ASIC has provided an update yesterday on their implementation of Hayne’s Royal Commission recommendations, promising to commit to the 12 recommendations directed at the regulatory body earlier this month in order “to strive for a fair, strong and efficient financial system for all Australians.”
Following the Royal Commission’s Final Report and the Government’s response, ASIC has vowed to act on their new “why not litigate” approach to enforcement, by creating a separate Office of Enforcement to be rolled out in 2019. The Office of Enforcement will be a separate entity within ASIC, to be responsible to the Commission for investigation and enforcement of contraventions of the laws that ASIC administers.
ASIC will be following a three-step approach when considering the approach of the Office of Enforcement, considering:
- If there is a possible breach, ASIC will undertake an assessment and if appropriate, conduct an investigation. Once satisfied that there is a breach, it will ask itself: Why not litigate?
- Weighing any public interest in pursuing a (non-court) negotiated outcome against the clear benefits of a judgement and imposition of a prison sentence, civil penalty or other court-based outcome – and only if the objective assessment weighs in favour of a negotiated outcome, only then a negotiated outcome is pursued.
- Whether there is any corporate accountability and individual accountability (particularly at executive and board level) for breaches of the legislation administered by ASIC.
The Office of Enforcement will be alongside the recommended 60 additional penalty provisions that ASIC will be able to action and the recent passage of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018. This Bill has notably increased maximum prison penalties for the most serious offences to 15 years, increased civil penalties for companies (now to be capped at $525 million) and increased the maximum civil penalties for individuals to $1.05m. (Read more here).
ASIC is further aiming to adopt a broader strategic change program, including the adoption of new regulatory and supervisory approaches, such as Close and Continuous Monitoring (CCM) and adopting next generation regulatory tools, including through leading developments in behavioural economics, data analytics and RegTech.
ASIC’s new Office of Enforcement and broadened powers, in the context of increased penalties, recent legislative reform and funding, has provided a powerful platform that ASIC intends to utilise to provide the strengthened enforcement culture that is needed to radically reform the Australian regulatory landscape. The movement by ASIC to sharpen their focus on enforcement and increase court action in the wake of the Royal Commission is supported by the Treasurer Josh Frydenberg, who has recently signaled that he will “give further consideration” to ASIC’s financial needs in the upcoming Federal Budget being released on 2 April 2019.
These changes at ASIC will have an impact well beyond the financial services and banking industry. Company directors would be wise to act now to make sure that they are conforming with their duties and that appropriate corporate governance policies are in place so as to avoid being caught up in ASIC’s new “litigate first” policy.