The Australian Securities and Investments Commission (ASIC) remains focused in its pursuit of expanding its enforcement footprint despite the disruptions caused by COVID-19 as evidenced by its latest enforcement activity report. The statistics in ASIC’s latest update for the second half of 2020 show the regulator continuing its agenda, along with providing an outline of its future priorities.
Introduction
ASIC has released its latest enforcement activity report, REP 688 ASIC enforcement update July to December 2020 (Update), which outlines ASIC’s key enforcement activities between 1 July and 31 December 2020.
In addition to its traditional areas of focus, the Update confirms ASIC’s enforcement priorities over the second half of last year were Royal Commission referrals, misconduct related to superannuation and insurance, higher penalties, illegal phoenix activity, auditor misconduct and misconduct arising from online and emerging technologies.
The Update also demonstrates how ASIC has responded to the unique challenges presented by COVID-19, identifying a number of issues to which it is particularly focused on combatting. This approach is consistent with the pandemic-specific strategic priorities it has outlined previously.
ASIC’s enforcement activity
Comparing ASIC’s enforcement activity in the first half of 2020 (H1) (as reported in REP 666 ASIC enforcement update January to June 2020) to the six months to 31 December 2020 (H2), the following activity is seen:
| Activity | Comparison of first and second half of 2020 |
|---|---|
| Criminal Prosecutions | Increase in individuals charged in criminal proceedings from 18 to 27 (but with small decreases in criminal charges laid, non-custodial sentences, and defendants prosecuted for strict liability offences). |
| Civil Penalties | Significant increase from $12m in H1 to $159.8m in H2 (with a sizeable increase in the number of civil penalty cases commenced from 4 in H1 to 14 in H2). |
| Bans | Individuals removed or restricted from providing financial services or credit down 50% from H1, but an almost 50% increase in individuals disqualified or removed from directing companies. |
| Infringement Notices / Court Enforceable Undertakings | Two court enforceable undertakings in H2 compared with zero in H1. |
| Investigations | Slight increase in ASIC investigations from 99 in H1 to 107 in H2. |
| Court Proceedings | Compared to the 2018 calendar year, 2020 saw ASIC commence 64% more civil penalty proceedings and 36% more criminal proceedings. |
Royal Commission work prioritised
In parallel with these activities, ASIC has prioritised the completion of investigations into Royal Commission case studies and referrals. Of the 45 Royal Commission investigations commenced by ASIC since Commissioner Hayne’s final report was delivered in February 2019, only 11 remained at the end of H2. Thus far, ASIC’s Royal Commission investigations have resulted in $77.65m in civil penalties being imposed by the courts.
ASIC’s H2 enforcement results
The Update also outlines enforcement results, accompanied by case studies, across key regulatory areas over the 1 July to 31 December 2020 period, with ASIC reporting:
| Regulatory Area | Enforcement in second half of 2020 |
|---|---|
| Financial Services | 37 financial services-related enforcement results in H2, including via insurance and superannuation misconduct, with 61 proceedings on foot as at 1 January 2021 (with the enforcement of civil penalties worth $57.5m in one case representing "the largest penalty imposed in a matter referred to ASIC by the Financial Services Royal Commission".) |
| Markets | 12 markets-related enforcement results, dominated by continuous disclosure matters, with 15 proceedings across civil and criminal jurisdictions on foot as at 1 January 2021 (with imprisonment for insider trading, and civil penalties of $75m to over-the-counter providers for unconscionable conduct while providing OTC derivative products to retail investors, identified in corresponding case studies). |
| Corporate Governance | 15 corporate governance-related proceedings on foot as at 1 January 2021 (with penalties for failing to discharge directors' duties specifically highlighted). |
| Small Business | In H2, 129 enforcement results and, as at 1 January 2021, 149 criminal prosecutions still on foot, against persons or companies (with illegal phoenix activity and failure to assist liquidators noted in corresponding case studies). |
COVID-19 response
In its Interim Corporate Plan from June 2020, ASIC identified five strategic priorities including protecting consumers from harm at a time of heightened vulnerability and continuing to identify, disrupt and take enforcement action against the most harmful conduct.
The Update clearly evinces an emphasis on these priorities in specifically highlighting ASIC’s role in responding to:
- exploitative conduct in the pandemic environment, including predatory lending, mis-selling and poor claims handling;
- opportunistic conduct such as scams;
- failures to disclose materially negative information;
- opportunistic and misleading market announcements; and
- egregious governance failures within corporations, schemes and superannuation funds.
Consistent with ASIC’s pursuit of these priorities, it commenced five proceedings over the period and administratively prevented two companies from relying on reduced disclosure rules.
ASIC continues to prosecute its enforcement agenda, in line with the regulator’s overall ‘Why Not Litigate?’ enforcement policy.
This article was written by Jason Symons, Partner, Matthew Harding, Partner and Max Henshaw, Solicitor.