The planned changes were announced in the wake of a spate of failed ASIC prosecutions, including most notably against Fortescue (currently on appeal) and One.Tel (subject to appeal). The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, explained 'these changes will ensure that ASIC is properly equipped to investigate and prosecute serious corporate misconduct which has the potential to cause significant harm to the economy and investors.'

At present, the maximum penalties for individuals found guilty of market misconduct is $22,000 (or $220,000 for insider trading) and/or five years' imprisonment, whilst corporations can be penalised up to $1 million. If the planned changes proceed, individuals could soon face civil penalties of $500,000, or three times the profit made or loss avoided (whichever is the greater) and a criminal penalty of maximum 10 years' imprisonment. Companies could be liable for a civil penalty of $5 million or three times the profit made or loss avoided, or 10 per cent of the corporation's annual turnover (whichever is the greater). The penalties will likely apply to all forms of market misconduct, including insider trading, market manipulation, false trading, market rigging and making false and misleading statements.

The proposed changes are also set to bolster ASIC's investigation capabilities. ASIC will no longer be required to issue a notice to produce prior to a search warrant being enforced. Further, market and insider trading offences will be listed as serious offences under the Telecommunications (Interception and Access) Act 1979 (Cth). Through this amendment, ASIC will have the ability to work with the AFP to obtain intercepted telephone material. Presently, ASIC must rely on largely circumstantial evidence in its prosecutions. Having access to the content of phone calls will inevitably assist the regulator in gathering evidence against suspected offenders.

The increased investigation powers are not however unfettered, as the telecommunications interception material must be obtained under a court-issued warrant.

Accordingly, a judge must still be satisfied of procedural requirements and presented with enough evidence in order for the warrant to be justified. This planned increase to ASIC's investigative capability brings the regulator's powers further in line with the Australian Consumer and Competition Commission, which already has such powers.

Despite the planned changes, the market misconduct provisions contained in Part 7.10 of the Corporations Act 2001 (Cth) remain complex and vague. Without addressing the concerns about the drafting of these provisions, it is likely that ASIC will still face significant obstacles in achieving successful prosecutions.

An exposure draft on the proposed changes is expected to be released later this year.

© DLA Phillips Fox

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