AFSA Regulatory Action Statement 2023-24

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A strong credit system for Australia

The Regulatory Action Statement (formerly known as the Compliance Program) forecasts our key anticipated harms for each year and includes our priorities and actions for addressing harms against our systems.

AFSA supports a strong credit system for Australia. We ensure confidence in Australia’s personal insolvency system and personal property securities system and manage the proceeds of crime through criminal asset management.

We oversee personal insolvency liabilities of $17.7 billion.

We oversee the PPS system estimated at $400 billion of economic value (20% of Australian GDP).

We manage an estimated $500 million criminal asset portfolio.

Anticipated harms for 2023-24

Overview

We anticipate and respond to our operating environment to safeguard a strong credit system for Australia. We focus on both emerging and enduring harms. We continue to observe a range of factors that contribute to increased financial insecurity for many Australians now and into the future.

In 2023–24 AFSA anticipates 3 key harms:

  • untrustworthy advisors
  • undisclosed debts on goods and lack of awareness of security options for personal property
  • criminal syndicates’ distortion of markets.

AFSA’s focus is informed by the economic challenges facing Australian households and businesses. Fire, drought, flood and the pandemic made it difficult for many Australians to stay afloat during the last decade. Now, persistent inflation, increasing costs of living and higher interest rates are driving reliance on government subsidies and credit payment deferrals. The rising costs of debt and the move from fixed to variable mortgages will exacerbate the financial stress facing many people.

We are concerned that this operating environment means that more Australians may face personal insolvency. Further, there is a risk that if individuals, particularly those in vulnerable circumstances, do not find reliable, accurate and trustworthy information in a timely way, their situation may become much more difficult.

These environmental pressures are causing many individuals to seek solutions for their financial insecurity, and some ‘fixes’ may not be fit for purpose and may cause more harm. We have identified a rise in informal debt agreements.

While these are an important feature of the personal insolvency system, they may not be the best treatment in all circumstances. Informal debt agreements may not provide debtors and creditors with the protections and benefits of formal insolvency arrangements.

Untrustworthy advisors

One of the most significant emerging harms to the personal insolvency system is the potentially ruinous personal consequences for Australians who fall prey to untrustworthy insolvency advice. When individuals are in financial distress they can be targeted by unregulated and/or untrustworthy advisors who undertake activities seeking to gain their own financial benefit. This often leaves individuals further out of pocket, at risk of bankruptcy and even facing criminal prosecution. We will continue to take firm action to deter and disrupt these practices.

Undisclosed debts on goods and lack of awareness of security options for personal property

We expect that the increasing costs of living combined with supply chain constraints will continue to drive people toward second-hand goods. This may amplify the risk of unscrupulous people selling assets with undisclosed debts.

Vulnerable consumers, including young people, the elderly, and small and micro businesses are often exposed to these hidden harms when purchasing motor vehicles and valuable second- hand goods. We are committed to reducing these harms by encouraging greater use of the Personal Property Securities Register (PPSR).

Small and micro businesses are particularly exposed to financial harm caused by the insolvency of those they do business with. This harm can be amplified by lack of PPSR awareness – of its existence and effective use, as well as delayed removals of registrations.

Criminal syndicates’ distortion of markets

Organised crime syndicates, with increasingly complex asset portfolios generated through the proceeds of crime, continue to have a dominant presence in AFSA’s operating environment.

These syndicates distort both financial and property markets and cost the Australian community up to an estimated $60 billion dollars a year.

In partnership with the Australian Federal Police, we will ramp up efforts to disrupt these criminal syndicates to counter the enduring harm to the community caused by those intent on profiting from criminal activity.

Actions against enduring priorities for 2023-24

Regulatory priorities

Regulation is at the heart of everything we do. There are three enduring regulatory priorities within our system that we address on an ongoing basis:

  1. System vulnerability
  2. System efficiency
  3. System misuse.

These are of critical importance to the public value we provide as a regulatory steward. We identify actions to address the emerging harms for the year across our enduring priorities, ensuring we target the areas of greatest harm or impact.

Addressing harm

The harms we identify require a layered and nuanced response from multiple functions of our agency. The focus of our Regulatory Strategy is to ensure that we use the appropriate regulatory tools for the circumstances. We use our regulatory levers (Figure 1) to address harms through a combination of education and outreach, compliance and enforcement action. These functions are supported by key enabling services within AFSA.

Regulatory levers

Figure 1: Regulatory levers

This image features a circular diagram which shows AFSA’s six regulatory levers.  At the centre of the diagram is a map illustrating Australia with Economic and Social outcomes as a title in the centre of the image.    Surrounding the map are 6 captions positioned around a central map.  The captions are positioned clockwise around the map like a clock face:
Engage and influence — We build strong relationships with our regulated community, industry, and government.
Educate and encourage  We provide modern regulatory services which make it easy to understand and comply with regulatory obligations. 
Monitor and detect  We anticipate and detect non-compliance and respond swiftly and proportionately.
Reward and incentivise  We reward and incentivise those who drive and enable positive economic and social outcomes.
Deter and correct  We deter and correct by being visible in our regulatory actions and communicating successful economic and social outcomes.
Enforce and protect  We take a contemporary approach to compliance and enforcement by using a range of necessary options to enforce and protect.

Regulatory priority 1

System vulnerability

We support individuals at risk of, or experiencing, vulnerability or disadvantage.

We are committed to ensuring that people who use our services receive the right information, at the right time, with the right level of support to reflect their situation and help them make informed financial decisions.

This year’s focus on system vulnerability includes working with key stakeholders to ensure the framework remains current and suitable to address emerging and enduring risks. We will also focus on education and outreach to assist people facing unmanageable debt by promoting informed and timely decision-making with information and advice from trusted sources.

This includes improving services and information to ensure that First Nations people, culturally and linguistically diverse (CALD) communities and victims of family violence are better supported to access our systems and services.

Actions Regulatory levers
Take action under our Vulnerability Framework Educate and encourage
Provide easily digestible and timely information to people facing unmanageable debt Engage and influence
Educate and encourage
Improve the provision of tailored services and information to First Nations people, CALD communities and victims of family violence. Engage and influence
Educate and encourage

Regulatory priority 2

System efficiency

Most people who enter our systems simply need access to effective systems and processes to get good outcomes.

Through collaboration with our enabling functions we are constantly evolving our systems and processes to ensure they are accessible to all users.

Our focus on system efficiency for this year includes working with stakeholders to understand the growth of informal debt agreements, their impact and to develop regulatory responses for future years if they present potential harm.

Insolvency practitioners are crucial participants in the system. They are accountable to AFSA and are responsible for acting ethically, with integrity and independence. They are also responsible for ensuring they have appropriate systems, controls and management oversight (including for the management of monies held on trust). As both a participant in this system and an entity that is accountable to the Australian public, we also apply these expectations internally to the work of the Official Trustee.

Any deviation from best practice, which may be identified in part through our proactive regulatory strategies and engagement, will be met with a swift and proportionate regulatory response. We will use the full extent of our regulatory tool kit to lessen any harm caused and to hold insolvency practitioners, and ourselves, accountable.

We will address concerns that PPSR registrations are not being discharged in a timely manner. In particular, this may lead to impacts on the ability of small businesses to access further credit or to sell assets necessary to sustain or grow their businesses.

We will uplift the resources and capability of our Criminal Assets Management (CAM) function to ensure the ongoing effective management and disposal of criminal assets. We will strengthen assurance of third-party delivery partners to ensure we deliver optimal value to the Confiscated Assets Account to support safer communities through the Australian Government’s crime prevention programs.

Regulatory levers Regulatory levers
Improve automation and user experience to ensure our systems remain easy and accessible for the majority of users Educate and encourage
Reward and incentivise
Deter and correct
Monitor the systems and controls used by insolvency practitioners Monitor and detect
Deter and correct
Ensure PPSR registrations are removed in a timely manner when the underlying liabilities have been discharged  Educate and encourage
Monitor and detect
Expand and optimise the value of the CAM function Engage and influence

Regulatory priority 3

System misuse

We drive willing compliance and engagement, and address intentional misuse using innovative and collaborative regulatory practices.

Insolvency practitioners wield considerable power over individuals in the system and their actions can have a significant impact on the dividends creditors receive. Our focus on system misuse for this year includes working with other regulators and stakeholders to understand the extent and impact of untrustworthy advice. We will work with industry and other stakeholders to encourage tip-offs and information about intentional misuse of the system by debtors, practitioners or untrustworthy advisors (including lawyers and accountants). We will focus on the information needed to successfully pursue action directly or by referral to other regulators.

We will take an intelligence informed and data driven approach to detect, deter and disrupt untrustworthy advisors and insolvency practitioners who seek to gain a financial or other type of advantage for themselves by breaching the trust vested in them and their statutory duties. This will be complemented by our commitment to promptly take disciplinary and enforcement action where warranted.

We will take decisive action against fraudulent registrations or secured parties who fail to remove PPSR registrations once the liability giving rise to the security interest has been discharged. We will pursue civil penalty proceedings against parties who we believe have significantly or persistently misused the PPSR.

We will collaborate with partner agencies to deter those who seek to misuse the system and harm our communities. We will increase our visibility by amplifying the Official Trustee’s role in seizing and disposing of criminal assets, and returning the funds to the community through investment in crime prevention measures. This will send a strong regulatory message to those who wish to engage in and profit from criminal activity.

Actions Regulatory levers
Disrupt intentional misuse of our systems facilitated by untrustworthy advisors Monitor and detect
Enforce and protect
Combat fraudulent registrations Deter and correct
Enforce and protect
Deter criminal activity through promotion of the Criminal Assets Confiscation Taskforce Educate and encourage
Deter and correct