This week, the government has introduced legislation to parliament that will drastically increase criminal and civil penalties for individuals and businesses who participate in financial misconduct. This change comes as a result of recommendations by the ASIC Enforcement Review Taskforce, which was established in October of 2016 to assess the suitability of the existing regulatory tools that ASIC uses to perform its function.
While penalties existed previously, they were too minor to serve as a deterrent for some financial institutions and corporations that had a lot to gain through illegal activities. Moreover, ASIC lacked the means to investigate and halt misconduct in some situations, which the government is also seeking to address. Ideally this will help the government to improve recently bruised consumer confidence in the corporate and financial sector, while also tying into greater ongoing efforts by the government to create a fairer and more growth-friendly playing field for law-abiding businesses.
Penalties increase tenfold for corporations
This legislation promises to expand the range of contraventions that are subject to civil penalties, while increasing penalties for individuals fivefold, and penalties for corporations tenfold. Concretely, this means that, for criminal violations, individuals face up to 10 years’ imprisonment, and a penalty of $945,000 or three times the benefit gained or loss avoided, whichever is greatest. For civil violations, penalties rise to $1.05 million, or three times the benefit gained or loss avoided.
Businesses, on the other hand, face much higher costs. Maximum penalties for these entities are $9.45 million for criminal, and $10.5 million for civil infractions, or three times the benefit gained or loss avoided, or 10 percent of annual turnover up to a maximum of $210 million. Finally, ASIC will be explicitly empowered to strip wrongdoers of illegally obtained profits, or losses avoided from contraventions that result in civil proceedings.
ASIC is to gain broader regulatory powers
In addition to these increased penalties, the government’s media release indicates that ASIC will gain a number of other powers to help it perform its duties. Specifically, these will include:
● expanding their ability to ban individuals from performing any role in a financial services company where they are found to be unfit, improper, or incompetent;
● strengthening their power to refuse, revoke or cancel financial services and credit licences where the licensee is not fit or proper; and
● boosting ASIC’s tools to investigate and prosecute serious offences by harmonising their search warrant powers to provide them with greater flexibility to use seized materials, and granting ASIC access to telecommunications intercept material.
This means that ASIC will be able to more thoroughly investigate financial misconduct, reducing the chance that offenders might simply go undetected. Moreover, instead of simply punishing wrongdoers, they will be better able to halt ongoing misconduct and prevent offending individuals from continuing illegal activities in the future. Instead of simply prosecuting an offender and issuing a one-time penalty, for example, ASIC will be able to ban them from their profession.
Creating a healthier business environment
These changes are fundamentally good news for Australian business owners, investors, consumers, and ultimately even lenders. While the legislation may appear to be a strong government response to a string of recent financial scandals surrounding big banks, it’s actually much broader in scope, and has been in the works for several years. It aims to ensure that everyone, including banks, businesses, and the individuals who operate within them, play by the rules. This will work to improve consumer and business confidence in the financial sector, as well as investor confidence in the corporate sector.
Leveling the playing field for business owners
In the past few years, the government has taken numerous steps to improve conditions for law-abiding businesses. So far, this has included new legislation to curb phoenix activity, a crackdown on tax avoidance and underpayment by the ATO, and efforts to limit the black cash economy. Like these, this is another step designed to ensure that businesses who operate in good faith aren’t forced to compete against businesses who engage in illegal activity to bolster profits or avoid losses. Further, it benefits small business owners, who are typically less able to defend themselves when victimised, and less likely to engage in serious misconduct themselves.
Businesses, investors, and consumers can expect to continue to benefit as this legislation goes forward, and as the government continues to implement the recommendations of ASIC Enforcement Review Taskforce. Moreover, the financial sector will likely enjoy greater consumer confidence going forward, as the legislation is designed to protect them in their interactions with it.