The Australian Securities and Investments Commission (ASIC) has released its biannual overview of enforcement outcomes, priorities and cases for the period 1 July 2018 to 31 December 2018. The report outlines the enforcement results achieved by ASIC during the period, highlights some important cases and decisions during this period and provides a high-level overview of some of ASIC's enforcement priorities.
Statistics should not be the sole measure of ASIC's success
In his foreword to the report, ASIC Deputy Chair Daniel Crennan said that as previously the report focuses on immediate enforcement statistics, themes and case studies but that ASIC's 'success as a regulator cannot and should not be measured solely on the outcomes of criminal and civil actions'. Rather, Mr Crennan said that ASIC wants to achieve 'a substantial improvement in culture and conduct — the willingness to act efficiently, honestly and fairly'.
Mr Crennan also noted the context in which the report is being released, and recent changes that will impact ASIC's regulatory approach going forward. These include: ASIC's focus on responding to the Hayne Commission's recommendations, the adoption of ASIC's new 'why not litigate?' approach to enforcement, the availability of new penalties under the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 and the announcement of additional funding to strengthen and expand ASIC’s remit, including our ability to address misconduct in the financial services sector'.
'Looking forward, our message to corporate Australia is that ASIC is focused on enforcement. As the Royal Commission found, this is what Australians expect of their regulator and this is what ASIC will deliver' Mr Crennan said.
Enforcement outcomes overall (July to December 2018)
Enforcement outcomes highlighted in the report include the following.
- Prosecutions: 9 individuals were charged in criminal proceedings and 76 criminal charges were laid. In 6 cases custodial sentences were given.
- Civil Penalties: $12.7 million in civil penalties was imposed by the courts.
- Infringement notices, compensation and court enforceable undertakings: There were 12 infringement notices issues and $500 thousand in infringement penalties paid. $3 million was paid in compensation and remediation for investors and consumers and $15.6m in community benefit fund payments. ASIC entered into 9 enforceable undertakings.
- Investigations: ASIC commenced 75 investigations and completed 57.
Overall enforcement priorities
Consistent with the priorities outlined in ASIC’s Corporate Plan 2018–22: Focus 2018–19, ASIC plans to focus on the following areas.
- potential harms from technology driven by the growing digital environment and structural changes in financial services and markets
- poor culture and professionalism in financial services and credit, particularly in the provision of consumer credit and financial advice
- culture, governance and incentives that can harm markets
- practices that target financially vulnerable consumers
- misalignment of retail product design and distribution with consumer needs.
Corporate Governance outcomes and enforcement priorities
Enforcement outcomes: In the six months between 1 July 2018 and 31 December 2018, 30 corporate governance-related matters were resolved. The majority of these (18) were civil actions, 17 of which concerned 'other corporate governance misconduct'. In addition, nine administrative actions (six concerning auditors and 3 concerning directors); 2 criminal actions against directors; one enforceable undertaking; and zero negotiated outcomes were resolved.
Matters still ongoing as at 1 January 2019: ASIC had 14 criminal and 17 civil corporate governance-related matters underway (including 10 criminal and 11 civil actions against directors) that had not achieved a final result (as at 1 January 2019). This is attributed in the report to the fact that the court/tribunal in each case was yet to reach a final decision.
Enforcement focus for the next six months: In 2019, ASIC will continue its focus on gatekeeper conduct to ensure people are meeting the standards required by law. ‘Gatekeepers’ can include company directors and officers, auditors, insolvency practitioners and business advisers. In particular, ASIC states that it will focus on:
- companies with poor corporate governance
- undisclosed associations and substantial holdings in shares in public companies (including beneficial ownership tracing and corporate fraud)
- related-party transactions involving public companies
- poor financial reporting by listed companies and other public interest entities
- the quality of audits of listed companies and other public interest entities
- nsolvency practitioners and others who facilitate illegal phoenix activity and improper transactions in the face of insolvency
- debenture issuers and other companies exposed to risk because of a declining property market
- company directors and officers who fail to stop their companies making illegal payments to officials of overseas governments.
Financial Services Outcomes
Enforcement outcomes: In the six months between 1 July 2018 and 31 December 2018, ASIC resolved 56 financial services-related outcomes. The majority of these were administrative actions (32 actions) most of which concerned 'Other financial services misconduct' (12 actions); followed by misconduct related to the provision of credit (11 actions); dishonest conduct, misleading statements (7 actions); misappropriation, theft and fraud (1); and licensed conduct (1). In addition there were 9 civil actions, 6 criminal actions, 6 court enforceable undertakings and 3 negotiated outcomes.
Matters still ongoing as at 1 January 2019: As at 1 January 2019, ASIC had 15 criminal and 66 civil financial services-related matters underway that had not achieved a final result. These included: 15 criminal actions (including 7 actions concerning misappropriate, theft and fraud and 5 actions concerning dishonest conduct, misleading statements) and 66 civil actions (including 22 actions concerning dishonest conduct, misleading statements and 30 actions concerning 'other financial services misconduct').
Enforcement focus for the next six months: ASIC identifies three areas of focus for the next six months:
- misconduct involving AFS licensees, which ASIC notes is 'an area of particular interest to the Royal Commission'. ASIC states that 'where appropriate, ASIC will refer briefs of evidence of criminal breaches to the CDPP, or commence civil penalties or other civil action in the courts'
- responsible lending breaches
- the sale of inappropriate products to consumers
Market Integrity
Enforcement outcomes: In the six months between 1 July 2018 and 31 December 2018, ASIC resolved 10 market integrity-related outcomes. Half of these (5) were administrative actions, the majority of which concerned 'other market misconduct' (3 actions).
Matters still ongoing as at 1 January 2019: ASIC had nine criminal and 18 civil market integrity-related matters underway that had not achieved a final result as at 1 January 2019.
Enforcement focus for the next six months: ASIC states that conduct risk and the integrity of financial benchmarks remain a high priority in 2019. In particular, ASIC plans to focus on:
- poor conduct in fixed income, commodities and currency (FICC) markets, including retail OTC markets
- misconduct in relation to initial coin offerings and cryptocurrency markets
- serious and organised market misconduct with a focus on cross-border transactions
- technology-enabled offending, including cyber related market misconduct.
Small business
Enforcement outcomes: In the six months between 1 July 2018 and 31 December 2018, ASIC resolved 228 small business-related outcomes. The majority were criminal actions (185 actions). Seventeen of these concerned efficient registration and licensing and the remaining 168 concerned 'action against persons or companies').
Matters still ongoing as at 1 January 2019: As at 1 January 2019, ASIC had 151 small business related criminal matters underway (143 of these are criminal actions) that had not achieved a final result.
Enforcement focus for the next six months: In 2019, ASIC’s small business focus will be on the following three issues.
- unfair terms in small-business contracts
- credit lenders who do not lodge annual compliance certificates in accordance with the National Consumer Credit Protection Act 2009
- illegal phoenix activity – addressing this activity and minimising its effects on companies suffering financial distress
ASIC states that it is also 'supporting compliance programs that inform credit providers of their obligations to lodge documents'.
