The Australian Securities and Investments Commission (ASIC)
Since the conclusion of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in late 2019, corporate entities in Australia have been subject to heightened levels of scrutiny. With global commerce slowly moving into a ‘post-COVID-19’ phase, the regulation of corporations has become even more important as many Australian businesses face unprecedented levels of financial and operational uncertainty.
The regulatory body in Australia primarily responsible for corporations is the Australian Securities and Investments Commission (ASIC). ASIC is an independent Commonwealth statutory corporation created by the Australian Securities and Investments Commission Act 1989 (Cth) (ASIC Act). ASIC is funded by a combination of industry levies, Commonwealth government appropriation revenue and ‘own-source’ revenue, being revenue generated and retained by ASIC. For the financial year ending 30 June 2020, ASIC had a total operating revenue of over $420M, employing 1,940 staff across all capital cities in Australia.
ASIC: regulator and prosecutor
Broadly speaking, ASIC is both a regulator and a prosecutor and undertakes regulation, governance, compliance and enforcement activities.[1] ASIC carries out most of its functions pursuant to the Corporations Act 2001 (Cth), however also derives powers under other pieces of legislation, including the Insurance Contracts Act 1984 (Cth) and the National Consumer Credit Protection Act 2009 (Cth).
As a corporate regulator, ASIC aims to facilitate and improve the performance of the financial and corporate sector and to act against misconduct in order to maintain trust and integrity in Australia’s financial system. In doing so, ASIC works closely with several other market regulators, including the Australian Financial Security Authority (AFSA), the Australia Competition and Consumer Commission (ACCC), the Commonwealth Director of Public Prosecutions (DPP), the Australian Taxation Office (ATO) and the Australian Stock Exchange (ASX).
As a prosecutor, ASIC has both investigative and enforcement powers, with statutory jurisdiction to commence both civil actions (leading to the imposition of financial penalties) and criminal prosecutions (which can lead to the imposition of custodial sentences for company officers). Interestingly, it has on occasion been suggested that ASIC has a tendency to prefer civil actions (which it can undertake itself) rather than criminal prosecutions, which are typically handed over to relevant State or Commonwealth Department of Public Prosecutions.
In carrying out its investigative and enforcement functions, ASIC is given wide-ranging (and at first glance intrusive) powers, including to:
(a) require a person to be examined before ASIC;[2]
(b) produce documents to ASIC, including company books;[3]
(c) disqualify a person from managing a corporation;[4]
(d) conduct surveillance and execute search warrants;[5]
(e) apply to the court to prevent a person from leaving Australia, and to forfeit his or her passport;[6] and
(f) to conduct investigations to assist foreign regulators (such as market regulators in the United Kingdom, the United States and Hong Kong).[7]
Notwithstanding this broad array of powers, the Royal Commission in 2019 was critical of ASIC’s apparent reluctance and leniency in exercising its enforcement powers to prevent and punish corporate misconduct. Since that time, legislation has progressively been introduced by the Commonwealth Government which has been geared towards tightening criminal and civil penalties, particularly for financial sector misconduct.[8]
Who regulates the regulator?
On 13 May 2021, the Financial Regulator Assessment Authority Bill 2021 (Bill) was introduced into the Commonwealth Parliament. This legislation will have the effect of creating an independently-chaired body to regularly review and report on the performance of both ASIC and the Australian Prudential Regulation Authority (APRA).
Whilst both ASIC and APRA regularly report on their activities, and are subject to their own complex and mandatory accountability frameworks, the Bill acknowledges that such reports are ‘not necessarily subject to rigorous and consistent external analysis.’[9] By creating the ‘Financial Regulator Assessment Authority’ it is hoped that ASIC and APRA, as independent corporate regulators, will become more effective. Importantly, however, the Bill makes clear that the newly-formed oversight authority will not have the ability to direct, assess or comment on specific cases of ASIC’s enforcement actions or regulatory decisions so as to preserve the overall independence of ASIC and APRA, which is said to be ‘critical to their ability to fulfil their mandates…and maintaining the confidence of the market’. [10]
It will remain to be seen whether increased accountability and external analysis of corporate regulators, such as ASIC, will in fact lead to better outcomes for market participants and result in a ‘fair, strong and efficient financial system for all Australians’.[11]
[1] ASIC Annual Report, 2019-20
[2] ASIC Act, s 19.
[3] ASIC Act, s 33.
[4] Corporations Act 2001 (Cth), Part 2D.6.
[5] ASIC Act, Div 3A.
[6] Corporations Act 2001 (Cth), s1323.
[7] Mutual Assistance in Business Regulation Act 1992 (Cth).
[8] See for example, Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019.
[9] Explanatory Memorandum, paragraph 1.13.
[10] Ibid, paragraph 1.8.
[11] ASIC Annual Report, 2019-20, ‘Our Vision’.