Australia: ASIC to be Granted Greater Power?

Last Updated: 3 February 2010
Article by Michael Hansel

Chris Bowen MP, the Minister for Financial Services, Superannuation and Corporate Law, has announced proposals to enhance the Australian Securities and Investments Commission's powers to pursue market misconduct. According to Minister Bowen, "these changes will ensure ASIC is properly equipped to investigate and prosecute serious corporate misconduct [that] has the potential to cause significant harm to the economy and investors".

Minister Bowen's latest announcement comes on the back of three high-profile, unsuccessful attempts by ASIC to penalise Fortescue Metals Group, One Tel executives and AWB's former managing director.

Minister Bowen reflected on these attempted prosecutions, saying that "just because ASIC loses a court case, it doesn't mean you don't listen to them when they say 'we are effectively being stymied in our prosecution of other matters'". Minister Bowen reinforced his confidence in ASIC, noting that he would be disappointed if a regulator only undertook cases it was certain to win, and that it is appropriate that they undertake difficult cases.

The proposals, to be more formally addressed in an exposure draft later this year, aim to increase penalties for market misconduct offences such as insider trading, market manipulation, false trading, market rigging and making false and misleading statements. In addition to an increase in penalties, they aim to expand ASIC's investigative powers, permitting ASIC to engage in telephone interception as part of an investigation where a court is satisfied that this is an appropriate measure.

The proposed changes are as follows:

  • Increase pecuniary penalties for individuals to $500,000 or three times the profit made or loss avoided (whichever is greater).
  • Increase the penalty for corporations to the greater of $5,000,000, three times the profit made or loss avoided or 10 percent of the corporation's annual turnover during the period the breach occurred.
  • Increase the maximum term of imprisonment for these offences from five to ten years.
  • Grant ASIC the ability to access telecommunications interception material collected by the Australian Federal Police under a court-issued warrant. ASIC's search warrant powers will also be improved to remove the need to issue a notice to produce before a warrant is disclosed.

The proposed reforms mean that those found guilty of insider trading now face fines of more than double the current penalty of $220,000. Those found guilty of market manipulations, market rigging, false trading or inducing a person to trade face fines 23 times more than the current $22,000 penalty.

As Minister Bowen recognises, the proposed changes are an attempt to help ASIC combat market misconduct issues and address ASIC's concerns that their current powers equate to 'fighting with one hand tied behind their back'. Minister Bowen avoided linking any previous cases to the need for review, focusing instead on the number of stock trades referred by ASX Limited to ASIC, as well as an unfortunate, "noticeable trend" toward share prices increasing during blackout periods.

Minister Bowen stated that these reforms enable ASIC's investigative powers to be brought into line with other regulators, such as the Australian Competition and Consumer Commission. In addition, Minister Bowen noted that the proposed change to ASIC's search warrant power will significantly reduce the potential for evidence to be destroyed before a warrant is executed. While ASIC has declined to comment, the Australian Institute of Company Directors has indicated that they support the "broad intent" to tackle market offence, although it wanted more detail on the plan to give ASIC phone-tapping powers.

Noting that white collar crime isn't victimless, Minister Bowen emphasised the importance of deterrence, indicating that while he hopes nobody is prosecuted, the real message to be taken from these proposals is one of deterring individuals or corporations that may potentially engage in insider trading or other market manipulations. Minister Bowen noted that the penalties are tough and the improvements to ASIC's investigatory powers are significant. However, he refused to apologise on the premise that it is only fair to investors, directors, executives and shareholders doing the right thing that ASIC and the government are tough on those involved in wrongdoing.

While the full details of the proposed changes will not be available until later this year, it is clear that Minister Bowen's aim in this latest suite of corporate reforms is to protect market integrity and improve the reputation of the Australian financial market. Arguably, the tougher penalties are a sign of things to come, and the reforms are designed to cut corporate wrongdoing off at the pass.

It is likely that further corporate reforms will be announced through the year.

© HopgoodGanim Lawyers

Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards

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