Insight,

Outcomes of the ASIC Enforcement Regime Review

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This article was written by Miriam Kleiner and Jedd Watmore.

Key takeaways

  • The Government agrees, or agrees in principle, with all 50 recommendations of the Taskforce.
  • Implementation of most of the recommendations is deferred until the outcomes and findings of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry ("Royal Commission") are published.
  • A number of recommendations have been made including increasing civil and criminal penalties under the Corporations Act, increasing ASIC's search warrant powers and increasing ASIC's direction powers.

Key observations

  • There will now be circumstances where the civil penalty for breaching a provision of the Corporations Act (2001) Cth ("Corporations Act") will exceed the criminal penalty applicable for breaching the same provision – this outcome seems anomalous.
  • The implementation of the recommendations will not change ASIC's fundamental powers. ASIC has claimed that it has limited ability to adequately prosecute breaches of the Corporations Act as it does not have enough powers to do so. If this is correct, this will not be addressed by implementing the below recommendations.
  • The Taskforce considered whether section 180 of the Corporations Act should remain a civil penalty provision and ultimately concluded that this should be the case. The Government agreed with this. Thus, section 180 of the Corporations Act remains one of the only sections in any Commonwealth legislation where negligence is punishable by a civil penalty and disqualification.

Taskforce & Report

In October 2016, Kelly O'Dwyer MP (the Minister for Revenue and Financial Services), announced a taskforce to review ASIC's enforcement regime ("Taskforce"). The Taskforce was led by a panel chaired by Treasury, and included senior representatives from ASIC, the Attorney-General's Department, and the office of the Commonwealth Director of Public Prosecutions

The Taskforce report ("Report") was provided to the Government in December 2017. In formulating its recommendations, the Taskforce considered submissions from a range of stakeholders including peak industry bodies, consumer groups, professional associations, and domestic and international regulators.

Government Response

On 18 April 2018 the Federal Government released its response to the Report, agreeing or agreeing in principle to all 50 recommendations of the Taskforce. The Government has proposed to defer implementation of a number of the Taskforce's recommendations on the basis that the Royal Commission will consider many of the points raised and may have additional recommendations to be taken into consideration.

Key Recommendations

Response

Chapter 1: Self Reporting of contraventions by financial services and credit licensees - Recommendations 1- 10

  • Introduction of self-reporting regime for credit licensees
  • Increased criminal penalties and introduction of a civil penalty for breaches of self reporting regime

The Government agrees in principle with these recommendations and will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

Chapter 2: Harmonisation and enhancement of search warrant powers - Recommendations 11 – 16

  • Consolidation of ASIC search warrant powers
  • Additional ASIC search warrant powers

The Government agrees with these recommendations, and is developing legislative amendments to implement each of the recommendations.

Chapter 3: ASIC's access to telecommunications intercept material - Recommendation 17

  • New powers for ASIC to receive telecommunications, intercept material to investigate and prosecute serious offences

The Government agrees with this recommendation, and is developing legislative amendments to implement the recommendation.

Chapter 4: Industry codes in the financial sector - Recommendations 18 – 22

  • ASIC approval required for content and governance arrangements of industry codes

The Government agrees in principle with these recommendations and will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

Chapter 5: Strengthening ASIC's licencing powers - Recommendations 23 – 29

  • ASIC will have the power to refuse licence applications, or take action against existing licensees, if it is not satisfied controllers are fit and proper

The Government agrees with each of these recommendations, and is developing legislative amendments to implement each of the recommendations.

Chapter 6: ASIC's power to ban individuals in the financial sector - Recommendations 30 – 31

  • The grounds for exercising ASIC's power to ban individuals from performing roles in financial services and credit businesses should be expanded

The Government agrees with both recommendations, and is developing legislative amendments to implement each of the recommendations.

Chapter 7: Strengthening penalties for corporate and financial sector misconduct - Recommendations 32 – 45

  • Removal of imprisonment as a penalty for strict and absolute liability offences and the introduction of a penalty notice regime for these offences
  • Increase maximum civil and criminal penalties
  • Disgorgement to be available in civil penalty proceedings brought by ASIC under the Corporations, Credit and ASIC Acts
  • The Corporations Act should require courts to give priority to compensation

The Government agrees with recommendations 32-39 and 41-45, and is developing legislative amendments to implement each of the recommendations.

The Government agrees in principle with recommendation 40 (increases to maximum penalties), however the Government proposes to develop legislative amendments that go beyond those recommended in the Report, in particular:

  • increasing the maximum penalty for individuals who breach certain provisions of the Corporations Act to the greater of 5,000 penalty units (at the current value attributed to each penalty unit, this would equate to $1.05 million rather than $200,000 which is the current penalty) or three times the value of benefits obtained or losses avoided; and
  • increasing the maximum penalty for corporations who breach certain provisions of the Corporations Act to the greater of 50,000 penalty units (at the current value attributed to each penalty unit, this would equate to $10.5 million rather than $1 million which is the current penalty) or three times the value of benefits obtained or losses avoided.

 

See our previous article on this topic here.
http://www.kwm.com/en/au/knowledge/insights/asic-enforcement-review-penalties-corporate-misconduct-20171025

Chapter 8: ASIC's directions powers - Recommendations 46 – 50

  • Introduce civil penalty regime for non-compliance with ASIC directions

The Government agrees in principle to these recommendations and will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

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