The ASIC Enforcement Review Taskforce unloaded

By Belinda Thompson
Banking Corporate Governance Funds Superannuation Financial Services

In brief

Written by Partner Belinda Thompson and Associate Michela Agnoletti

The ASIC Enforcement Review Taskforce (the Taskforce) is the latest instalment in the Government's response to the ASIC Capability Review report released in April this year (see Unravelled: Tough Cop vs a Royal Commission) and to the Murray Report which proposed a suite of recommendations to improve Australia's financial system (see Unravelled: Bold sometimes radical – the final Murray report).

On 19 October 2016, the Minister for Revenue and Financial Services, Kelly O'Dwyer, announced the Taskforce members and its terms of reference.

The Taskforce's mandate is a clear one: does ASIC's enforcement toolkit enable it to do its job? Through a review of the regulatory tools available to ASIC, as well as enforcement powers in relation to industry Codes of Conduct, the Taskforce is set to determine 'whether there is a need to strengthen ASIC's enforcement toolkit and if so, what that might look like'.

Of course, the question of the adequacy of ASIC's enforcement toolkit is by no means a new one. The Murray Report, released in December 2014, paid heed to calls to provide ASIC with an enhanced enforcement toolkit by making several recommendations that were consistent with improving and expanding ASIC's enforcement powers. In response to the Murray Report, the ASIC Capability Review, announced in July 2015, sought to determine whether ASIC existing regulatory tools are sufficient to allow ASIC to deliver on its mandate, including in relation to enforcement. In April 2016, the Capability Review found that ASIC's enforcement toolkit is lacking and that ASIC needs bigger 'sticks' to do its job effectively.

The Taskforce – who are they?

So who, or what, is the 'Taskforce'? The Taskforce will be chaired by Treasury and led by a core Panel that will consist of representatives from ASIC, the Attorney-General's Department and the office of the Commonwealth Director of Public Prosecutions. Supporting the Taskforce will be an Expert Group (comprised of representatives from peak industry bodies, consumer groups and academia) and a Reference Group of various stakeholders.

Terms of reference – key observations

The Taskforce will be armed with nine terms of reference that allow for 'a thorough but targeted' evaluation of the adequacy of ASIC's enforcement toolkit to 'deter misconduct and foster consumer confidence in the financial system'.

The terms of reference come as no surprise and reflect the areas of ASIC's enforcement toolkit that have previously been flagged as requiring reform. Nevertheless, the terms of reference provide insight as to areas on which the Taskforce will focus its examination and which, therefore, may be the subject of recommendations for reform.

So, which of ASIC's enforcement tools will be checked to see if they need sharpening? We think themes are likely to emerge from this review:

  • Tougher penalties across the board – The adequacy of existing penalties for breaches of legislation administered by ASIC will be a clear focus. ASIC has been pushing for tougher penalties for some time – arguing that harsher penalties will lead to less breaches. In 2014, ASIC Chairman Greg Medcraft memorably asserted that Australia is a 'paradise' for white-collar criminals because of its 'soft' penalties for corporate offences. The Reference Group to the Taskforce is said to include international regulators from which the Panel may seek input – it seems almost a certainty that the Taskforce will look to ASIC's foreign counterparts on the issue of tougher penalties.
  • Criminalisation of poor conduct, including corporate culture – As previously reported, the corporate watchdog has been advocating strongly in recent times for an increase in its powers to regulate corporate culture, on the basis that bad corporate culture poses a threat to the integrity of the Australian financial system. This includes advocating for the introduction of criminal penalties into the laws that ASIC administers that target poor culture and related conduct. If the terms of reference and the composition of the Taskforce's Panel is anything to go by (there is a heavy representation of criminal agencies on the Panel – the Criminal Law Section of he Attorney-General's Department, and the Commonwealth Director of Public Prosecutions, for example), we consider that the criminalisation of poor conduct, and ASIC's power to nip such conduct in the bud is likely to come under close scrutiny in this review.
  • Potential broadening of information gathering powers – With the Government's investment of $61.1 million into ASIC's data analytics, surveillance capabilities and data management systems to commence in 2017, it's not surprising that the dequacy of ASIC's powers to collect data will, in turn, be reviewed. According to the terms of reference, the Taskforce will examine whether ASIC should be extended search warrant powers (including powers relating to telephone interception warrants), perhaps similar to those already held by the AFP. Will we be seeing an even 'tougher cop' on the block?
  • Review of breach notification framework – Breach reporting, including the triggers and the timing for reporting to ASIC a breach in the law that ASIC administers, has been on ASIC's agenda for some time. This is because, for example, ASIC considers that breach reports are an important source of intelligence that enable ASIC to do its job. Part of the Government's funding package for ASIC to commence next year is directed towards increased surveillance and enforcement in relation to breach reporting. We expect this to be a focus of the Taskforce in its review, with a term of reference directly on this issue.
  • Alternative enforcement mechanisms – The breadth of ASIC's mandate is also likely to come under review by the Taskforce, with terms of reference that focus on whether ASIC should be armed with alternative enforcement mechanisms (for example, extending the use of infringement notices and the use of disciplinary review panels). The narrowing of the scope of ASIC's enforcement powers would enable ASIC to focus on areas of the financial services industry that it considers high risk, so there is a prospect that we might see recommendations for a leaner, meaner ASIC when the Taskforce reports back to the Government.

While we have identified some aspects of ASIC's toolkit that will come under the Taskforce's inquiry, it is important to recognise that the terms of reference are incredibly broad and enable the Taskforce to delve into 'any other matters… which appear necessary to address any deficiencies in ASIC's regulatory toolkit'. As such, the precise scope of the Taskforce's examination into the adequacy of ASIC's enforcement toolkit remains to be seen.

However, it is unclear when we will know whether and – perhaps the bigger question – what new tools are to be recommended to be added to ASIC's enforcement belt. The Taskforce is set to report to the Government in 2017 (with no more precise date set for that reporting). There is a real prospect that the inquiry may take some time.