The new infringement notice regime will apply to all existing strict and absolute liability offences (and certain civil penalty provisions) as an alternative to civil or criminal proceedings. A notice will require payment within 12 months, failing which ASIC may pursue proceedings against the relevant entity. Payment of the notice will protect the entity from further action and is not taken as an admission of guilt (see table 5 below).
Insurance amendments
A substantial penalty provision (in line with other increased penalties – table 3) has been introduced for the obligation (on the insurer) to act in utmost good faith in relation to matters arising under an insurance contract. However, it is left to ASIC to determine whether to apply for such a pecuniary penalty order (not the insured).
Other notable amendments
- ‘Dishonest’ will have a prescribed meaning across the Corporations Act (rather than limited to financial services misconduct). The subjective element of the definition (that it is known to be dishonest) has also been removed so that it becomes a wholly objective test. This also lowers the onus of proof necessary to establish dishonesty.
- Relinquishment has been introduced as a remedy for civil penalty proceedings. This is intended to ensure that the penalties are not ‘weighed up’ against any potential benefits that could be gained.
- Removing an ambiguity that if an employee or officer dishonestly or recklessly uses their position or information known to them to gain an advantage, it will not matter if it causes a benefit (or detriment) to the corporation.
Summary tables of changes
The following tables are a selection of the amendments and are not comprehensive.
| Table 1: Obligations under increased maximum imprisonment (15 years) |
| Act recklessly, or be intentionally dishonest, and fail to act in good faith in the best interests of the corporation and for a proper purpose. |
| Financial records and audit obligations |
| Registered scheme responsible entity obligations |
| Securities fundraising without ASIC lodged prospectus |
| Materially adverse misleading or deceptive statements in disclosure |
| Providing defective disclosure |
| Failing to pay client monies into proper account |
| Table 2: New criminal offences alongside strict and absolute liability offences |
| Notifying ASX of director shareholdings |
| Maintaining financial records |
| Audit requirements |
| Failing to provide disclosure documentation |
| False information |
| Design and distribution obligations |
| Table 3: Maximum civil penalty provisions (current and new) | ||||
| Act | Individual (current) |
Individual (new) |
Company (current) |
Company (new) |
| ASIC Act | $420,000 (based on 2,000 penalty units) |
(Greater of) $1.05 million (5,000 penalty units); or 3 x benefit |
$2.1 million (10,000 penalty units) |
(Greater of) $10.5 million ; or 3 x benefit; or 10% of 12 month turnover up to $525m (2.5 million penalty units). |
| Corporations Act | $200,000 | $1 million | ||
| Credit Act | $420,000 (based on 2,000 penalty units) |
$2.1 million (10,000 penalty units) |
||
| Insurance Act | $63,000 (based on 300 penalty units) |
$2.1 million (10,000 penalty units) |
||
| Table 4: Obligations under new civil penalty provisions | |
| Financial Services | Credit |
| General financial services licensee obligations (including to act efficiently, honestly and fairly) | General credit licensee obligations (including to act efficiently, honestly and fairly). |
| ASIC notifications | Recovering in excess of twice the adjusted credit under small amount credit contracts |
| Retail client disclosure (FSG, SOA, defective PDS) | False or misleading representations |
| False information | Harassment to apply for credit, including visiting homes |
| Registered to operate managed investment scheme |
Complying with product intervention orders |
| Complying with a banning order | |
| Design and distribution obligations | |
| Complying with product intervention orders (contingent) |
|
| Table 5: Obligations under new Infringement notice provisions | |
| Financial Services | Credit |
| Charging ongoing fees after arrangement cancelled |
Provision of Key Facts Sheet |
| Certain ASIC notifications | Notification for exceeding credit card limit |
| Provision of retail disclosure documentation | Obligations relating to small amount credit contracts |
| Ban on conflicted remuneration | Use of certain words |
| Increasing margin loans without suitability assessment |
|
Timing
The changes (except for those relating to laws not yet passed) are set to commence the day after the Act receives Royal Assent.
ASIC Enforcement principles
ASIC has also published a set of principles which are set to guide ASIC’s approach to enforcement. Relevantly these include principles to help determine whether ASIC should litigate to achieve the above (increased) penalties. Where a possible breach is known to ASIC, if following an assessment ASIC is satisfied of a breach, ASIC will ask “why not litigate?”. ASIC will also consider whether negotiating an outcome is appropriate, weighing this outcome against the public benefit of a judgment and imposition of a sentence.
There will also be an increased focus on both corporate accountability and individual accountability, particularly at executive and board level.
Next steps
If you or your board have concerns with the new penalties regime and would like to discuss it, we encourage you to contact us.
