New ASIC enforcement regulations toughen

New ASIC enforcement regulations toughen up as indicated in the comments made by John Price, the commissioner ASIC.

June 21, 2019, | AtoZ Markets –  While speaking on a panel at the Governance Institute of Australia’s Governance and Risk Management Forum in Sydney on Tuesday June 18, John Price, commissioner of the Australian Securities and Investments Commission (ASIC), reiterated ASIC’s belief that there has been a misinterpretation of the ‘why not litigate?’ strategy that the financial services royal commission recommended.

ASIC commissioner clarifies new ASIC enforcement regulations

The final royal commission report observed that “the law was too often not enforced at all, or not enforced effectively”, with ASIC being singled out for “rarely” taking wrongdoers to court. Mr. Price clarified that the ‘why not litigate’ strategy does not mean ‘litigate first’ or ‘litigate everything’.

While the corporate regulator admitted that it would be significantly increasing court-based enforcement action, the commissioner explained that the ‘why not litigate’ strategy is about identifying whether, based on the facts of a breach, the pursuit of the matter would be in the public interest.

“It does not mean that enforcement action will become the sole item of our regulatory toolkit. If you read Ken Hayne’s report, he acknowledges that, in fact, it is not possible to use enforcement and litigation as the sole regulatory tool,” Mr Price said.

“But what this does mean is that we have adopted a rigorous approach to deciding which tool is the right one. And we will look carefully at enforcement, bearing in mind the need to deter future misconduct, which is what the financial services royal commission report really emphasized, and also community expectations that wrongdoing be pursued and punched through the courts.”

ASIC enforcement investigations increases

According to the commissioner, from February 2018 to March 2019, there has been a 15% increase in the number of ASIC enforcement investigations, a 65%  rise in enforcement investigations involving large financial firms as well as their subsidiaries, and a 129%  surge in wealth management investigations.

He also refuted the idea that there is a conflict between ASIC’s two primary roles – that is, to facilitate business and to enforce the law. The ASIC commissioner said;

“Some people might say that those are starkly in contrast to each other. But I actually don’t see it that way. I think an important part of facilitating business and making sure that the cost of capital remains low for this country is that there is confidence in the regulatory system and trust in institutions in this country.”

“So, part of facilitating business does mean that there needs to be appropriate enforcement.”

Mr. Price continued: “I think what the Hayne royal commission has clearly identified is that the community more broadly is concerned that there’s not enough public deterrence for misconduct that’s occurring within the financial system.

“When I use ‘misconduct’, I use it in a broad sense. It’s important to remember that the Hayne royal commission looked not only at breaches of the law, it looked at values to meet community standards.”

While ensuring company values meet community standards is not always feasible for ASIC, the commission admitted that The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019 will enable it to intervene in circumstances where conduct is believed to be otherwise lawful.

The new ASIC enforcement regulations, which passed Parliament in April, requires product issuers to ensure products are targeted and offered to the right customers, as well as enabling ASIC to intervene to protect customers from inappropriate products if there is a risk of significant detriment.

“I think it’s a really important thing for firms themselves to grasp, because of regulatory and compliance issues aside, if you’re not meeting the expectations of your customers and your investors, then I don’t think you’re going to be in business for a long time,” Mr Price said.  

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