The effectiveness of ASIC's enforcement powers

December 2018

Much was made in the interim report of the Royal Commission about ASIC not prosecuting breaches of the Corporations Act in the way it perhaps should. For some time, ASIC has been asking for increases to the penalty provisions to act as an effective deterrent. Here Brit Ibanez and Selina Nutley review a recent decision against Westpac and ASIC's report on the deterrence effect of enforceable undertakings on financial services and credit providers.

The penalty for Westpac

The most recent example of the law not reflecting community standards about effective penalties is the decision against Westpac for manipulating the prime bank bill swap rate.

ASIC sought penalties against Westpac of $58 million. The court however disagreed that Westpac's contravention could be characterised as 58 individual contraventions, saying there were only four contraventions of the Act. The maximum penalty for a contravention was, at the time, $1.1 million. For that reason, Westpac was ordered to pay just over $3 million as a penalty for breach of the Act.

The legislation increasing penalties in the Corporations Act (Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018) has made its way through the House of Representatives and has been adjourned until February 2019 for further consideration by the Senate. We have previously written in Fundamental about what the effect of these amendments will be.

ASIC Report

In October 2018, ASIC released a report it had commissioned on the deterrence effect of enforceable undertakings on financial services and credit providers. The report is based on a study conducted by the Law Faculty at the University of New South Wales.

The Report concludes that the majority of those interviewed for the study do perceive a deterrence effect of enforceable undertakings. The deterrence was motivated by avoiding the perceived penal effects of harsher sanctions; and critically, avoiding reputational damage or loss.

The study was commissioned following the Senate Economics Reference Committee Report in 2014 into the performance of ASIC. In that report, the Committee recommended a regular review of the effectiveness of enforceable undertakings. We note, in particular, the authors of the Report recommend further research be done to understand the difference between the deterrence effects of enforceable undertakings for large and small providers. We share this interest, given the effect of enforceable undertakings for some of our smaller and/or wholesale providers.

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