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Asia Pacific Legal Updates

 

9 May, 2018

 

Asia Pacific Legal Updates

 

The Government agrees, or agrees-in-principle, with all 50 recommendations of the ASIC Enforcement Review Taskforce.

 

What you need to know

 

The Australian Government has responded to the ASIC Enforcement Review Taskforce Report

 

The Australian Government agrees, or agrees-in-principle, with all 50 of the recommendations made in the Report
Implementation of a number of the recommendations will be deferred to account for findings arising from the Royal Commission.

 

ASIC Enforcement Review Taskforce

 

The ASIC Enforcement Review Taskforce (Taskforce) was established to review the enforcement regime of the Australian Securities and Investments Commission (ASIC), including the suitability of the existing regulatory tools available to ASIC. The Taskforce was also charged with reviewing legislation dealing with corporations, financial services, credit and insurance, and the adequacy of existing enforcement mechanisms and penalties under those laws.

 

The Taskforce released the ASIC Enforcement Review Taskforce Report (Report) to the Australian Government (Government) in December 2017. The Report takes into account industry and community consultation, and submissions received in response to several position papers published by the Taskforce.

 

The Report is divided into eight chapters and makes 50 recommendations.

 

Government response 

 

On 16 April 2018, the Government responded to the Report, by agreeing, or agreeing-in-principle, with all 50 recommendations made by the Taskforce. The Government will seek to implement some of the recommendations promptly, including:

 

  • recommendations to increase significantly the financial penalties which may be imposed on corporations and individuals in civil penalty proceedings;
  • to implement an infringement notice regime; and
  • to enhance ASIC's investigative and enforcement powers.

 

Implementation of a number of the recommendations will, however, be deferred so as to be informed by the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission).

 

These include the recommendations relating to:

 

  • significant breach reporting;
  • the recognition and enforcement of industry codes; and
  • the expansion of ASIC's directions powers.

 

Given that the final report of the Royal Commission is not due until 1 February 2019 (and the government has indicated it will grant an extension if requested by the Commissioner), it will be some time before the full suite of amendments is in effect.

 

Below is a summary of the Government's responses to the Report's recommendations in each of the eight key areas:

 

REPORT RECOMMENDATIONS GOVERNMENT RESPONSE

Self-reporting of contraventions by licensees 

Recommendations 1 to 10

Key recommendations include:

  • Introduction of an objective significance test
  • 30 day reporting timeframe (including an obligation to report suspected breaches still under investigation)
  • Prescribed content for breach reports
  • Introduction of equivalent self-reporting regime for credit licensees
  • Increased criminal penalties and a new civil penalty for failure to report.
 The Government agrees-in-principle with all 10 of the recommendations in this category but will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

Harmonisation and enhancement of search warrant powers 

Recommendations 11 to 16

Key recommendations include:

  • Consolidation of ASIC-specific search warrant powers
  • Alignment of search warrant powers with those provided for in other legislation (ie Crimes Act 1914 (Cth))
  • Increased availability of material seized under ASIC search warrants for use in criminal, civil and administrative proceedings.
 The Government agrees with each of the six recommendations, and will develop legislative amendments to implement each of the recommendations.

ASIC's access to telecommunications intercept material

Recommendation 17 provides that ASIC should be able to receive telecommunications intercept material to investigate and prosecute serious offences.

 The Government agrees with this recommendation, and will develop legislative amendments to implement this change.

Industry codes in the financial sector 

Recommendations 18 to 22

Key recommendations include:

  • ASIC approval for the content of and governance arrangements of relevant codes
  • Requirement for entities to subscribe to approved binding and enforceable codes
  • Customer redress in respect of subscribers non-compliance with the relevant code.
 The Government agrees-in-principle with each of these recommendations but will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

Strengthening ASIC's licensing powers 

Recommendations 23 to 29

Key recommendations include:

  • ASIC power to refuse licence applications or take action against existing licensees where controllers are not fit and proper
  • ASIC power to cancel AFS licence where licensee fails to commence business within 6 months
  • Requirement to notify a change of control within 30 days
  • Alignment of assessment requirements and consequences for false and misleading statements across the credit and AFS licence regimes.
 The Government agrees with each of the recommendations in this area, and will develop legislative amendments to implement each recommendation.

ASIC's power to ban individuals in the financial sector

Recommendations 30 to 31 are:

  • Once an administrative banning power is triggered, ASIC should be able to ban a person from performing a specific function, or any function, in a financial services or credit business
  • 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 each recommendation.

The Government will develop legislative amendments to give effect to each of these recommendations.

Strengthening penalties for corporate and financial sector misconduct 

Recommendations 32 to 45

Key recommendations include:

  • Increased criminal and civil penalties – maximum civil penalties to be increased for individuals to 2,500 penalty units and for corporations to the higher of 50,000 penalty units ($10.5 million), three times the benefit obtained/loss avoided, or 10% of annual turnover (to a maximum of 1 million penalty units ($210 million))
  • Removal of imprisonment as a penalty for strict and absolute liability offences and the introduction of a penalty notice regime for these offences
  • Disgorgement remedies in civil penalty proceedings and a requirement for courts to give priority to compensation
  • Infringement notice regime to be expanded to cover a range of other contraventions.

The Government agrees with recommendations 32 to 39 and 41 to 45.

In relation to recommendation 40 (to substantially increase the civil penalties which may be imposed on corporations and individuals), the Government has accepted ASIC's submission for civil penalties, but gone further in relation to individuals, proposing that the maximum civil penalty for individuals be the greater of 5,000 penalty units (double that recommended by the Taskforce), or three times the value of benefits obtained or losses avoided.

ASIC's direction powers

Recommendations 46 to 50

Key recommendations include:

  • ASIC power to direct financial services or credit licensees in the conduct of their business where ASIC has reason to suspect a contravention of licensing requirements
  • ASIC power to make interim directions without a hearing
  • Civil penalties for licensee non-compliance with directions.
 The Government agrees-in-principle with each of these recommendations but will defer implementation of the recommendations pending the outcomes and findings of the Royal Commission.

The full Government response to the Report can be found here.

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For further information, please contact:

 

Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com

 

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