ASIC’s Enforcement Focus – Greenwashing, Predatory Lending & Misleading Insurance Pricing Promises

In a recent media release on 15 February 2023, the Australian Securities and Investment Commission (ASIC) has warned businesses that it will actively target greenwashing, predatory lending and misleading insurance pricing promises in the coming year.

The warning follows ASIC’s release of its ‘Enforcement Priorities’ report.[1] ASIC intends to establish these yearly priorities as a means of communicating its intent to protect its consumers in the financial landscape thereby upholding the integrity of Australia’s markets and giving a clear indication of where it will direct its resources and expertise.

Let’s take a closer look at what ASIC’s focuses will be for the year ahead at a high level, including some recent case studies.

Greenwashing

According to ASIC, greenwashing is the practice of misrepresenting the extent to which a financial product or an investment strategy is environmentally friendly, sustainable or ethical[2].

We saw a flurry of activity by ASIC late last year with its first action for ‘greenwashing’ against listed energy company Tlou Energy Limited (Tlou) on 27 October 2022, culminating in ASIC commencing its first court proceeding for greenwashing this month – details here.

It is interesting to see ASIC’s focus on listed energy companies, managed investment funds and superannuation funds having regard to their sustainability and ESG claims. It is clear that more than ever the marketing teams of licensed entities need to liaise with their product teams to ensure that misleading marketing campaigns by product issuers do not result in reportable breaches to ASIC.

Ultimately the Board is responsible for any Corporations Act breaches for misleading and deceptive conduct, including in the context of false or misleading claims of sustainability or other ESG credentials. With the imminent introduction of the Financial Accountability Regime (FAR) (expected later this month) and its broad principles-based obligations on senior executives and accountable persons, along with the recent STAR action, directors need to be cognisant of their duties under the Corporations Act and indeed under this new regime.

Some practical tips for directors to ensure compliance with their obligations under the Corporations Act include:

• implement and regularly monitor, update and audit a comprehensive compliance plan addressing the regulatory regime in which the company operates;
• establish and monitor compliance with corporate governance procedures and any breaches;
• make proper enquiries where further explanation is required and seek appropriate expert advice, including questioning opinions of experts and advisors, if required;
• ensure financial awareness and circulation on a regular basis of financial information and stay informed about the company’s financial affairs and position;
• avoid conflicts of interest, ie situations in which a personal interest conflicts with the interest of the company;
• maintain a good understanding of the company’s business and activities; and seek advice on relevant legislation, ASIC policies and industry standards (or relevant ASX Listing Rules) that apply to the company’s activities.

With ASIC’s renewed focus this year on greenwashing, directors should be reminded of the risk of claims alleging breach of their duties if they fail to act in the best interest of the company. Perhaps a more ‘hands on’ approach to their marketing and product teams may go towards mitigating against this risk.

Predatory Lending

ASIC will focus on protecting consumers from predatory lending practices after its research recently found that more than 40% of Australians currently hold two or more credit products[3]. The demand for credit cards, personal loans and short-term credit arrangements will likely increase following Australia’s recent cash rate hikes[4] and a rise in cost-of-living pressures. ASIC is particularly concerned about predatory lending where financially-vulnerable customers are unable to obtain ‘traditional’ credit from one of the ‘big banks’.

ASIC commenced proceedings last year against businesses, Rent4Keeps and Layaway Depot for allegedly failing to comply with the consumer protection obligations outlined in the National Consumer Credit Protection Act 2009 (Cth). ASIC alleges that the businesses engaged in predatory lending practices by disguising loans as lease contracts for white goods.[5] Of particular concern is the businesses’ operating model that targets financially-vulnerable customers that are often claiming Centrelink benefits. In their filed court documents, ASIC referenced one customer who used Centrelink payments to pay almost $2,500 for a fridge where its retail value was $365.

Misleading Insurance Pricing Promises

In the context of its enforcement priorities, ASIC’s Deputy Chairman Ms Sarah Court stated:

‘In addition to misconduct in the credit industry, ASIC will focus on failures in the general insurance industry to honour promises to consumers, as well as addressing unfair contract terms in insurance products’.[6]

This focus comes after ASIC commenced proceedings in October 2021 against Insurance Australia Ltd (IAL) for failing to honour discount promises made to its customers.[7] ASIC alleges that one of IAL’s insurance brands, NRMA, failed to pass on promised discounts totalling $60 million to customers.

This prompted ASIC to call upon general insurers to review their pricing systems and controls to prevent consumer harm, in particular to:

• identify any differences between the prices (including discounts) they promised their customers (over at least the past five years) and what those customers were charged;
• comply with their breach reporting obligations;
• remediate any customers impacted, including refunding overpaid premiums; and
• fix the systems, processes, controls and governance practices that have led to promised discounts not being honoured[8].

However, IAL is not the only general insurer that has made allegedly misleading insurance pricing promises in the past. ASIC reports that since January 2018, several general insurers, including AAI Ltd, QBE Insurance and Allianz Insurance have remediated approximately $400 million for failing to honour price discounts.

Conclusion

Ultimately, companies should heed ASIC’s warning. There is a saying that if you want to achieve something, you should write it down. ASIC has done exactly that with its 2023 Enforcement Priorities. Therefore, companies should expect ASIC to actively pursue greenwashing, predatory lending and misleading insurance pricing promises in the coming year. Watch this space.

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Authored by: 
Matthew Bode, Partner
Sinead Cronin, Solicitor

[1] ASIC Enforcement Priorities | ASIC

[2] ASIC’s definition of Greenwashing set out in its media release relating to ‘Tlou’, 22-294MR ASIC acts against greenwashing by energy company | ASIC

[3] 22-302MR ASIC announces Enforcement Priorities for 2023 | ASIC

[4] https://www.abc.net.au/news/2023-02-18/higher-interest-rates-coming-hurt-some-more-than-others/101989320

[5] https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-090mr-asic-sues-rent4keeps-and-layaway-depot-for-alleged-breaches-of-credit-act/

[6] 22-302MR ASIC announces Enforcement Priorities for 2023 | ASIC

[7] 21-270MR ASIC launches Federal Court action and calls on general insurers to review pricing practices | ASIC

[8] Ibid.