Corporate Advisory and Governance Alert: ASIC releases enforcement policies - 2 Mar 2012

The Australian Securities and Investments Commission (ASIC) has recently released a number of policy documents clarifying how it approaches enforcement. The policies:

  • outline how ASIC undertakes investigations and enforcement activities, and why it deals with unlawful conduct in different ways;
  • give guidance on when enforceable undertakings, rather than court action, are acceptable; and
  • confirm its stance on commenting publicly on investigations.

Here, partner Michael Hansel and senior associate Lea Fua summarise what company directors need to know about ASIC's approach to enforcement.

Key points

  • The policy documents released by ASIC outline its views on enforcement and the remedies available.
  • ASIC encourages companies to cooperate early, including notifying it of any potential breaches early.
  • Companies need to carefully consider any early cooperation measures they wish to take, and should seek legal advice on their rights and obligations under the law before taking any action.
  • ASIC has also indicated it will only comment publicly on an investigation where it is in the public interest, such as to maintain market integrity.

ASIC's approach to enforcement

While ASIC does not investigate every matter that comes to its attention, it generally considers four factors when deciding to take enforcement action:

  1. The extent of the harm or loss. This includes any potential impact on market integrity or the confidence of financial consumers and investors.
  2. Whether enforcement is cost effective. ASIC is more likely to pursue misconduct that is part of a growing trend, as this sends a clear message to the public.
  3. What evidence is available. This includes such factors as the time since the misconduct occurred, whether it was isolated or continuing, and whether the evidence is admissible in court.
  4. Whether there are any alternatives to formal investigation. ASIC is less likely to investigate a matter that is better dealt with under a private action or by another agency.

What enforcements and remedies are available to ASIC?

The enforcement actions available to ASIC include:

  1. prison terms, community service and financial penalties (generally for serious misconduct, in which there is dishonest or reckless conduct);
  2. disqualification from managing a corporation, suspension of licences and public warning notices;
  3. actions to preserve assets, correct disclosure and compensate affected parties; and
  4. negotiated alternatives, including enforceable undertakings.

ASIC's interaction with people in investigations and enforcement actions

ASIC has outlined a number of principles which it employs when dealing with potential defendants:

  1. ASIC will not advise a person that they are a potential defendant.
  2. A potential defendant can be compelled to answer questions. However, they are entitled to legal representation during this process.
  3. Before laying criminal charges, ASIC will generally give the potential defendant an opportunity to explain their version of events.

ASIC has obligations imposed by law related to the confidentiality, privacy and legal privilege of the information it receives.

Early cooperation with ASIC

ASIC has indicated that a cooperative approach to dealings may benefit a person of interest. For example, notifying ASIC of any potential unlawful misconduct early, and having a plan for rectifying this or voluntarily participating in interviews with ASIC officers, may be relevant when ASIC considers which remedy or combination of remedies should be pursued. It should be noted that the ultimate decision to lay charges rests with the Commonwealth Director of Public Persecutions, but this decision will be made in consultation with ASIC.

Companies who may have potentially breached the law administered by ASIC should seek legal advice before providing early notification or cooperation.

Enforceable undertakings

Of the enforcement measures available, ASIC may accept enforceable undertakings from a company as an alternative to court action. ASIC's main concern is whether an enforceable undertaking can achieve a more effective regulatory outcome than civil or other administrative action.

An enforceable undertaking can be initiated by a person after discussions with ASIC. It must be mutually agreed between ASIC and the relevant person, and critically, the parties do not have to initiate court proceedings before enforceable undertakings can be agreed on.

ASIC will not consider enforceable undertakings for trivial matters or cases of deliberate misconduct, fraud or conduct involving a high level of recklessness. ASIC will also make the terms of enforceable undertakings public.

Public comment on investigations

ASIC may comment on an investigation when to do so would be in the public interest. It will take into consideration whether making a statement would promote confidence in the integrity of the market, or facilitate the protection of consumers and investors in relation to the financial system. For example, there may be circumstances where making a statement could prevent widespread misconduct, or allay public concern about a matter that has a significant negative impact on the operation of the market.

However, if the investigation by ASIC has not concluded, or the matter has been referred to the Commonwealth Director of Public Prosecutions before a prosecution has commenced, ASIC will not provide any commentary.