Further Scrutiny of ASIC



“In my 29 August 2017 blog I considered the Economics Reference Committee’s Inquiry into the performance of ASIC, and the recommendations set out in the Inquiry’s 2014 report (the link to the report can be found in that blog). I looked briefly at the case studies the Inquiry analysed, and noted the observation therein that ASIC had been viewed as a ‘timid and hesitant regulator’.

ASIC continues to receive scrutiny in the media, with remarks such as ‘toothless tiger’ and ‘Is it a watchdog, or a dog with no teeth’ being a general theme in public commentary. ASIC is again front and centre in the media following the establishment of the ASIC Enforcement Review Taskforce (Taskforce) in October 2016. The Taskforce followed the government’s response to a series of recommendations set out in the final report of the Financial System Inquiry (FSI) which was released in December 2014.

The FSI’s report contained 44 recommendations, with some of these relating to ASIC as Australia’s corporate, markets and financial services regulator. It suggested that the penalties available to ASIC were inadequate, outdated and unlikely to deliver general deterrence. It recommended, amongst other things, an increase to civil and criminal penalties.

The terms of reference for the Taskforce allow for the examination of the adequacy of ASIC’s enforcement regime, with the scope of the review extending to the following:

  1. The adequacy of civil and criminal penalties for serious contraventions relating to the financial system (including corporate fraud);

  2. The need for alternative enforcement mechanisms, including the use of infringement notices in relation to less serious contraventions, and the possibility of utilising peer disciplinary review panels (akin to the existing Markets Disciplinary Panel) in relation to financial services and credit businesses generally; and

  3. The adequacy of existing penalties for serious contraventions, including disgorgement of profits.

Membership of the Taskforce includes senior members of the Treasury, ASIC, the Attorney‑General’s Department and the office of the Commonwealth Director of Public Prosecutions, as well as representatives from industry bodies, consumer groups and academia.

Since April this year the Taskforce has released the following position papers, each inviting community and industry comment (with a fixed consultation period for each):

  1. Self-reporting of contraventions by financial services and credit licences (11 April 2017);

  2. Harmonisation and Enhancement of Search Warrant Powers (28 June 2017);

  3. Strengthening ASIC’s Licensing Powers (28 June 2017);

  4. Industry Codes in the Financial Sector (28 June 2017);

  5. ASIC’s access to Telecommunications Intercept Material (20 July 2017);

  6. ASIC’s power to ban senior officials in the Financial Sector (6 September 2017); and

  7. Strengthening Penalties for Corporations and Financial Sector Misconduct (23 October 2017).

In its most recent position paper the Taskforce has identified three key problems with the current penalties regime:

  1. the variety of penalties available, for some kinds of misconduct, is inadequate to address the range and severity of misconduct,

  2. as identified by the FSI, some penalties are too low to act as a ‘credible deterrent’, and

  3. some penalties are inconsistent with the penalties for equivalent Commonwealth and State provisions.

The report deals specifically with Criminal Penalties, Strict and Absolute Liability Offices, Civil Penalties, Credit Code Provisions, Infringement Notices, Peer Disciplinary Review Panels, the Insurance Contracts Act 1984 (ICA), and false or misleading statements under the ASIC Act.

Comment by the community and industry is invited until 17 November 2017, with the Taskforce’s final report expected to be provided by the end of the year. It is expected that the Taskforce’s final report to the government will set out its final recommendations, after considering community and industry comments.

Is it that ASIC is in fact a timid and hesitant regulator, or is it that its powers are inadequate, and penalties outdated? Does a review of ASIC’s enforcement procedures compliment the government’s BEAR initiative (this was mentioned in my 17 September 2017 blog), and will these efforts by the government result in better behaviour of key bodies within the Australian Financial Sector? 

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Tracey Mylecharane - Solicitor

Tracey Mylecharane has more than 12 years experience in legal practice and has been involved in numerous matters with clients who have experienced hardship and difficulty with their banks - this has ranged from simple advice and guidance, to assistance lodging complaints through the ombudsman system, to representing clients in court against banks.

Tracey MylecharaneComment