Why not litigate? That is the new starting point for Australian Securities and Investments Commission (ASIC) as a result of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s recommendation 6.2. The recommendation states that ASIC should adopt an approach to enforcement that takes as its starting point the question of whether a court should determine the consequences of a contravention. For Commissioner Haynes, “this is the only acceptable approach”, because regulatory litigation is public in nature and should start from the premise that the law should be enforced.
Consequently, in its update on the implementation of the Royal Commission’s recommendations, released on 19 February 2019, ASIC states that, in October 2018, it adopted a “why not litigate?” enforcement stance and publicly committed to that posture going forward. ASIC also reports on its Internal Enforcement Review (IER), which was completed in December 2018. The foremost recommendation of the IER was the establishment of the Office of Enforcement within ASIC. ASIC has established a taskforce to put the Office of Enforcement in place, which is to be completed in 2019.
As to the steps ASIC has taken to date, the update states an early indication of its changed approach can be seen from the following. Since 1 February 2018, there has been a 15 percent increase in the number of ASIC enforcement investigations on foot and a 50 percent increase in the number of ASIC enforcement investigations of misconduct by large financial institutions (or their employees or subsidiary companies).
Consequently, financial institutions, corporates and their directors and officers should be prepared for a regulator inclined towards court action rather than infringement notices and enforceable undertakings. ASIC is also likely to take a more rigorous approach to enforceable undertakings, requiring, for example, admissions of guilt.
We are already seeing an increase in the number of notices to produce documents and to answer questions being issued by ASIC. Responses to such notices require care and expertise because - as several high profile cases last year demonstrate - a company’s communications with the regulator can have extremely serious consequences for the entity and its directors and officers down the track. This is especially so with ASIC (and likely other regulators, as a result of the Royal Commission’s recommendations) taking a more litigious approach to any misconduct that it finds as a result of issuing such notices.