Overview

The Australian Securities and Investments Commission (ASIC) has released its latest enforcement and regulatory activity Report (REP 767) highlighting some of ASIC’s key enforcement actions between April to June 2023, together with a 'summary' of outcomes for the first six months of 2023.  ASIC has also released an updated (indicative) regulatory timetable.  Our key takeaways are below.

Market misconduct is a key focus 

Announcing the release of the report, ASIC underlined that addressing market misconduct remains a key priority and cautioned market participants that they should expect further ‘targeted enforcement action’ in coming months.  ASIC Deputy Chair Sarah Court said:

‘Promoting market integrity and addressing misconduct that places consumers and investors at risk are enduring priorities for ASIC.   Our commitment to insider trading and market manipulation deterrence continues and we expect further action for related misconduct in the coming months.’

ASIC’s statement adds that the regulator has stepped up its data/analytics/surveillance capability noting:

‘We have now embedded core functionality from Project Artemis into our surveillance processes to more efficiently identify suspicious trading by connected parties proximate to market sensitive announcements. This facilitates more efficient investigation of insider trading matters’.

More broadly, ASIC Deputy Chair Sarah Court emphasised that enforcing existing laws, across ASIC’s 2023 enforcement priorities, remains a key focus for the regulator.  

Enforcement outcomes H1 2023 

Court based enforcement outcomes 

In terms of court based outcomes for H1 2023, ASIC states that:

• the courts imposed a total of $109.1m in civil penalties
• 7 civil penalty cases commenced
• 18 individuals were charged by the Commonwealth Department of Public Prosecutions in criminal prosecutions.  Fourteen individuals received custodial sentences (six of these individuals non-custodial sentences, three were imprisoned)
• 124 individuals were charged with strict liability offences in summary prosecutions 

Financial Services

• In H1 2023, ASIC recorded 74 financial services-related enforcement results, 58% of which were administrative outcomes.  Overall, the highest number of enforcement outcomes were recorded in the areas of: investment management misconduct (25) and financial advice misconduct (20)
• Looking more closely: 
  • There were 42 administrative enforcement outcomes recorded across a wide range of areas including: investment management misconduct (18), financial advice misconduct (14); credit misconduct (7); superannuation misconduct (2); and 'other financial services misconduct' (1)
  • There were 16 civil enforcement outcomes recorded, including: credit misconduct (8); financial advice misconduct (14); insurance misconduct (1); and 'other financial services misconduct (1). 
  • There were 10 criminal enforcement outcomes recorded in the areas of: financial advice misconduct (6); credit misconduct (1); insurance misconduct (1); investment management misconduct (1); and superannuation misconduct (1).  
• As at 6 July 2023, ASIC reports that 78 matters (31 criminal and 47 civil matters) across a range of areas were still before the courts.  The majority concern credit misconduct (22), and investment management misconduct (18).   

Markets

In H1 2023, ASIC recorded 16 market-related enforcement results: 

• 3 criminal enforcement outcomes: 2 in the area of market manipulation and one in the area of insider trading.  
• 5 civil enforcement outcomes: 4 in the area of continuous disclosure and 1 in the area of 'other market manipulation'
• 8 administrative outcomes: 3 in the area of continuous disclosure, 3 in the area of market manipulation and 2 in the area of ‘other market misconduct’.  
• As at 6 July 2023, 11 criminal and 10 civil actions across a range of areas were still before the courts.    

Corporate Governance 

• In H1 2023, ASIC recorded 457 corporate governance related enforcement results of which the vast majority -  444 – were administrative outcomes concerning auditor misconduct.
• As at 6 July 2023, a further 28 criminal and five civil actions were still before the courts.  Looking more closely – 21 of 28 criminal actions and four of five civil actions concern directors’ duties and governance failures.  

Small Business 

• In H1 2023, ASIC recorded 151 small business–related results: 137 criminal actions and 14 administrative actions.
• 93 criminal prosecutions were still before the courts (there are no civil actions recorded).
• As at 1 Jan, ASIC had 149 small business–related criminal matters still before the courts

Some key outcomes highlighted by ASIC for Q2 2023 

The report also highlights a number of key outcomes for the 1 April and 30 June 2023 period, again in line with the regulator’s previously communicated 2023 enforcement priorities.  Examples flagged in the report include:

• Deterring greenwashing: ASIC also highlights its actions to deter greenwashing, including the release of Report 763 ASIC’s recent greenwashing interventions (REP 763) which outlines the 35 actions taken by ASIC between 1 July 2022 and 31 March 2023.  For more on REP 763 see: Greenwashing: 35 greenwashing enforcement actions in nine months and counting
• Enforcement of design and distribution obligations (DDO): The report points to several examples of ASIC’s work in this area including (among others): the release of Report 762 Design and Distribution Obligations: Investment Products (REP 762) which highlights ASIC’s observations around investment product issuers are meeting their DDOs and flagging areas for improvement and ASIC’s subsequent call for investment product issuers to ‘lift their game’.  For more on REP 762 see: DDO compliance | ASIC's calls on investment product issuers to 'lift their game', warns that 'closer scrutiny is coming'.
• Insurance – delivery on pricing and insurance promises: In addition to citing the outcomes of several court enforcement actions, the report highlights the release of Report 765 When the price is not right: Making good on insurance pricing promises (REP 765) as an example of ASIC’s continued focus on these issues.  For more on REP 765 see: ASIC calls on general insurers to sharpen their focus on nonfinancial risk in light of ongoing 'systemic pricing failures'.
• Targeting market misconduct: ASIC gives several examples of its work to combat market misconduct including insider trading and market manipulation including taking court action against a ‘finfluencer’.  
• Scam activity: ASIC highlights the release of Report 761 Scam prevention, detection and response by the four major banks (REP 761) as an example of ASIC’s continued focus in this area.  For more on REP 761 see: Banks and 'corporate Australia' on notice: ASIC calls on banks (and encourages other organisations) to improve their approach to scams.
• Other focus areas:
  • Tackling credit misconduct
  • Addressing unfair contract terms (UCTs)
  • Deterring financial adviser misconduct 
  • Acting against breaches of directors’ duties
  • Addressing breaches by SMSF auditors
  • Taking action against unlicensed activities (eg unlicensed financial advice)

REP 767 also highlights a number of examples of ASIC’s work to ‘foster’ compliance for example the release of the voluntary ‘cyber pulse survey’ in June.  This exercise focused on gauging the strength of regulated entities' cyber capabilities/cyber resilience.

A 'proactive and strategic' approach

ASIC’s approach to enforcement was a key focus of ASIC Deputy Chair Sarah Court’s 7 August 2023 address to the General Counsel Summit.  The headline message from the Deputy Chair, and the title of the speech is that ASIC is ‘maintaining a strong focus on enforcing the law’, including through taking targeted court action.  

Explaining the rationale behind ASIC's overall enforcement approach, Ms Court said that ASIC is: 

• ‘proactive and strategic’ (as opposed to a reactive) in its choice of which matters it will take on.  Ms Court said that the regulator will 

‘generally select matters with a broad reach, which is likely to have a deterrent effect beyond the particular issue we are prosecuting. Because we cannot take action on all matters, those that we do take on must send a strong signal of deterrence to the sector more broadly’.

• not ‘conservative in the selection’ of cases it chooses to pursue.  Ms Court said that ASIC 

‘must test the scope of the laws that Parliament has enacted to protect market integrity, consumers and investors, to ensure those laws have a wide protective application.  Where the law is complex, new or open to interpretation, we are not doing our job if we do not fully explore its reach’.

• considers communication around its enforcement essential: Ms Court said that ASIC 

‘must be active in our public communications about these matters, so that people know what we are doing – and, just as importantly, what we are not doing – and why.  Communication is a critical tool for deterrence, because all the enforcement activity in the world will have no deterrent impact if nobody knows we are doing it.  Therefore, a big part of our strategic enforcement work is to make sure that we explain what we are doing and why we are doing it, and to send messages to the broader market that we have an active enforcement program’.

Ms Court cited ASIC’s recent court action against a CFD issuer in illustration of this approach.  Commenting that:

‘We are taking action against a firm that is the largest player in the CFD market, with a significant public presence. If we are successful in the proceedings, it will send a deterrent message to others in the sector about the importance of compliance with the design and distribution obligations. That, of course, will protect other investors from exposure to these high-risk derivatives’.

On a side note, commenting briefly on the role of general counsel, in dealing with regulators on ‘significant’ (high stakes) matters, Ms Court observed: 

‘An effective general counsel, in my experience, is able to go back and explain to the business the regulatory purpose of the action. They will be familiar with the practices and processes involved; they will know how the regulator works internally; they ‘know the drill’. They will interpret that for the business, and engage and persuade, where appropriate, to assist bring about a resolution that both parties can live with.

Sometimes, of course, they cannot achieve that, or they legitimately form the view that the matter should not resolve. Even in those circumstances, it is helpful to know that the issues have been fully explored.  While we might agree to disagree, we can then both move on with the litigation process, without expending further efforts on potential resolution.  This is to the benefit of both sides’.

Indicative regulatory developments timetable released 

ASIC has also released an (indicative) 'regulatory developments timetable' (at p21 of REP 767) setting out ASIC's planned timeframes for regulatory initiatives for H2 2023 across all sectors and an indication of ASIC’s priorities for 2024.  

Among other things, the timetable flags that, subject to the passage of the necessary legislation, ASIC plans to provide guidance on: 

• the implementation of the Financial Accountability Regime (FAR)
• reference checking and information sharing requirements for financial advisers and mortgage brokers (update Information Sheet 257)

[Sources: ASIC media release 02/08/2023; REP 767 ASIC enforcement and regulatory update: April to June 2023; ASIC Deputy Chair Sarah Court address to the General Counsel Summit published 08/08/2023]