Financial Services Regulation

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Focus: ASIC's change of tone in action

15 March 2019

In brief: ASIC's 'why not litigate?' approach to enforcement activities and its change in tone confirm the new era of regulatory engagement has arrived. Partner Kim Reid (view CV), Senior Associate Natalie Oliver and Lawyer Micaela Bassford report.

Time to read

3 min read

ASIC's new hard-line tone

A recently published media release from ASIC reinforces the regulator's marked shift to a hard-line tone in connection with its investigation and enforcement activity. 

The release announced an agreement between ASIC and two respondents to Federal Court proceedings in which ASIC had sought orders compelling the production of documents that were the subject of claims for legal professional privilege. Heralding a stark change in tone, ASIC's media release described the dispute over the documents as a 'battle', and the agreement as a 'surrender' by the respondents.

The Federal Court proceedings were commenced by ASIC in December 2018 against a financial services institution and its external lawyers, seeking an order for the production of interview notes by the external law firm. The notes were caught by the terms of a compulsory notice to produce, which had been issued by ASIC under section 33 of the Australian Securities and Investments Commission Act 2001 in 2018, but were not produced to ASIC on the basis they were subject to a claim for legal professional privilege. The s33 notice had been issued by ASIC in connection with an investigation concerning certain 'fees for no service' allegations and related allegations concerning statements which had been made to ASIC.

During the course of the Federal Court proceedings, the financial institution dropped its claim for privilege over the documents, prompting the agreement between the parties to dismiss the proceedings with costs in favour of ASIC. The media release quotes ASIC Deputy Chair, Daniel Crennan QC, who declared:

ASIC is determined to take enforcement action against the major banks and financial service providers, and to use all legal powers necessary to investigate the significant issue of fees for no service…

These matters suggest ASIC is implementing its 'why not litigate' approach to enforcement, adopted in October 2018. Under that policy, ASIC put in place a series of measures to ensure a strong focus on court-based outcomes. Coupled with this, ASIC's change in tone reflects its desire to respond to, and embrace, recommendations from the report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Commissioner Hayne noted in that report that the 'starting point for consideration is, and must always be, that the law is to be obeyed and enforced… And, adequate deterrence of misconduct depends upon visible denunciation and punishment.'

While the relevant Federal Court proceedings here were not commenced to make any final determination on whether there had been misconduct, the way in which the privilege claims have been resolved, and the tone of the media release, suggest ASIC is continuing to take steps to focus on a change in enforcement culture.

What does this mean for you?

ASIC's media release acknowledges some documents subject to notices issued under its compulsory information gathering powers may attract a valid claim for legal professional privilege. There is no change to the law in that area, and valid claims for privilege may continue to be made.

However, ASIC has indicated it expects entities to provide appropriate details to substantiate the basis of any privilege claim, and has foreshadowed court action going forward where it considers a document has been withheld from production on the basis of an inappropriate claim for privilege.

ASIC has also signalled it expects entities who receive a statutory notice to produce documents within the specified timeframe. This means recipients of notices need to move quickly to ensure all non-privileged documents caught by a notice are produced in a timely manner, and that proper consideration is given to claims for legal professional privilege.

In turn, recipients of notices need to understand the importance of ASIC's change of approach when deciding whether or not to waive claims for legal professional privilege. With ASIC determined to take a more robust approach to enforcement, co-operation with regulators by voluntarily waiving privilege also creates risk. Any decision to waive privileged material should be made having regard to the increased likelihood that enforcement litigation will follow an ASIC investigation.


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