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Emerging trends in Australian regulatory enforcement – Industry Updates & Analysis


While the appropriate degree of regulatory oversight and
intervention is the subject of much debate, regulation is accepted
as being necessary to aid a properly functioning economy – whether
by promoting conduct that meets societal expectations or by passing
on the economic costs of those actions that create social
harm.

By understanding emerging trends in enforcement,
organisations can make informed decisions about whether there is a
need to shift resources to those areas of most relevance or
interest to regulators.

One feature common to almost all regulated industries in
Australia is the steadily increasing complexity of the regulatory
environment and consequent soaring compliance costs.

The ability to carefully calibrate and balance cost pressures
with appropriate risk appetite remains, for some, something of a
dark art. As expected, these costs will exponentially increase when
an organisation operates in an industry that is the subject of
heightened regulatory oversight. However, by staying in front of
regulatory trends and embedding a positive risk culture, many
organisations will improve their ability to smooth out peaks in
compliance costs and ameliorate the prospects of avoiding
enforcement activity.

Below, we identify three emerging trends in regulatory
enforcement that apply across a range of sectors, and outline
possible steps organisations can take now to minimise the
likelihood of being the subject of oversight – and mitigate
detriment in the event that enforcement action is taken.

Trend 1 – Direction from the top and close collaboration
between regulators

While primary motivations may differ, regulators face many of
the same costs pressures of the private sector. However, regulators
must also contend with high levels of scrutiny and political and
public expectations that those regulators will identify and punish
all instances of corporate wrongdoing and misconduct. To achieve
this, regulators are required to make strategic decisions about the
areas they wish to target and the tools they intend to use to do
so.

Leadership within a regulator is critically important for the
setting of strategic direction and enforcement priorities. The
Australian market is carefully calibrating the impact of a number
of recent changes to the leadership of some of Australia’s most
visible regulators, and a new Federal Government. These changes
make it challenging to extrapolate nuances in the approach that
will be adopted, but subtle changes are already being observed.

While it may be too early to see the impact that newly appointed
Member of the Australian Prudential Regulation Authority
(APRA) Margaret Cole and Chair of the Australian
Competition and Consumer Commission (ACCC) Gina
Cass-Gottleib will have, Australian Securities and Investments
Commission (ASIC) Chair Joe Longo has publicly
committed to “enforcing the law using all of [ASIC’s]
regulatory tools to litigate and act against misconduct” and
has quietly distanced himself from the regulator’s former
‘Why not litigate’ mantra.

ASIC in particular continues to broaden its focus beyond seeking
enforcement remedies in respect to ‘traditional’ provisions
to include more novel causes of action. This has seen ASIC move
from pursuing alleged breaches of the ‘efficiently, honestly
and fairly’ obligation,1 and the prohibitions on
misleading or deceptive conduct3 to taking action in
relation to defective systems and inadequate controls. This has
been driven by ASIC’s belief that many corporations rely on
outdated and bolted-on systems, which have limited functionality to
provide oversight or proper record-keeping, and that this makes
them particularly prone to cyber-attacks. The industries of most
interest to regulators continue to be those where there is an
element of customer vulnerability or asymmetric information which
can be exploited by sophisticated algorithms able to discretely
manipulate data to influence decision-making.

A greater inter-reliance of regulators leading to the sharing of
investigative functions – including between ACCC and ASIC – has
also allowed resources to be deployed in a more strategic manner.
One of the less well-known provisions of the Australian
Securities and Investments Commission Act 2001
(Cth)
(ASIC Act) for example, is the power under section
102 which permits ASIC to delegate many of its powers to a staff
member of the ACCC. Likewise, section 26 of the Competition and
Consumer Act 2010
(Cth) (CCA) permits most of
the powers of the ACCC to be delegated to ASIC staff members. We
anticipate that these powers will be used more frequently over the
short to medium-term and expect to see even greater information
sharing between the two regulators.

Trend 2 – Greater focus on individual punishment

In the past, the focus of regulatory enforcement action tended
to be at the organisational level, with regulators rarely resorting
to criminal prosecution of individuals. However, recent initiatives
by both the ACCC and ASIC demonstrate a clear push to identify and
punish misconduct at an individual level. For example, in what was
a highly visible attempt by the ACCC to criminally prosecute the
individuals said to be the masterminds of market manipulation, the
Commonwealth Director of Public Prosecutions
(CDPP) laid criminal cartel charges against three
banking and financial services companies and criminal charges
against a number of senior executives in June 2018, following an
investigation and referral by the ACCC (all proceedings were
recently abandoned by the CDPP and ACCC). Equally, ASIC has put
enormous effort into increasing the number of banning and
disqualification orders it imposes on company directors and senior
executives in financial services, who it is asserted are an ongoing
threat to investors and consumers. Banning orders of this nature
have very serious consequences given they often prevent an
individual from working in their chosen profession, sometimes
indefinitely.

Individuals who are appointed as directors (including
subsidiaries in a corporate group) should keep in mind the
potential personal exposure they have. For those officeholders
exiting an organisation, it may be helpful to seek details of their
insurance position and determine whether an entry into co-operation
agreement is necessary. It can often seem obvious with hindsight,
but difficulties in accessing relevant corporate information can
significantly complicate the defence of enforcement
proceedings.

Trend 3 – The rise of non-traditional techniques to signal
enforcement priorities

Following public statements from ASIC that it has now closed all
remaining issues arising out of the Financial Services Royal
Commission, there has unsurprisingly been a notable decrease in the
number of new enforcement proceedings and regulatory investigations
being commenced by ASIC over the last 12 months.

It was surmised that the recent introduction of the
‘reportable situations’ regime might create a second wave
of litigation stemming from the increase in data that ASIC would
receive, which it hoped would identify industry trends and provide
early alerts of serious misconduct. However, flaws in the design of
the regime, inconsistent approaches to reporting and a massive
influx of reports has rendered the regime in need of refinement, a
point somewhat acknowledged by ASIC in its 10 August 2022 media
release, 22-214MR ‘ASIC’s approach to breach reporting:
implementation of reportable situations regime’.

ASIC has also recently shown an increased willingness to deploy
its administrative powers, such as stop orders and banning orders,
to punish misconduct. Remedies of this kind are unusual in the
sense that ASIC acts effectively as both investigator and
adjudicator. These orders are also not subject to the same judicial
oversight that court proceedings would be, nor are the processes
bound by strict rules of evidence. However, given the control ASIC
exercises over the process, use of these methods will likely
continue to increase. It has highlighted the importance of ensuring
that examinees are legally represented and that they do not simply
accept the propositions put to them by ASIC as an easy way out.

Over the last 12 months, ASIC has also adopted a number of more
novel enforcement techniques, outside of the usual traditional
regulatory toolkit, aimed at clearly signalling to the market
ASIC’s expectations and those areas of most interest to the
regulator. Measures include sending an open letter to ASX CEOs
reminding them of their obligations to comply with whistleblowing
legislation and posting messages on behalf of the regulator in chat
rooms warning of possible criminality in respect of ‘pump and
dump’ strategies. By tracking these more informal measures,
organisations can take proactive steps well in advance of
enforcement action.

***

By understanding emerging trends in enforcement, organisations
can make informed decisions about whether there is a need to shift
resources to those areas of most relevance or interest to
regulators. Acting on clear signalling can also carefully avoid the
very expensive task of responding to a regulatory investigation and
ensure enforcement action is deemed unnecessary.

Footnotes

1 Corporations Act 2001 (Cth),
section 912D.

2 Corporations Act 2001 (Cth),
section 1041H; Australian Securities and Investments Commission
Act 2001
(Cth), section 12AD. –

3 Australian Securities and Investments
Commission Act 2001
(Cth), section 12CB; Australian
Consumer Law
, section 21.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.





Lawyers Weekly Law firm of the year
2021

Employer of Choice for Gender Equality
(WGEA)



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