Regulatory stewardship and AFSA’s value to the economy
Personal insolvency plays an important role in Australia’s $3.5 trillion credit system. It supports the flow of credit in the economy by allowing people in financial distress to get a fresh start, while providing a remedy for those who are owed money.
Our role at Australian Financial Security Authority (AFSA), as the regulatory authority, is to support a strong credit system.
This becomes more imperative as many Australians struggle financially. The move from fixed to variable mortgages, coupled with inflation and other factors, sees an increasing number of Australians under financial stress. AFSA’s State of the Personal Insolvency System report released in February, forecasts a return towards pre-COVID rates of bankruptcy over the next two years. The speed of this reversion will depend on several economic factors. If this occurs, it will be quite an increase from where we are right now.
For many, it will be important to protect what they have, choose investments wisely and seek immediate help if they have financial difficulty.
AFSA’s regulatory stewardship during this time will balance the need to be firm with those who look to harm the system and fair with those who find themselves in hard times.
AFSA takes a system-wide view of its role as a visible, modern and contemporary regulator.
Across the personal insolvency system (including bankruptcies, debt agreements, personal insolvency agreements and deceased estates) AFSA oversees $17.7 billion in liabilities. We maintain the Personal Property Securities Register (PPSR) which is valued at $400 billion, or 20% of Australia’s GDP. AFSA also manages the proceeds of crime through criminal asset management, the total amount of which now stands at $460m.
All of this speaks to an economic responsibility; and social responsibility.
Consultation leads to innovation
Stewardship is not undertaken in isolation. We work with the community, social and economic organisations, and fellow regulators for a broader understanding of harms and how to minimise them. We listen to those who rely on our services, whether they are individuals trying to navigate an unfamiliar system, or large and regular users.
In March, the Attorney-General hosted the Personal Insolvency Roundtable, held at AFSA’s offices. This brought together 24 representatives from across credit, finance, accounting, legal and social sectors. Priority issues raised included increasing the bankruptcy threshold and mandated response periods, early release options from bankruptcy and the mitigation of harms caused by unlicensed practitioners.
A summary of the discussion is available on the Attorney-General Department’s website.
Data, surveillance and enforcement
To get a broader understanding of potential harm and its minimisation we analyse data.
In a model similar to Australia’s banking regulatory system, we are using data, insights and experiences to develop a three-tiered approach to regulation.
Tier 1 contains the top practitioners; the entities that have the greatest impact on the outcomes of debtors and creditors. There are a larger number of practitioners in Tier 2, but these practitioners hold significantly fewer administrations and less value of debtor liabilities. Tier 3 is the long tail of less active practitioners—higher in number, but with a relatively low number of administrations and debtor liabilities.
While AFSA’s regulatory resource focus is Tier 1 where the most harm can be done to the system and community, harm can materialise anywhere and AFSA will continue to survey the overall system with direct oversight of those practitioners at any level that require it.
AFSA also enforces the legislation and takes strong action against deliberate misuse. A&M Group, trading as Debt Negotiators, was convicted and fined $650,000 in the Federal Court in December. AFSA identified the unlawful conduct while investigating an anonymous tip-off and shared the information with our co-regulator ASIC.
AFSA has imposed conditions on Debt Negotiators, effective from 7 July 2023, including:
- a requirement for Debt Negotiators to engage an external consultant to audit the company’s culture, systems and controls and report the audit findings to the Inspector-General.
- a two-year supervisory period to ensure debtors are treated appropriately and fairly, that will include audits of a sample of debt agreements administered by Debt Negotiators.
- providing information on the Debt Negotiators website explaining how debt agreements work, the implications of a default and how to make a complaint to AFSA.
- notifying the Inspector-General of any changes in key personnel within 6 weeks.
Any failure to adhere to the conditions will result in further regulatory action.
AFSA will act on intelligence, tip offs and we will enforce the law.
Enforcement action does not always require the court’s involvement. In March, AFSA cancelled the debt agreement administration registration of Sam Pos Pty Ltd, trading as Debt Cutter. An AFSA inspection in February identified issues with record management and risk controls. All of Debt Cutter’s administrations are currently being administered by AFSA as the Official Trustee as we work to bring the records up to the necessary standard. Where it makes sense to do so, we will reallocate appropriate matters to Registered Debt Agreement Administrators to complete their administration. AFSA will always act swiftly and decisively against deceptive and misleading conduct.
AFSA is committed to being a visible, modern and contemporary regulator which maintains a strong credit system for Australia. Engagement is strategically tailored and targeted for most impact. Our people are focused on addressing the most significant harms and through consultation, addressing ways to help those in need and deter or prosecute those who do harm.
If you are having financial difficulties, reach out to the AFSA team as soon as possible. Our contact details can be found at Contact us.