What if ASIC come knocking?

There seems to be much uncertainty about why and when the Australian Securities and Investments Commission (ASIC) might come knocking.

This article is not intended to provide an exhaustive overview of the law in this area and it is not intended to provide or amount to legal advice.

What is ASIC’s role?

The breadth of ASIC’s work as the corporate watchdog vis-à-vis other regulators within Australia is not always fully understood.

ASIC is Australia’s integrated corporate, markets, financial services, and consumer credit regulator.

ASIC is an independent Australian Government body which was set up under and administers the Australian Securities and Investments Commission Act 2001 (ASIC Act).  It carries out most of its work the Corporations Act 2001 (Corporations Act).

Broadly speaking, ASIC’s role under the ASIC Act is to:

• maintain, facilitate and improve the performance of the financial system and entities in it
• promote confident and informed participation by investors and consumers in the financial system
• administer the law effectively and with minimal procedural requirements
• receive, process and store, efficiently and quickly, information it receives
• make information about companies and other bodies available to the public as soon as practicable
• take whatever action it can, and which is necessary, to enforce and give effect to the law.

ASIC as a regulator

ASIC regulates financial services and consumer credit, and authorised financial markets operating in Australia.

More particularly:

1. in relation to financial services – it licenses and monitors financial services businesses to ensure that they operate efficiently, honestly and fairly. These businesses typically deal in superannuation, managed funds, shares and company securities, derivatives and insurance.
2. In relation to consumer credit – it licenses and regulates people and businesses engaging in consumer credit activities (including banks, credit unions, finance companies, and mortgage and finance brokers).  It ensures that licensees meet the standards – including their responsibilities to consumers – that are set out in the National Consumer Credit Protection Act 2009 (National Credit Act).
3. In relation to markets – it assesses how effectively authorised financial markets are complying with their legal obligations to operate fair, orderly and transparent markets and supervises trading on Australia’s domestic licensed equity, derivatives, and futures markets.

What enforcement tools are available to ASIC?

Not surprisingly, in order to fulfil its broad mandate, ASIC needs recourse to (and does have) a broad range of powers and remedies.

ASIC uses it enforcement powers to:

1. detect and deal with unlawful conduct,
2. to recover money in appropriate circumstances,
3. to prevent unlawful conduct before it happens.

Potential breaches of the law are brought to ASIC’s attention in a number of ways, such as:

1. reports of misconduct from members of the public,
2. referrals from other regulators,
3. statutory reports from auditors, insolvency practitioners and licensees,
4. through its monitoring and surveillance work.

ASIC can and does conduct informal investigations, which simply means that it is taking steps to ‘ensure compliance’ with the law. Surveillances are one such method of informal investigation. Even when ASIC is merely ensuring compliance with the law, it has the power to inspect and require the production of books.

On the other hand, if ASIC is conducting an ‘investigation’, it has the power to do the following:

1. inspect and require the production of books,
2. obtain and execute a search warrant,
3. conduct an examination and/or seek reasonable assistance.

Generally speaking, the power to require the production of books overrides the general rules at common law governing legal professional privilege and self-incrimination.

ASIC does not undertake a formal investigation of every matter that comes to its attention. It considers a range of factors when deciding whether to investigate and possibly take enforcement action, to ensure that it utilises its finite resources appropriately.

ASIC does and will pursue the enforcement remedies best suited to the circumstances of the case. It can take enforcement action designed to:

1. punish wrongdoers
2. protect investors
3. preserve assets
4. correct disclosures
5. compensate people.

ASIC also may resolve matters through negotiation or issuing infringement notices.

What about the reputation of the business or its officers?

An investigation by ASIC may result in significant reputational harm to a business.

ASIC will always assert the right to make an enforcement outcome public, unless the law requires otherwise. ASIC will not agree to keep enforcement outcomes secret. This is important for regulatory transparency and effective deterrence.

Conclusion

If ASIC comes knocking, it may not necessarily mean that it suspects or believes for some reason that you or other members of your organisation have contravened the law. It may be the case that ASIC is merely taking steps to ensure the law is being complied with. In fact, it is possible that ASIC is knocking on the doors of your competitors or others in your industry or market sector at the same time.

A cooperative approach to dealings with ASIC may be of benefit in many ways. Early notification of a breach or a cooperative approach to an investigation will often be relevant to ASIC’s consideration of which remedy or combination of remedies should be pursued.

Like any law enforcement or regulatory agency, ASIC is not interested in pursuing those who comply with the law.

In our experience, it is apparent that:

1. ASIC recognises that most within their regulatory ambit have a strong desire and intent to comply with the laws applicable to them.
2. non-compliance with the law is often merely a symptom of a lack of understanding of the law as opposed to a willful disregard of it.

However, as history shows, ASIC will not hesitate to take action, swift and strong, in the appropriate instances.

FC Lawyers can advise and assist clients if and when ASIC comes knocking. However, given that prevention is often better than cure, we can also assist clients to better understand the laws applicable to them, and to hopefully avoid that knock on the door.

Contact our team today to discuss your legal needs.