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The Australian Securities and Investments Commission (ASIC) has published its first six-monthly ASIC Enforcement Outcomes Report for 2014, covering the period between 1 January and 30 June 2014 (Enforcement Period) (Report). The Report identifies the entities and individuals against which ASIC took enforcement action, and highlights examples of conduct targeted during the Enforcement Period. This is a part of a series of reports which commenced in 2012, that provides the public with up-to-date statistics between ASIC’s annual reports.
The Report states that in the first six months of 2014, ASIC achieved a total of 256 enforcement outcomes. That is, criminal, civil and administrative actions, as well as outcomes resulting in an enforceable undertaking, a negotiated outcome or the issue of a public warning notice. There were 83 outcomes in the market integrity, corporate governance and financial services areas and 173 in the small business compliance and deterrence area. ASIC also highlights several ‘notable’ enforcement actions, including the $1.2 million penalty against Newcrest Mining Limited (see our earlier blog).
Although these numbers are useful in looking at what action ASIC has taken in its investigations/enforcement capacity, to draw firm conclusions from them would probably be an exercise in lies, damned lies, and statistics. It is important to keep in mind that ASIC’s function is not to exhaustively investigate all possible breaches of corporate law. Its function as a regulator is to ensure that there is proper deterrence and compliance throughout the industry.
What businesses should pay close attention to are ASIC’s statements. In its press release which covers the Report, ASIC sets out some clear points about its enforcement focus. In particular, ASIC has indicated it will focus on the operation of the newly in force National Consumer Credit Act 2009 (Cth) (in effect from 2010) which will include:
- taking action against credit providers for misleading consumers;
- loan fraud; and
- working with overseas partners to combat cross border fraud.
Other areas of focus include:
- the treatment of confidential information by listed companies (see our previous blog)
- manipulation of financial benchmarks and improving auditor and liquidator standards; and
- the ongoing focus on advertising of financial products and the quality of financial advice.
ASIC’s approach to the new FoFa regulations also remains to be seen.
Finally, small business owners should be alert to ASIC’s continuing focus on small business compliance. The compliance and deterrence outcomes in each of the periods in which these reports have previously been released account for at least every 2 in 3, and in some periods up to 4 in 5 enforcement outcomes. This is not surprising, given that small businesses account for 96% of the businesses registered with ASIC, but it does reveal the remarkable inequity that characterises ASIC’s enforcement policy by pursuing those with few resources to defend themselves.
As an illustration of this point, market integrity enforcement outcomes (which include statistics for insider trading and market manipulation) account for approximately 2-6% of total outcomes. In light of this, it is difficult to refute the criticism that ASIC goes after the ‘little guy’, whilst putting the colloquial ‘big end of town’ in the too-hard basket.
Whatever one makes of the statistics included in the Report, businesses should be increasingly aware that the compliance and risk management onus of doing business in the financial services industry falls squarely on them. The Chairman of ASIC, Greg Medcraft, said as much in a recent speech, in which he emphasised that a poor compliance culture is a ‘red flag’ that may draw ASIC’s attention. With the Government’s moves towards risk management practices, particularly the convergence of risk management methodology on ISO 31000, industry players should note that this is the new ‘normal’ for managing a business.
When ASIC comes knocking (sometimes loudly, with dour Australian Federal Police officers and a criminal warrant), businesses should be ready and able to demonstrate their compliance programs, and to produce all documents that show they have taken reasonable measures to ensure compliance. ASIC has at its disposal a wide range (and, some would say, profligate) arsenal of powers to compel businesses and individuals to produce documents, give reasonable assistance, and even answer questions under oath.
Recent scrutiny of ASIC’s performance by the Senate Economics Reference Committee (see our blog) might also see changes in the way ASIC manages its investigations and surveillance. It is by no means inevitable that you will one day end up in the sights of ASIC, but whether you do or don’t, it is not only important, but also prudent, to be prepared. You certainly don’t want your business to be named and shamed in the next enforcement report.
How can CompliSpace help?
CompliSpace has been working with ASX listed entities for over 10 years, assisting them to develop risk and internal control systems that allow them to meet their compliance obligations and most importantly to obtain real value from their investment in robust governance, risk and compliance infrastructure.
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This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 090 and we will be happy to assist.
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