Allens

Litigation & Dispute Resolution

Focus: Commercial Litigation – No-action is not inaction

23 July 2008

In brief: The Australian Securities & Investments Commission has just updated its regulatory guide on 'no-action letters'. This is the first major update of the policy since its release in 1996 and although it does not signal a significant shift in policy, it clarifies ASIC's approach in determining whether to issue a no-action letter and it also addresses the issue of 'class' no-action letters. Partner Matthew McLennan (view CV) and Senior Associate Stephanie Wee look at Regulatory Guide 108 and what it means.

How does it affect you?

  • If your business is regulated by ASIC and you have identified an actual or potential breach of the law, you may need to consider applying to ASIC for a no-action letter. Regulatory Guide 108 (RG 108) sets out the factors ASIC will consider when deciding whether to grant such an application. As there is no guarantee that ASIC will issue a no-action letter, you need to weigh the benefits of a successful application against the risks associated with disclosure. When you choose disclosure, or if disclosure to ASIC is mandatory, you need to take RG 108 into account in presenting your position.
  • While they need to be approached thoughtfully, no-action letters can be an effective way to clear the air after a problem has arisen and should form part of a strategic response to many regulatory problems.

What is a no-action letter?

A no-action letter is an indication of ASIC's intent whether or not it will take regulatory action over a particular state of affairs or conduct at the time the letter is given.

It is more important to note what a no-action letter is not.

  • It is not a guarantee that ASIC will not take regulatory action in the future.
  • It will not restrict the rights of third parties to commence civil action in relation to the same conduct or for an agency such as the Department of Public Prosecutions to initiate a prosecution.
  • It is not legal advice as to whether particular conduct is legal.
  • It is not to be relied upon as a precedent or a de facto 'ruling' on the conduct in question.

In addition, no-action letters may be withdrawn, revised or even made public by ASIC. Information provided by applicants in support of a no-action application is not ordinarily regarded as confidential by ASIC.

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When will ASIC issue a no-action letter?

Although the predecessor to RG 108, Policy Statement 108, addressed the principles underlying ASIC's approach in determining whether to issue a no-action letter, RG 108 provides greater clarity as to the principles underlying ASIC's decision and the factors that would make it more likely for a no-action letter to be issued.

Those factors include that:

  • ASIC's views on the issue are not settled or the circumstances leading to the application arise infrequently;
  • the facts and circumstances giving rise to the application were, and are, not the subject of an investigation;
  • there is no other appropriate relief available;
  • there is room for doubt that the conduct might be lawful;
  • the contravention was transitional, due to inadvertence and does not suggest a serious flaw in compliance controls;
  • steps have been taken to alleviate any 'mischief' resulting from the action and in bringing the issue to ASIC's attention;
  • the corporation's compliance history is 'satisfactory';
  • the adverse effects on third parties are minimal and does not reduce investor protection, credibility or efficiency of the financial system; and
  • the applicant acknowledges that ASIC may make a public announcement on the no-action letter or may disclose the information provided to ASIC in the application process.

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ASX and AUSTRAC

The principles underlying the issue of a no-action letter by ASIC and the factors that it will take into consideration in determining whether to issue one are similar to those set out in recent guides issued by other regulators such as the ASX and AUSTRAC.

AUSTRAC has issued a Guidance Note 08/01 entitled No-action letters to provide information as to how AUSTRAC may administer the Anti-money Laundering/Counter-terrorism Financing Act in situations where a reporting entity has breached, or anticipates a future breach of, that Act.

The ASX's Disciplinary Processes and Appeals Rules Procedures was updated in March 2008 to provide for breach notices in respect of contraventions of the ASX market and listing rules. A breach notice will propose a fine of $2,000 and, if not contested, will mark the end of the matter. Although the imposition of a fine makes a breach notice quite different from a no-action letter, the principles and factors that ASX will have regard to in issuing one are very similar to those set out in RG 108.

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The 'class' no-action position

The most significant update in RG 108 relates to the 'class no-action position'. RG 108 expressly states that there may be circumstances in which ASIC may wish to articulate its no-action position, in the form of a regulatory guide, in relation to circumstances or conduct that apply to a class of people or a class of conduct.

The underlying principles of ASIC issuing a regulatory guide and the factors that it will take into consideration in determining whether or not to issue a class no-action position largely mirrors the principles and factors outlined in respect of individual no-action letters. The main difference is that the regulatory guide will apply to a class of people or a class of conduct and that ASIC may determine a class no-action position on its own initiative or in response to a request from an industry of professional association.

The guide can be downloaded from the ASIC website.

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