19 February 2019

Towards a stronger penalty framework for corporate and financial sector misconduct

This article was written by Alexander MorrisMoira Saville and Amanda Engels.

The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 was passed by Parliament on 18 February 2019. 

The Bill amends the Corporations Act, ASIC Act, NCCPA and Insurance Contracts Act to strengthen civil and criminal penalties for corporate and financial sector misconduct.

The Bill follows recent increases to penalties under the Australian Consumer Law (see our previous alert here).

What does this mean for you?

The majority of amendments take effect on the day after the Act receives Royal Assent.  It is therefore critical that entities promptly take any necessary steps to ensure compliance or risk being liable for hefty financial penalties.

Key amendments to the Corporations Act

  • New civil penalty provisions: The civil penalty regime is extended to a number of other obligations under the Corporations Act, meaning that contraventions of these obligations can now be addressed through financial penalties imposed by Courts using civil procedure;

  • Increased civil penalties: Penalties under the Corporations Act and the ASIC Act are increased for both individuals and corporations. For a corporation, the maximum pecuniary penalty is increased to the greater of 50,000 penalty units ($10,500,000), or the benefit derived (or detriment avoided) because of the contravention multiplied by three, or 10 per cent of the annual turnover of the body corporate, but to a maximum monetary value of 2.5 million penalty units ($525 million);

  • Expanded infringement notice regime: The existing penalty notice regime is replaced with a new infringement notice regime that applies to all strict and absolute liability offences , and certain civil penalty provisions;

  • New criminal offences: A range of new ordinary criminal offences now sit alongside existing strict and absolute liability offences; and

  • Increased terms of imprisonment: Terms of imprisonment are increased to 15 years for certain serious criminal offences.

New civil penalty provisions

The table below sets out the new civil penalty provisions under s 1317E of the Corporations Act.  Attempted contravention or involvement in the contravention of a Corporations Act and ASIC Act civil penalty provision are taken to be a contravention of the provision under those Acts and are treated the same way as an actual contravention.

No.

Provision

Brief Description

1

601ED(8) 

obligation to be registered if operating certain managed investment schemes

2

670A(4)

misstatements in, or omissions from, takeover and compulsory acquisition and buy-out documents

3

727(6) 

offering securities without a current disclosure document

4

728(4)

misstatement in, or omission from, disclosure document

5

791A(3) 

need for an Australian market licence

6

792A(2)

general obligations of market licensees

7

792B(7)

market licensee to notify ASIC of certain matters

8

820A(3)

need for an Australian CS facility licence

9

821A(2) 

general obligations of CS facility licensees

10

821B(6)

CS facility licensee to notify ASIC of certain matters

11

853F(3) 

obligations on disqualified individuals

12

904A(2)

general obligations of derivative trade repository licensees

13

904C(1A) 

obligation to notify ASIC of inability to meet obligations under section 904A

14

905A(3)

need to hold a licence to operate a derivative trade repository

15

911A(5B)

need for an Australian financial services licence

16

911B(4)

providing financial services on behalf of a person who carries on a financial services business

17

912A(5A)

general obligations of a financial services licensee

18

912D(3)

financial services licensee to notify ASIC of certain matters

19 920C(4)

need to comply with a banning order

20

922M(5)

need to comply with obligation to notify ASIC

21

941A(3)

obligation on financial services licensee to give a Financial Services Guide if financial service provided to person as a retail client

22

941B(4)

obligation on authorised representative to give a Financial Services Guide if financial service provided to person as a retail client

23

946A(4)

obligation to give client a Statement of Advice

24

952E(9)

giving a defective disclosure document or statement (whether or not known to be defective)

25

952H(3)

financial services licensee failing to ensure authorised representative gives disclosure documents or statements as required

26

981B(3)

obligation to pay money into an account

27

981C(2)

various matters relating to accounts maintained for the purposes of section 981B

28

993D(4)

failure to pay loan money into an account as required

29 1012A(5)

obligation to give Product Disclosure Statement—personal advice recommending particular financial product

30

1012B(6)

obligation to give Product Disclosure Statement—situations related to issue of financial products

31

1012C(11)

obligation to give Product Disclosure Statement—offers related to sale of financial products

32

1017BA(4B)

trustee of regulated superannuation funds—obligation to make product dashboard publicly available

33

1017BB(5AA)

trustee of registrable superannuation entities—obligation to make information relating to investment of assets publicly available

34

1020A(5)

offers etc. relating to certain managed investment schemes not to be made in certain circumstances

35

1021E(8)

preparer of defective disclosure document or statement giving the document or statement (whether or not known to be defective)

36

1021G(3)

financial services licensee failing to ensure authorised representative gives etc. disclosure documents or statements as required

37

1309(12)

false information

Expanded infringement notice regime

The Bill replaces the existing penalty notice regime with a new infringement notice regime. ASIC may issue infringement notices, requiring a payment of a penalty, as an alternative to civil or criminal proceedings. If an infringement notice is complied with and the penalty paid within 12 months, ASIC will take no further action against the entity. Importantly, payment of the infringement notice is not considered an admission of guilt. However, if the infringement notice is not complied with and the penalty not paid, ASIC may pursue criminal or civil penalties.

All strict and absolute liability offences and certain civil penalty provisions are subject to the infringement notice regime. An infringement notice may be issued by ASIC if ASIC reasonably believes a person has contravened a provision subject to an infringement notice.

For strict and absolute liability offences, the penalty amounts are 50 per cent of the maximum pecuniary penalty for the relevant offence. For civil penalty provisions, the maximum penalty amount is 12 penalty units ($2,520) for individuals and 60 units ($12,600) for corporations.

The following table sets out the provisions subject to infringement notices under the Bill:

No.

Provision

Brief Description

1

188(1) and (2) 

Responsibilities of a secretary and how they cannot contravene certain provisions.

2

792B

A person who holds a market licence must notify ASIC of certain matters.

3

821B

A person who holds a clearing and settlement facility licence must notify ASIC of certain matters.

4

962P

Fees cannot continue be charged after an arrangement has been cancelled.

5

912D

A financial services licensee must notify ASIC of certain matters.

6 941A

A person who holds an Australian financial services licence must give a financial services guide if they provide a financial service to a retail client.

7

941B

An authorised representative that holds an AFSL must give a financial services guide if they provide financial services to a retail client.

8

946A

A person is required to give their clients a statement of advice if financial advice is provided to a retail client.

9

962S(1)

Fee recipient must give fee disclosure statement.

10

963E(1) and (2)

Financial services licensee responsible for breach of ban on conflicted remuneration.

11

963G(1)

Authorised representative must not accept conflicted remuneration.

12

963J

Employer must not pay employees conflicted remuneration.

13

963K

Financial product issuer or seller must not give conflicted remuneration to financial services licensee or representative.

14

964A(1)

Platform operator must not accept volume-based shelf-space fees.

15

964D(1) and (2)

Financial services licensee responsible for a breach of asset-based fees on borrowed amounts.

16 964E(1)

Authorised representative must not charge asset-based fees on borrowed amounts.

17

985E(1)

Issuing or increasing the limit of a margin lending facility without having made assessment etc.

18

985J(1)

Failure to give an assessment to a retail client if requested before issue of facility or increase in limit.

19

985J(2)

Failure to give an assessment to a retail client if requested after issue of facility or increase in limit.

20

985J(4)

Demanding payment to give an assessment to a retail client.

21

985L

Making an issue of a margin lending facility conditional on a retail client agreeing to receive communications through agent.

22

1012A

financial advice for a particular financial product.

23

1012B

A person is required to provide a product disclosure document under certain situations

24

1012C

A person is required to provide a product disclosure document under certain situations.

25

1012BA

A trustee of a superannuation fund is obligated to make a product dashboard publicly available.

New criminal offences

New ordinary criminal offences are introduced alongside existing strict and absolute liability offences. This amendment recognises that where a fault element can be established for certain strict / absolute liability offences, these offences should be treated as ordinary criminal offences warranting imposition of a higher penalty (including imprisonment for individuals).

The affected provisions are:

  • 205G - Listed company director to notify market operator of shareholdings etc.
  • 286 - Obligation to keep financial records
  • 307A - Audit to be conducted in accordance with auditing standards
  • 606 - Prohibition on certain acquisitions of relevant interests in voting shares
  • 671B - Information about substantial holdings must be given to company, responsible entity, fund operator and relevant market operator
  • 922M - Failing to comply with obligation to notify ASIC
  • 952E - Giving a defective disclosure document or statement (whether or not known to be defective)
  • 952H - Financial services licensee failing to ensure authorised representative gives disclosure documents or statements as required
  • 989CA - Audit to be conducted in accordance with auditing standards
  • 993D - Failing to pay loan money into an account as required
  • 1020A - Offers etc. relating to certain managed investment schemes not to be made in certain circumstances
  • 1021E - Preparer of defective disclosure document or statement giving the document or statement (whether or not known to be defective)
  • 1021G - Financial services licensee failing to ensure authorised representative gives etc. disclosure documents or statements as required
  • 1309 – False information etc.

Increased terms of imprisonment

The serious offences now attracting a maximum imprisonment of 15 years are as follows:

No.

Provision

Brief Description

1

184 

Obligation of officers not to act recklessly or be intentionally dishonest, and to act in good faith in the best interests of the corporation and for a proper purpose.

2

344(2)

Obligation of officers to secure compliance with the obligations of Part 2M.2 (financial records) and 2M.3 (audit).

3

601FD(4)

Obligations of officers of responsible entity of a registered scheme.

4

601FE(4)

Obligations of employees of the responsible entity of a registered scheme.

5

601UAA(1)

Duties of officers of a licensed trustee scheme.

6 601UAB(1)

Duties of employees of a licensed trustee scheme.

7

727(1)

Prohibition on making an offer of securities, or distributing an application form for an offer of securities, than needs disclosure to investors unless a disclosure document has been lodged with ASIC.

8

728(3)

Prohibition on making a materially adverse misleading or deceptive statement in a securities offer under a disclosure document.

9

952D(1) and (2)

Prohibition on financial services licensee or authorised representative providing a defective disclosure statement.

10

952F(2), (3) and (4)

Offences of financial services licensee knowingly providing defective disclosure material to an authorised representative.

11

925L(1)

Offences if financial services licensee or authorised representative becomes aware that a Financial Services Guide (or Supplementary FSG) is defective.

12

993B(3)

Offence of failing to pay client money into a client money account as required.

13

1021D(1) and (2)

Offence of preparer of defective disclosure document or statement giving the document or statement knowing it to be defective.

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