ASIC yesterday released a new policy document allowing the profession, for the first time, to have greater insight into ASIC’s internal approach to its investigation and enforcement role. ASIC simultaneously released its updated policy regarding public comment on these activities, and its approach to the use of enforceable undertakings.
The guidelines released by ASIC should come as no surprise to anyone who has had dealings with the regulator – they reflect our experience of the approach taken by ASIC in its investigations and enforcement activities. ASIC has recently confirmed that insider trading detection, investigation and prosecution continue to be a priority for ASIC and that it is also actively monitoring potential misconduct involving employees of firms advising on significant corporate transactions. ASIC Chairman Greg Medcraft said yesterday that the expected growth in superannuation (at twice the rate of the economy) and the resulting growth in the financial system will generate more complaints and breaches. In this context, ASIC’s confirmation of its regulatory approach is timely.
The three policy documents ASIC released are:
ASIC’s approach to enforcement (Information Sheet 151) explains the factors ASIC takes into account when selecting which matters it will formally investigate and deciding which of its various enforcement “tools” it will use. This document also sets out its policy for cooperation with ASIC.
Public comment (Information Sheet 152) updates a previous regulatory guide and discusses when ASIC may comment publicly on investigations and enforcement actions.
Enforceable undertakings (Regulatory Guide 100) is an updated version of ASIC’s guide to what an enforceable undertaking is and the factors ASIC will consider when deciding whether to accept an enforceable undertaking. It also describes what terms will not be acceptable to ASIC and provides examples of undertakings ASIC may accept.
ASIC’s approach to enforcement action
ASIC does not have the resources to undertake a formal investigation of every matter that comes to its attention. Factors relevant to ASIC’s decision whether to investigate a particular matter include:
the seriousness of the alleged misconduct, its impact on the market, and the consequences of the conduct on investors and others;
the costs and time required to achieve an appropriate remedy;
whether the conduct was isolated or continuing; and
whether another agency is better equipped to address the conduct.
Taking into account the seriousness of the misconduct, ASIC will choose between a wide range of enforcement tools:
At one end of the spectrum, ASIC will pursue substantial criminal remedies, including court-ordered prison terms and criminal financial penalties, for the more serious cases. ASIC says it is more likely to pursue these remedies where there is dishonesty, intentional or highly reckless conduct.
At the other end of the spectrum, ASIC may use negotiated alternatives, such as an enforceable undertaking. This may allow for compensation or a plan for continued compliance monitoring.
In between, ASIC’s tools include court-ordered civil financial penalties, corrective action or compensation action. ASIC may also take protective action (including disqualification and bans of individuals, revocation of licences and public warning notices).
As we tell our clients (which is reflected in the policy) a cooperative approach by persons of interest to ASIC may have benefits – including potentially less severe remedies. A cooperative approach, according to ASIC, may include:
ASIC’s policy on public comment
ASIC says in its updated public comment guide that:
ASIC may make a statement about an investigation when it is in the public interest to do so (for example, if the statement would promote confidence in the integrity of the market);
generally, until the investigation is concluded ASIC will not provide any updated commentary;
if it concludes an investigation without taking enforcement action, ASIC will inform the relevant persons of interest, however it will not guarantee that it will not take action in the future;
typically ASIC will only comment on enforcement action against an individual when the enforcement action has begun (for example, at the time of the first court appearance);
ASIC will not comment on whether a matter is referred to the Commonwealth Director of Public Prosecution prior to a prosecution being commenced; and
ASIC will not agree to keep enforcement action secret.
Again, these principles will come of no surprise to companies involved in investigations or in the negotiation of enforceable undertakings.
Enforceable undertakings
ASIC sees enforceable undertakings as potentially achieving a more effective regulatory result, including improved compliance or a quicker outcome for investors.
In broad terms, ASIC says in its updated enforceable undertakings guide that:
ASIC will negotiate the terms of a proposed undertaking, but it will not accept clauses denying liability or not including details of the misconduct;
ASIC will make the final decision whether to accept or reject an offer of an enforceable undertaking. If it accepts it, its practice is to issue a media release; and
ASIC will not accept an enforceable undertaking instead of commencing criminal proceedings against a party, to secure payment of a civil pecuniary penalty or for trivial matters.
The Regulatory Guide confirms ASIC’s policy not to remove an enforceable undertaking from the register (even after all the obligations under it have been fulfilled) and that ASIC will take court action for certain breaches of an enforceable undertaking and will publicise such an application. Again, these principles are not new.
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