Moving forward

Good morning all.

To assist, it may help if this is read in light of prior posts on other threads and I hope I'm not repeating myself or others.

I'm not going to descend into the various hypotheses that have been put forward over numerous months. Most people that are interested have followed the various threads and are familiar with the backstory. Whilst I value the contribution, time, and effort that people have put in, my focus has always been on and about the pleadings, the events and documentation underpinning same, and what we know of the correspondence between the parties.

It's on this backdrop that it may be worth reflecting on the role of ASIC to date.

On 2 Oct, ASX release the following Market Announcement that stated as follows:

"In consultation with the Australian Securities and Investments Commission (‘ASIC’) and having regard to the recent volatility in its share price, ASX has determined that it is appropriate to suspend trading in the shares of iSignthis Ltd (‘ISX’) with immediate effect under Listing Rule 17.3, pending the outcome of enquiries to be made by ASIC and ASX into a number of issues concerning ISX. The securities will remain suspended until further notice."
(See also para 6 SOC and para 10 SOC referring to ISX Media Release 7.20pm 2 Oct confirming same).

ASX could not have made that announcement regarding the consultative process between themselves and ASIC if it were not true. My question is what was the extent of the consultation? Were ASIC involved front and centre at that stage following a referral by ASX or did they merely have a peripheral roll (and, if so, to what extent), or was it a case of the tail (ASX) wagging the dog (ASIC)? It would be beneficial to see the evidence addressing the "consultative process" to illuminate this.

See para 17 SOC where a telephone conversation on or around 29 Oct indicates that "the position taken by the ASX was that the suspension would not be lifted any time soon and not until ASIC agreed". (My emphasis). Again, one has to assume the truth of that albeit that I suspect that it will be supported by affidavit evidence and, hopefully, with the file notes of the persons named annexed.

A written statement from ASIC's Markets Enforcement desk dated 5 Nov and received by ISX on 7 Nov states "the decision by ASX to suspend ISX from trading on 2 October 2019 was not made with a direction from ASIC". Clearly, there was no direction made by ASIC otherwise they wouldn't say that. Maybe it was a recommendation by ASIC? I suspect it was nothing more than a suggestion by ASIC following a referral by ASX for them (ASX) to continue with their inquiries? Obviously, it would assist ISX in clarifying this matter if they were privy to all the correspondence between ASX and ASIC but they're not. What happens next clears things up a bit.

By reference to para 29 SOC, by at least 6 Nov, the ASX position was that "even if ISX satisfied ASX's queries, it would not necessarily lift the suspension while an ASIC investigation was underway". Three things fall from that. First, ASX has been relegated to the role of conductor but is no longer driving the bus. ASIC is. Secondly (and logically following on), up and until ASIC are happy, the suspension remains in place. In other words, vis-à-vis provision of information to ASX, ISX are damned if they do and damned if they don't. ASX can do all the investigative leg work and be satisfied and provide the information to ASIC but until the latter give them the green light, the suspension remains. Thirdly, what is the characterisation of the investigation? Is it into the suspension solely or something else or for a combination of reasons? (I'll expand on that later).

Faced with that, why wouldn't ISX bring things to a head by commencing proceedings. By doing that, at least they give things a shove along in circumstances where they were met with letter after letter of inquiry and had provided answers and a raft of documentation. Put simply, that level of incessant inquiry has to be brought to finality by a Judge. I'll come back to this point when dealing with the particulars.

What happens next is curious. On 6 Dec, ISX publish a document dated 5 Dec entitled, "ASIC Briefing: “Background briefing on iSignthis and its business to the Australian Security and Investments Commission (ASIC)”, Presenter: N J (John) Karantzis, CEO & Managing Director". There's no covering letter and I'm simply assuming that on 5 Dec, Mr Karantzis gave a presentation to ASIC representatives either face to face or via video-link, probably the former. Bear in mind the history of the preceding months and the fact that the SOC (referencing ASIC) had been filed less than 24 hours before. Why on earth would the CEO front up to ASIC to give this presentation in circumstances where his company is effectively going head to head in another matter with the government body that he is hoping to engage on a business application over which they will have the final say? It defies common sense and is tantamount to sheepishly walking into the lion's den if you weren't absolutely confident in your company and its position. The presentation was done precisely for the reason in the heading of the power point - to give ASIC a background briefing. So much is clear from the following:

"Our subsidiary, iSignthis eMoney (AU) Pty Ltd, has applied to ASIC for a non-cash payment license, custodial license and depositary license, in conjunction with our ADI license to APRA.By April 2020 iSIgnthis will offer card acquiring services in Australia as a principal licensee of the major schemes, under the Reserve Bank of Australia’s card access regime. It is intended (subject to ASIC and APRA licensing) that the “stored value” electronic money services will soon also be available to the Australian public." (My emphasis).

If ASIC are worth their salt, then prudence dictates that they will want to know anything and everything about this company before issuing anything further. I expect they will. I've attached a very recent Submission (20 Jan) from APRA to the Senate Select Committee. It's worth a read. Page 16 outlines the interplay between APRA and the other regulators and industry. They conclude the submission in these terms:

"APRA recognises the important contribution FinTech and RegTech developments have to the financial system. APRA seeks to understand and support these developments, in a sustainable and open fashion. It aims to allow for the opportunities and innovations without undue policy or supervisory barriers, while ensuring risks are appropriately managed in keeping with its mandate. APRA also seeks to implement RegTech within its own data collection systems and processes helping improve efficiency and accessibility. APRA supports the work of the committee towards these aims."

For mine, the words that leap off the page are "without undue policy or supervisory barriers". I probably don't need to say too much about that. It is encouraging to see ISX referred to in Figure 2 on page13. APRA seem to think highly enough of ISX to include them in this document that was put forward to the Senate Select Committee. The committee is to present its final report on or before the first sitting day in October 2020.

I've also attached a link to the ASIC website that highlights the ASIC-APRA relationship. It's straightforward and speaks for itself. ASIC have to conduct their own investigations when applications are made and information is clearly disseminated between the two bodies. If ASX keep making noises about particulars and saying they want further information, then ASIC will in all likelihood sit tight until that's been provided. ASX though can't go on and on and on with the issue of the provision of particulars. It will only buy you so much time. The Judge is simply going to say either you've been given what you requested or, if you haven't, it's because you're legally not entitled to it and it's for these reasons so get on with it.

The issue regarding the failure, rightly or wrongly, by ASX until 30 Jan to disclose this litigation by way of an announcement has been done to death and if there are any ASX shareholders (or any other institutional or semi-interested retail investor) who aren't aware of it by this stage, then they either missed the 30 Jan market announcement, don't read the tabloids, or it's wilful blindness. There's no suggestion in that market announcement as to what, if any, involvement ASIC has in the suspension investigation. As noted, ASX appears to have taken the job of investigator solely upon their shoulders and are reporting back to ASIC. There will come a point in time (and that time is soon) where the investigations have reached their conclusion and HSF and their counsel will have to advise ASX on the progress of the matter. If HSF and their highly experienced silk are against them, then ASX are obliged to pass that advice on to ASIC. It would be a brave respondent who would continue to defend the action on that footing.

There was a Letter to Shareholders dated 22 Jan which is more notable for what it doesn't contain than for what it does. There is not one reference in that document to an investigation being carried out by ASIC into why ISX are suspended and why it is ongoing. Why is that? Because the ASIC 'investigation' (as it is described by ASX) into ISX may be purely related to what is outlined in the preceding paragraphs concerning the application in bold. An investigation can be for a sole purpose, a dominant purpose, or for multiple purposes.

Let there be no mistake, ASIC and ASX are working in tandem but in truth and substance, ASX have indicated that ASIC have to be in agreement before the suspension is lifted and they appear to be largely relying on ASX. Sure, ASX are conducting an investigation and reporting back to ASIC but, from an ASIC perspective, that investigation has a dual purpose. ASIC would be derelict in their duty if they didn't satisfy themselves of the bona fides of ISX, particularly in circumstances following the 5 Dec presentation. I'd want to know everything about the company, especially if they're suspended, and whether that suspension is valid or invalid. It's all a bit too cute if the ASX are calling this an ASIC investigation into the suspension when there are other factors in play as to why ASIC wish to know the machinations and business of ISX, for example, their license application and in order to share any obtained information with APRA. That said, it's a matter of ASIC being satisfied on all counts as to the integrity, actions, and bona fides of ISX.

ASX are entitled to turn up to Court last Friday and indicate that a request for further and better particulars remains outstanding but the information in those particulars are as much for ASIC as anyone. By way of analogy, would an insurer want to see every available and relevant piece of information before they indemnified their client, if sued? Of course they would. Would the DPP want to see and consider all of the available evidence before they decide to proceed with a prosecution on a serious charge or any other charge. Of course they would otherwise rights are violated either maliciously or on flimsy evidence. I've got no issue with any request for particulars made of ISX so long as the request falls within the ambit of the Statement of Claim, the rules of the Court, and if a privilege argument doesn't arise for determination. If it does, let an application be made with supporting affidavits and that can dealt with as a preliminary point by the Judge.

ASX appear to have turned up last Friday and indicated that until they have certain information, they are not in a position to file a Defence. That's a fair call. I wasn't there and I stand to be corrected if that doesn't broadly describe it. There is no way counsel for ASX would have stood at the bar table and made that submission if it was untrue. Similarly for HSF. Both are acting and advising on instructions from ASX. Neither HSF nor their briefed counsel are going to put their professional neck on the line for ASX. They are not going to mislead the Court (to whom their duty is owed first and foremost) and risk having their practicing certificate punched just to appease ASX.

ASX should be mindful of the following extract from their own website that was cited in the ISX letter of 22 Jan:

“The limits on ASX’s investigation and enforcement powers. ASX is not an arm of the government that can exercise police powers. It cannot conduct searches, seize evidence, examine people on oath or arrest people who don’t co-operate, in the way that ASIC or other government regulators can. Its ability to investigate is limited to its power under the Listing Rules to request information from a listed entity mentioned above. ASX can only investigate and take action in relation to matters that are regulated by the Listing Rules. Many of the complaints ASX receives relate to conduct that is not regulated by the Listing Rules. In particular, ASX often receives complaints about matters that are regulated by ASIC under the Corporations Act or the Market Integrity Rules made by ASIC under that Act, rather than by ASX under the Listing Rules.ASXis powerless to do anything about these types of complaints, other than to refer them to ASIC under the provisions mentioned above.”

The orders going forward have now been made. Let's not get anchored in the past. The best thing is for ISX to comply by 4pm this Friday as best they can. If there's an issue with the provision of particulars, ASX have liberty to apply and can (and should) do so in order that it can be argued and a ruling made. If there's no issue, ASX (and through them ASIC), have two weeks to consider that material before a Defence must be filed. That gives the parties some further time to, hopefully, nut out a resolution with the nice little ancillary benefit that if they can do so prior to 4pm on 28 Feb, the ASX draft Defence can remain within the confines of the HSF offices (never to see the light of day) and it won't have to be certified.

I am still quite optimistic that this matter will be resolved in the short term. Let's keep the flow of the discussion constructive, informative, free of insults, and get this show back on the road.

Some food for thought. Enjoy the week.

https://www.apra.gov.au/sites/default/files/2020-01/Senate%20Select%20Committee%20on%20Financial%20Technology%20and%20Regulatory%20Technology.pdf

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Financial_Technology_and_Regulatory_Technology/FinancialRegulatoryTech

https://asic.gov.au/about-asic/what-we-do/our-role/other-regulators-and-organisations/the-asic-apra-relationship/