and they will use them," she said.
She also said it was likely the extended powers would cause the application process to take longer than under existing legislation.
ASIC reacted positively to the changes.
"We welcome the extended powers and will work with the industry on implementing the measures," ASIC said in a statement.
