ASIC has released Report 660 ASIC Enforcement Update July to December 2019 (Enforcement Update), providing a useful snapshot of the regulator's increased litigation and enforcement activities. This follows the release of ASIC's Corporate Plan 2019-23, where ASIC vowed that it would increase its enforcement activities and strive to better prevent consumer harm.
Although the update retrospectively reviews the period until 31 December 2019, in the face of COVID-19 ASIC has recalibrated its regulatory priorities to focus on challenges created by the pandemic and other highly significant matters. It is therefore likely that we will see a slight reduction in enforcement activities for the first half of 2020. More information on the changes to ASIC's priorities can be found here.
ASIC's enforcement strategy and priorities
Corrs has previously discussed ASIC's Corporate Plan 2019-23 (the article can be found here). Since releasing the article, in the period until December 2019 ASIC has further developed its enforcement strategy for 2019-20 (Focus 2019-20).
What stands out from Focus 2019-20 is the increased toolkit and powers that ASIC currently has at its disposal to address and correct market misconduct. ASIC's broad enforcement strategy involves the following:
- Close and continuous monitoring program (CCM): under the CCM program, ASIC conducts onsite supervision of targeted regulated entities with a view to identifying deficiencies early. Although this program is not possible during COVID-19, ASIC has indicated that it will now undertake monitoring of firms remotely.
- Corporate governance taskforce: the taskforce is responsible for reviewing corporate governance practices, with a key objective being to understand and strengthen director and officer oversight in large, listed companies.
- Expanded oversight of financial markets: ASIC has expanded its oversight of governance, internal systems and controls relating to market infrastructure providers and intermediaries in wholesale over-the-counter markets.
- Enhanced enforcement discipline: ASIC's 'why not litigate?' approach to enforcement will continue to target cases of high deterrence value involving egregious harm or misconduct.
- Office of Enforcement: the Office, which was established in 2019, is responsible for ensuring ASIC maintains its well-publicised 'why not litigate?' stance and coordinating ASIC's enforcement strategy.
- Expanded enforcement toolkit: new laws have boosted ASIC's powers by increasing maximum prison terms for most serious offences and higher civil penalties for individuals and companies.
- Product intervention power and design and distribution obligations: ASIC's new product intervention powers allow ASIC to intervene when a financial or credit product have, or are likely to, result in a significant consumer detriment. Additionally, the 'design and distribution obligations' (set to commence in April 2021) are intended to require issuers and distributors to design, market and distribute financial and credit products that meet consumer needs. The Federal Court has recently affirmed ASIC's role in this space – see our earlier article here.
The regulator has expressed that it will seek to cement positive changes in culture and conduct going forward through the use of the above strengthened supervisory and enforcement strategies.
Summary of enforcement results
In the wake of the Financial Services Royal Commission in 2019, ASIC was criticised for failing to prosecute and monitor corporate misconduct. It is clear from the Enforcement Update that ASIC has been seeking to correct this perception and has taken advantage of enhanced funding, increased regulatory tools and stronger civil and criminal penalties.
In summary, for the period 1 July to 31 December 2019:
- 297 criminal charges were laid in summary prosecutions for strict liability offences and 154 individuals charged in summary prosecutions for strict liability offences;
- $12.9 million in civil penalties were imposed by the courts;
- 48 individuals were removed or restricted from providing financial services or credit;
- $22.2 million in compensation and remediation was paid to consumers and investors; and
- 60 investigations were commenced and 40 investigations were completed.
A highlight of ASIC's Corporate Plan 2019-23 was that ASIC would prioritise the recommendations and referrals from the Financial Services Royal Commission, monitor superannuation and address harms caused through insurance.
The Enforcement Update reflects these key priorities and conveys that ASIC has seen an increase in financial services-related results, summarised in the table below (in addition to a number of ongoing investigations and court proceedings):
|Misconduct type||Criminal case||Civil case||Administrative||Court enforceable undertaking||Remediation outcome||Total|
|Dishonest conduct, misleading statements||3||4||4||0||0||11|
|Misappropriation, theft, fraud||2||2||1||0||0||5|
|Other financial services misconduct||1||1||24||0||3||29|
An interesting case study in the Enforcement Update related to Westpac being ordered to pay $9.15 million penalty for 22 contraventions of the Corporations Act owing to poor financial advice from a failure to act in the best interests' of clients. A key takeaway is that Australian financial services licensees are directly liable for breaches committed by their financial advisers, and the penalties can be severe.
The Enforcement Update has demonstrated that ASIC is willing and prepared to take action to protect markets and vulnerable individuals by pursuing financial services participants that breach laws and regulations. Although ASIC has indicated that it will shift its focus away from enforcement and investigation activities towards issues of immediate concern during COVID-19, financial services entities should not take this as an opportunity to relax their compliance with financial services laws.
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