“Why not litigate?”: A snapshot of ASIC’s Corporate Plan for 2019-2023 and the implications for business and consumers

By Thaw Thaw Htin

5 September 2019

What is it?

The Australian Securities and Investments Commission’s (ASIC) Corporate Plan for 2019-2023 sets out the regulator’s vision and mission statements, and how it will meet the strategic goals it has set itself over the next year and beyond. Importantly, it sets out ASIC’s enforcement plan and strategy, which focuses on increased and accelerated court-based outcomes and utilising tougher powers and penalties to achieve better deterrent outcomes.

ASIC’s priorities

1. High-deterrence enforcement action
2. Prioritising the recommendations and referrals from the Financial Services Royal Commission
3. Delivering as a conduct regulator for superannuation
4. Addressing harms in insurance
5. Improving governance and accountability
6. Protecting vulnerable consumers
7. Addressing poor financial advice outcomes

What is new?

In short, not much. This year’s Corporate Plan is largely an extension of, and update to, ASIC’s Corporate Plan for 2018-2022. However, there are some notable changes, which include:

• A new enforcement strategy, which focuses on increased and accelerated court-based outcomes overseen by a new Office of Enforcement and underpinned by the “Why not litigate?” enforcement approach. ASIC proposes to use new, tougher powers and penalties to achieve better outcomes.
• The expansion of ASIC’s Close and Continuous Monitoring (CCM) program.
• A new internal governance framework to support effective decision making.

Enhanced enforcement strategy and powers

Over the next four years, ASIC will target cases of high deterrence value and, in particular, those involving egregious harm or misconduct, particularly towards vulnerable consumers. Under the direction of its “why not litigate?” enforcement approach, ASIC will take a more proactive approach to its enforcement activities which is likely to see a continued increase in the number of proceedings commenced by ASIC in the Courts. Additional government funding announced in March 2019 will enable ASIC to bring more cases to court and outsource additional case specific work.

ASIC has also established the Office of Enforcement, which began operating on 1 July 2019 and was created to centralise decision making at the Commission and drive the “why not litigate” strategy. The Office of Enforcement is responsible for identifying, prioritising, and is accountable for, the most important enforcement matters across ASIC, as well as to monitor and report on the activities of its enforcement teams.

Recent legislative amendments have also significantly boosted ASIC’s ability to carry out its enforcement agenda. For example, amendments to the Corporations Act that took effect in March this year by legislation passed earlier this year ¹ increased the maximum prison terms that can be imposed on individuals for the most serious Corporations Act offences, with individuals now facing up to 15 years imprisonment.

Offences that carry the maximum 15 year prison term generally include an element of dishonesty or intentional wrongdoing. This includes contraventions of subsection 184(1), (2) or (3) of the Corporations Act, which criminalise reckless or dishonest breaches of certain directors’ and officers’ duties.

Higher civil penalties for individuals and companies (up to $525 million) were also introduced with this amendment. In addition, a new civil penalty for breaches of section 912A of the Corporations Act 2001 (Cth) was introduced bringing about a ‘cornerstone obligation to provide financial services efficiently, honestly and fairly’.

ASIC might come knocking …

One of the key means by which ASIC will seek to achieve its strategic priorities in 2019 and 2020 is by conducting enhanced and intensive supervision of targets, including via the expansion of the CCM program. ASIC has identified Australia’s five largest financial institutions and ASX 100 entities as ongoing targets for its CCM program.

Under the CCM program ASIC engages in proactive, onsite supervision of targeted regulated entities as a means of early intervention and harm minimisation. ASIC closely monitors and supervises the target, with a view to identifying deficiencies at an early stage and elevating them to the key decision makers.

As part of its intensified supervisory approach, ASIC will also analyse entities’ internal dispute resolution arrangements to better understand how consumer complaints are managed and to provide feedback on those systems.

Spending power

ASIC has received $404 million of additional funding over four years. Although the new funding will chiefly be used to advance recommendations relating to the Financial Services Royal Commission, it will also be employed to increase enforcement actions, expand the CCM program and undertake more intensive supervision of the financial services industry.

Surveillance and enforcement focus areas

ASIC is explicit in its intention to conduct more intensive surveillance and enforcement activities to deter poor behaviour and misconduct, as well as punish wrongdoers. Some of the areas that ASIC has identified it will pay particular attention to are:

• unfair treatment of consumers resulting from inappropriate sales practices, unfair contract terms, unfair investigation and handling of consumer claims and unfair dealings with consumers in financial hardship. This includes the unfair treatment of small businesses (e.g. in relation to unfair contract terms) for financial products and services.
• poor governance practices, including:
  • inadequate management of conflicts of interest (e.g. through misaligned remuneration structures)
  • a lack of gatekeeper independence (e.g. accountants, auditors and insolvency practitioners)
  • inadequate handling of complaints and remediation
  • inadequate controls to detect wrongdoing
  • inadequate action against wrongdoing
• ineffective or misleading disclosure practices such as the disclosure of fees, risks and performance of financial products, and compliance with the continuous disclosure obligation by listed entities.

Financial services

Unsurprisingly, a significant portion of the Corporate Plan is dedicated to addressing the recommendations made by the Financial Services Royal Commission and how ASIC proposes to implement them.

One of ASIC’s key messages in this year’s Corporate Plan is its intention to increase its surveillance of the financial services industry and its enforcement activities in that sector in an effort to ‘deter, punish and publicly denounce misconduct’. In particular, some of the areas that ASIC will focus on include:

• unfair treatment of consumers
• lack of professionalism that results in poor outcomes for consumers
• poor governance practices
• poor culture that leads to misconduct
• ineffective or misleading disclosure practices

Whistle-blower protections

In 2019 – 2020, ASIC will continue to implement reforms to the statutory whistleblower protection regime, including:

• revising internal and external guidance on handling of whistle-blowers to reflect reforms to statutory protections
• providing regulatory guidance on contents of a whistleblower policy for companies
• liaising with key regulators to refer and monitor whistleblower reports
• assessing whistleblower reports to identify potential cases of victimisation or breach of confidentiality allegations

It will also make proactive requests to the public for reports of misconduct in target areas. This could compel potential whistle-blowers to come forward.

For more information, please refer to THE CORPORATE WHISTLEBLOWER REGIME

Conclusion

ASIC’s recent shift to a more aggressive and proactive enforcement approach is evident from the fact that the number of enforcement matters it had in progress in June 2019 was 20% higher than at the same time the previous year. That trend is set to continue with ASIC’s increased funding and resources, and the introduction of the Office of Enforcement to drive the “why not litigate” approach.

1. Treasury Laws Amended (Strengthening Corporate and Financial Sector Penalties) Act 2019

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.