The Government has released the ASIC Enforcement Review Taskforce report and the Government’s response. The Report makes recommendations to improve ASIC’s ability to gather information, strengthen ASIC’s licensing and banning powers, increase penalties for corporate misconduct generally and encourage greater use of industry codes of conduct.
The Government agrees, or agrees-in-principle, to all recommendations of the Taskforce.
In its report, the Taskforce made 50 recommendations in relation to:
- Self-reporting of contraventions by financial services and credit licensees;
- Harmonisation and Enhancement of Search Warrant Powers;
- ASIC’s access to telecommunications intercept material;
- Industry codes in the financial sector;
- Strengthening ASIC’s licencing powers;
- ASIC’s power to ban individuals in the financial sector;
- Strengthening penalties for corporate and financial sector misconduct; and
- ASIC’s directions powers.
Increase in penalties
The Government has announced its intention to strengthen criminal and civil penalties for corporate misconduct.
The Government will increase and harmonise penalties for the most serious criminal offences under the Corporations Act to a maximum of:
- For individuals: (i) 10 years’ imprisonment; and/or (ii) the larger of $945,000 OR three times the benefits;
- For corporations: (i) the larger of $9.45 million OR (ii) three times benefits OR 10% of annual turnover.
The Government will expand the range of contraventions subject to civil penalties, and also increase the maximum civil penalty amounts that can be imposed by courts, to the 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% of the annual turnover (for corporations).
ASIC will be able to seek additional remedies to strip wrongdoers of profits illegally obtained, or losses avoided from contraventions resulting in civil penalty proceedings.
ASIC’s powers will also be significantly increased through:
- expanding its ability to ban individuals from performing any role in a financial services company where they are found to be unfit, improper, or incompetent;
- strengthening its power to refuse, revoke or cancel financial services and credit licences where the licensee is not fit or proper; and
- increasing ASIC’s tools to investigate and prosecute serious offences by harmonising their search warrant powers to provide them with greater flexibility to use seized materials, and granting ASIC access to telecommunications intercept material.
ASIC’s licensing powers
ASIC will be able to refuse a licence application if it is not satisfied that the controllers of the applicant are fit and proper and to take licensing action if it is no longer satisfied of this, including on a change of control.
ASIC directions power
The Government agrees in principle to the recommendation that ASIC should have the power to direct financial services or credit licensees in the conduct of their business where necessary to address or prevent risk to consumers. The Government notes that the Royal Commission will consider the adequacy of existing laws and policies. The Government will consider recommendations under Chapter 8 of the Taskforce report in conjunction with any findings arising out of the Royal Commission.
The directions power should be triggered where ASIC has reason to suspect that a licensee has, is or will contravene AFS or credit licensing requirements (including relevant laws).
ASIC should be able to make an interim direction without a hearing, for a period of time, if the direction is to cease a type of activity and a delay in making a direction would be prejudicial to the public interest.
The Government has agreed in principle to retaining the ‘significance test’ in section 912D of the Corporations Act 2001 but clarifying it to ensure that the significance of breaches is determined objectively.
In addition the Government has agreed in principle to introducing:
- a self-reporting regime for credit licensees equivalent to the regime for AFS licensees under section 912D of the Corporations Act 2001;
- an obligation for licensees to report misconduct by an employee or representative;
- a requirement that significant breaches (and suspected breach investigations that are ongoing) must be reported within 30 days;
- a requirement that content of breach reports should be prescribed by ASIC and be lodged electronically;
- increased criminal penalties for failure to report as and when required;
- a civil penalty in addition to the criminal offence for failure to report as and when required;
- annual publication of breach report data for licensees by ASIC.
The Government notes that the Royal Commission into misconduct in the banking, superannuation and financial services industry (Royal Commission) will consider internal systems of financial entities to identify misconduct. The Government will defer implementation of these recommendations to enable it to take account any findings arising out of the Royal Commission.