INSIGHT

ASIC's sanctions and powers to be strengthened

By Rachel Nicolson
Banking Financial Services Royal Commission Insurance Litigation Risk & Compliance Superannuation Financial Services

In brief

The Federal Government has announced that it proposes to strengthen ASIC's powers, and to increase the severity of penalties (civil and criminal) that can be imposed on individuals and corporations, in line with the ASIC Enforcement Review Taskforce's recommendations. Partner Rachel Nicolson and Senior Overseas Practitioner Chris Kerrigan report.

How does it affect you?

  • The Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce made 50 recommendations for improving ASIC's enforcement regime. These include increasing penalties and sanctions, strengthening ASIC's powers, and making changes to the breach reporting regime and to industry codes in the financial sector.
  • The Government has stated that it agrees, or agrees in principle, with all 50 recommendations. It has expressed an intention to prioritise those recommendations that strengthen penalties, sanctions and ASIC's powers, with reforms relating to the other recommendations to follow, and in light of, the findings in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission).
  • On 20 April 2018, the Government announced its proposed changes to strengthen civil and criminal penalties for breach of provisions under the Corporations Act 2001 (Cth) (the Corporations Act). These new penalties will apply both to individuals and corporations, and will significantly increase the financial consequences of breach and, for individuals, the potential imprisonment time for criminal offences.
  • Under the Government's proposal, ASIC will also gain stronger warrant and interception powers, as well as greater powers to ban individuals from operating in the financial sector. Too, there will be strengthening of ASIC's power to refuse, revoke or cancel financial services and credit licences.

Background

In December 2017, the ASIC Enforcement Review Taskforce reported to the Government on its review of ASIC's enforcement regime. The Taskforce made 50 recommendations.

On 16 April 2018, the Government response to the Taskforce report stated that it agrees, or agrees in principle, to all of the Taskforce's recommendations. On 20 April 2018, the Treasurer and Minister for Revenue and Financial Services jointly announced the Government's proposal to strengthen ASIC's powers, and to increase the severity of penalties (civil and criminal) that can be imposed on individuals and corporations. The Government's proposals adopt the Taskforce's proposals in this regard.

The Government's proposed changes

Penalties for the most serious criminal offences under the Corporations Act will be harmonised and increased to a maximum of:

  • for individuals: 10 years' imprisonment; and/or the larger of $945,000 or three times the benefits of the wrongdoing; and
  • for corporations: the larger of $9.45 million or three times the benefits of the wrongdoing or 10 per cent of annual turnover.

The range of contraventions subject to civil penalties will be extended, and the maximum civil penalty amounts that can be imposed by courts increased, to a maximum of:

  • the greater of $1.05 million (for individuals, from $200,000) and $10.5 million (for corporations, from $1 million); or
  • three times the benefit gained or loss avoided; or
  • 10 per cent of the annual turnover (for corporations).

ASIC will also be able to seek additional remedies to strip wrongdoers of profits illegally obtained, or losses avoided from contraventions resulting in civil penalty proceedings.

There will also be:

  • expansion of ASIC's ability to ban individuals from performing any role in a financial services company where they are found to be unfit, improper or incompetent;
  • strengthening of its power to refuse, revoke or cancel financial services and credit licences where the licensee is not fit or proper; and
  • boosting of ASIC's tools to investigate and prosecute serious offences, by harmonising its search warrant powers to provide it with greater flexibility to use seized materials, and granting ASIC access to telecommunications intercept material.

The Government has agreed, or agreed in principle, to all 50 of the Taskforce recommendations and will prioritise the implementation of 30 of them. The remaining 20 recommendations, relating to self-reporting of breaches, industry codes and ASIC's directions powers, will be considered alongside the Royal Commission's final report.

What's next?

An exposure draft of enacting legislation has not yet been published; nor any indication given as to when the new provisions will come into effect. Yet, the Government's message is clear: there will be less tolerance of corporate crime and regulatory misconduct going forward. Although in announcing these measures the Government is responding to a long-running review into ASIC's enforcement regime, the timing may have been influenced by what has taken place to date in the Royal Commission hearings. With these new powers and sanctions tools will come greater pressure on ASIC to improve its enforcement track record. and to improve it quickly – particularly before the Royal Commission issues its findings.