ASIC Enforcement Powers

As participants in the financial services industry, it is important to understand the powers and responsibilities of ASIC. At a high-level, ASIC’s role is to ensure that Australia’s financial markets are fair and transparent. They regulate Australian corporations, financial markets, and financial services businesses and professionals that deal and advise in investments, superannuation, insurance, deposit taking and credit. The laws administered by ASIC give them powers in three key areas:

How ASIC approaches their Enforcement Role

ASIC must balance their statutory objectives of facilitating markets and promoting trust and confidence in the financial system with taking action to enforce and give effect to the laws that are administered by them. ASIC is empowered to take a range of criminal, civil, and administrative action to address alleged misconduct within their jurisdiction.

ASIC strategy regarding the investigation and enforcement of misconduct is outlined below:

ASIC Enforcement Actions

ASIC will examine the facts of each matter and consider the extent of harm (or likely harm) caused by the conduct, and the evidence that is available to establish what has taken place. Some of the factors they may consider include the nature and seriousness of the misconduct, the conduct of the person or entity following the misconduct, strength of evidence, public benefit in taking enforcement action, the likelihood of behaviour improvement and deterrence, and any other mitigating factors such as intent.  Below we look at the three types of enforcement action they may pursue.

Criminal Proceedings* the most significant and harmful misconduct including dishonest, intentional, or highly reckless behaviour even if civil action is also available
* consequences for criminal conviction are usually more significant than for civil liability and may include:
    o   Up to 15 years or significant criminal fines for serious offences (such as breaches of director duties, false or misleading disclosures, and dishonest conduct)
    o   Prevention from performing certain roles (such as company director)
    o   A recorded criminal conviction which cannot be expunged from a person’s record.
* If ASIC believes they have enough evidence to prove that a criminal offence has been committed, the case is referred to the Commonwealth Director of Public Prosecutions (CDPP), and if CDPP determines that the evidence is sufficient and that prosecution is in the public interest, then they will prosecute the case in court.
Civil Proceedings* a lower standard of proof that is applied to the evidence than criminal proceedings – ‘balance of probabilities’ as opposed to ‘beyond reasonable doubt’
* if a court declares that a civil penalty provision has been contravened, it may order the offender to
    o   pay the Commonwealth a civil pecuniary penalty up to the maximum amount for the relevant provision, or
    o   impose a range of other orders including:
        *Relinquishment orders – removal of the financial benefit (profit gained or loss avoided) of the misconduct from the offender
        *Disqualification orders – disqualifying the offender from managing corporations for a court determined period
        *Compensation orders – compensating investors/consumers who have suffered a loss resulting from the contravention, including orders to prioritise compensation over penalties
        *Orders requiring the offender to establish a compliance, education, or training program
Administrative and other enforcement action* ASIC may take a wide range of other enforcement actions that are predominantly designed to protect investors/consumers. These include:
    o   Restrictions on licensed activity
    o   Director disqualification
    o   Disciplinary action through a disciplinary committee
    o   Product intervention orders to protect retail clients from predatory lending practices or unreasonable fees
    o   Stop orders to prevent offers being made under a potentially defective disclosure document
    o   Public warning notices
    o   Infringement notices
    o   Court enforceable undertakings from parties who contravene the legislation
* ASIC does not need to go to court for these actions, but they may sometimes pursue these remedies in conjunction with a court action.

ASIC may seek interim court orders while they investigate a matter. These may include protecting assets or preventing them from being moved/used, preventing an individual or entity from continuing to act in contravention of law, or restrict an individual who is connected to an investigation from leaving Australia while the matter is being investigated. ASIC is also able to seek court orders that:

  • Compel an individual or entity to comply with law
  • Compel an individual or entity to make corrective disclosures (such as correcting misleading or deceptive advertisement or other public statements), or
  • Appoint an external administrator to a company, scheme, or asset.

ASIC’s Information-Gathering Powers

Parliament has given ASIC a range of compulsory information-gathering powers to enable them to require a person or entity to both provide them with documents and/or information, and to attend an examination to answer questions and/or provide reasonable assistance. These powers must be used for a ‘proper purpose’, in the context of advancing an inquiry.

ASIC may require a person or entity under investigation to produce documents for inspection, disclose information, attend an examination hearing, assist with the investigation, or submit to a search warrant.

Enforcement Outcomes July-December 2022

ASIC publishes an overview of their enforcement action in a six-month period. The information below reflects the period 1 July to 31 December 2022 from the ASIC website (Summary of enforcement outcomes: July-December 2022).

CDPP Criminal Prosecutions15 individuals charged by the CDPP in criminal prosecutions
173 criminal charges laid against individuals prosecuted.
7 custodial sentences, including fully suspended sentences (two people imprisoned)
8 non-custodial sentences
Internal Summary Prosecutions86 individuals charged with strict liability offences in summary prosecutions
205 criminal charges laid against individuals prosecuted for strict liability offences
Civil Penalties$76.3m in civil penalties imposed by the courts
11 civil penalty cases commenced
Banning’s53 individuals removed or restricted from providing financial services or credit
13 individuals disqualified or removed from directing companies
Infringement notices and court enforceable undertakings12 infringement notices issued
$368,520 in infringement notice penalties paid
1 court enforceable undertaking accepted
Investigations62 investigations commenced
103 investigations ongoing

Fines and Penalties

The value of one penalty point is indexed based on the formula in section 4AA of the Crimes Act 1914. For offences on or after 1 January 2023, the value of one penalty point has increased from $222 to $275. This means that the maximum civil penalty for individuals and companies has increased.

The maximum civil penalty for individuals is the greater of 5,000 penalty units (now $1.375 million) or three times the benefit obtained or detriment avoided. The maximum civil penalty for companies is the greater of 50,000 penalty units (now $13.75 million), three times the benefit obtained or detriment avoided, or 10% of annual turnover (capped at 2.5 million penalty units or $687.5 million).

Maximum penalties may be applied for instances including breaches of director duties, false or misleading disclosures, and dishonest conduct. Civil penalties apply to a greater range of misconduct including defective disclosure, failure to notify about a reportable situation, and a licensee’s failure to act efficiently, honestly, and fairly.

For More Information

ASIC Fines and Penalties

INFO 151: ASIC’s approach to enforcement

ASIC investigations and enforcement

GRC Essentials can help

If you require any assistance, we can offer training for your personnel or a review of your compliance documents. Please don’t hesitate to contact us if you have any questions or if we can help you with any of your compliance matters.

NOTE: if you do not wish to receive further technical updates from GRC Essentials Pty Ltd, please respond to this email requesting to be removed from the mailing list.