Australian regulators weekly wrap – Monday, 18 November 2019
Keeping on top of the latest financial services regulatory & compliance trends?
Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian regulators weekly wrap is designed to keep you at forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.
1. Corporate Criminal Liability (ALRC): The ALRC has been undertaking a detailed review of Australia’s corporate criminal liability regime pursuant to a direction from the Attorney General. The terms of reference require the ALRC to consider potential law reform to simplify the application of criminal liability to companies (under Part 2.5 of the Criminal Code (Cth) the “physical” element of the crime can be undertaken by an agent, employee or officer of the corporation and the “mental” element is proven where the company expressly, tacitly or impliedly authorised or permitted the offence eg the board approved the criminal action) and to facilitate company officers being held criminally liable for company misconduct. The latter subject area continues an initial US / UK push following the GFC to achieve regulatory outcomes by targeting individuals eg the famous US DOJ’s “Yates Memo”. The ALRC has just released its discussion paper – and there are some big proposals which easily make this my top read for the week. For eg, proposal 9 (page 10) is that any officer who was in a position to influence the conduct of a company should be subject to a civil penalty if the company has committed an offence, unless they can prove they took reasonable measures to prevent the same. That is a big increase in personal liability! (And the discussion paper moots the introduction of Australian deferred prosecution agreements – yes, please just introduce them finally. But we should follow the more regimented UK and not US model.) Consultation will continue to 31 January 2020.
2. Enforceable undertakings (ASIC): ASIC Chair Karen Chester told a Sydney forum that enforceable undertakings will not be preferenced over litigation as “s912A is now front and centre on ASIC’s ‘why not litigate’ radar, as distinct to the enforceable undertaking territory of the past… And why? Before 13 March 2019 a breach of this provision would attract a penalty of zero. Today it attracts maximum civil penalties of up to $1.05 million for an individual, or up to $525 million for a corporation.” She also stated that ASIC was focusing on conflicted financial advice models. We have already seen a number of s912A actions launched by ASIC – we should then expect more to come! (Also, there are some nuances around that 13 March 2019 deadline given the technical “continuing breach” provisions in the legislation, so please do get in touch if you have any limitations concerns.)
3. Whistleblowing (ASIC): public companies, large proprietary companies, and proprietary companies that are trustees of registrable superannuation entities must have a whistleblower policy available to their officers and employees by 1 January 2020. ASIC has just released RG 270, which sets out the components that a whistleblower policy must include to comply with the law eg types of matters covered by a policy, who can make and receive a disclosure and legal and practical protections for disclosers. It also provides guidance to assist companies develop and implement policies that are tailored to their operations. It is a really useful guide – of course, in practice whistleblower implementation is usually a rather involved process – with some great practical examples. Including as to how an entity’s policy can provide examples of how the entity will, in practice, protect the confidentiality of a discloser’s identity (page 31). (Protecting anonymity is quite a tricky aspect, with penalties for getting it wrong, so good to see ASIC’s detail here!) And it is worth noting that having an effective whistleblowing policy is one consideration for showing reasonable steps have been taken to mitigate offences under the ALRCs discussion paper (page 10).
4. Liquidator inquiry (ASIC): ASIC has filed an application with the Federal Court seeking an inquiry into the conduct of Jason Bettles – the liquidator of the Members Alliance Group of companies from 22 July 2016 until 13 July 2017. ASIC alleges he failed to maintain independence, did not exercise the degree of care and diligence required of a liquidator and failed to discharge his obligations as a liquidator. No factual details have yet emerged. The action is part of the ATO-led Serious Financial Crime Taskforce (of which ASIC is a member), and it’s worth noticing the steady increase in scrutiny being applied to the insolvency industry (phoenixing is also on the top of its radar). Despite the industry itself being somewhat in a lulled state itself.
5. Cryptocurrency (AUSTRAC): A Victorian man has been charged under the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 for alleged providing a crypto platform service which is unregistered (he has also been arrested under the Criminal Code Act 1995 for dealing with property suspected of being related to criminal activities). It marks one of the first joint actions by AUSTRAC and the police under the new E Crimes Squad related to cryptocurrencies.
Thought for the week: between the ALRC’s above-mentioned proposal for personal criminal liability (if it comes to fruition), BEAR and ASIC’s “stepping stones” strategy deployed in ASIC v Vocation the corporate veil as it applies to directors is feeling a little thin lately. Perhaps too thin? It could be useful to revisit, perhaps, why it has existed since the 1,600’s for policymakers going forward e.g. principled risk taking.