The range of enforcement actions and remedies available to ASIC has the capacity to cripple almost any business.
Civil and criminal risk
ASIC has the discretion to impose severe civil penalties on a company and/or its director and officers (which may include deregistering a company or cancelling an AFSL holders licence),4 and may, as has been shown recently, take the further step of issuing court proceedings against a company and/or its directors and officers seeking a court declaration that they contravened the Act by failing to take all reasonable steps to comply with, or secure compliance with, their reporting obligations under the Act.
Depending on the severity of the breach/breaches, a court may also make civil penalty and/or criminal orders against a company’s directors and officers where they have acted dishonestly or fraudulently in breaching their financial reporting obligations under the Act.
Reputational and contractual risk
A contravention of the Act by a company may also constitute a breach of a covenant or warranty (for example, to comply with all relevant legislation) contained in contractual documents that a company has entered into. Such a breach may constitute a “default event” or breach of warranty under such an agreement, providing counterparties with termination rights or a breach of warranty claim against the contravening company. Companies that are found to be in breach and penalised are made public on ASIC’s website, which may notify a counterparty to the occurrence of such an event.
The consequences for non-compliance can be far-reaching, however it appears many companies are still being caught unawares. Traditionally, the sense was that people felt this was more of an administrative requirement, and treated it as such – whereas now it is firmly under the regulator’s spotlight and is being administered with teeth. Non-compliant companies risk losing their entire undertaking, and given that having an AFSL is a critical requirement for most financial services businesses, this should be of concern and a priority for relevant companies and their directors, officers and advisers.
Failure to comply with reporting obligations can be an indicator of broader compliance concerns. With this in mind, ASIC has the discretion and power to refer a non-compliant company to other regulatory bodies, such as the Australian Prudential Regulatory Authority, the Australian Competition and Consumer Commission, the Australian Taxation Office and/or the Foreign Investment Review Board. This is something we have experienced in practice, and can compound an issue which at first instance seemed discrete.