ASIC has just given enforceable undertakings (EUs) more bite by increasing ongoing reporting powers and making explicit the criteria around the appointment of independent experts.
Updated Regulatory Guide 100: Enforceable Undertakings (RG 100) contains expanded guidance on:
- the publicity of, and public access to, EUs; and
- the criteria that ASIC considers when assessing the appointment of an independent expert.
An EU can be a more commercial option than becoming embroiled in a civil action with the regulator.
Entering into an EU with ASIC allows the entity to get back to ‘business as usual’ and put in place a timetable for making improvements to its compliance processes.
Entities should not, however, think that an EU is a soft option.
ASIC has stated clearly that because of the overriding public interest in keeping the community and consumers informed about ASIC’s enforcements actions, ASIC will continue to make EUs public and will increase the time that they will be reportable. ASIC will not accept any EU in confidence, subject to a few narrow exceptions for issues which are commercially sensitive.
All entities regulated by ASIC should take note that from 9 March 2015, ASIC commenced reporting publicly on whether EUs have been complied with. ASIC maintains that this greater transparency and its ongoing reporting of compliance with EUs will assist to maintain market integrity, enhance consumer confidence and deter poor behaviour and non-compliance with financial services laws.
ASIC also considers a number of factors when assessing the appointment of an independent expert. In particular, ASIC will examine whether:
- the expert is also the auditor of the entity;
- the fees from the entity are material to the expert’s revenue in Australia;
- the relevant staff of the expert have an immediate financial interest in the entity;
- the expert has participated in strategic planning for the entity;
- the expert has previously designed, implemented or reviewed the transactions or compliance systems that are to be evaluated; and
- the expert has appropriate arrangements to manage conflicts of interest that may arise during the engagement.
ASIC will not ‘rubber-stamp’ the appointment of an expert but will scrutinise any appointment carefully, having regard to the nature of the engagement, the fees and remuneration generated by the appointment, the risk of self-review and public perception created by any such appointment.
Where an EU requires the preparation of an independent expert’s report, ASIC will publish a summary of the expert’s report. ASIC will not accept any limitations on its rights to publish and make reference to a report.
Whilst EUs remain an attractive option, entering into an EU with ASIC will now be a more rigorous, lengthy and public exercise.
Entities that are regulated by ASIC would do well to review their AFSL and Australian Credit Licence conditions, compliance and risk processes, board, audit committee and other relevant processes and policies to avoid the likelihood of committing a material or systemic breach and attracting ASIC’s attention in the first place.