In the second half of 2020, ASIC demonstrated its commitment to aggressive enforcement.
It recorded a 64% increase in civil penalty proceedings compared to 2018, leading to $159.8 million in civil penalties imposed by the courts. This included its two largest ever civil penalty outcomes, one of which was a referral from the Financial Services Royal Commission.
ASIC also recorded a 36% increase in the number of criminal proceedings commenced, with 194 criminal charges laid and 27 individuals charged in criminal proceedings, of which four were imprisoned.
The outcomes are outlined in an ASIC Enforcement Update released on 16 April 2021.
Financial Services
ASIC recorded 37 financial services-related enforcement results in the reporting period, with criminal enforcement outcomes in the areas of:
- Credit misconduct.
- Financial advice misconduct.
- Superannuation misconduct.
Civil actions were taken against a wider range of conduct including insurance, investment management, and other financial services misconduct, with criminal litigation still in progress across the full spectrum of conduct.
A notable case involved the largest civil penalty imposed in a matter referred to ASIC by the Financial Services Royal Commission, involving two NAB subsidiaries that deducted fees from the accounts of thousands of unsuspecting consumers that they were not entitled to charge.
The two NAB entities, NULIS and MLC Nominees, were ordered to collectively pay a total of $57.5 million in penalties for making false and misleading representations to superannuation members about plan service fees.
This was the first enforcement action brought by ASIC concerning fee-for-no-service activity.
Markets
ASIC recorded 12 market-related results, with criminal actions relating to insider trading and other market misconduct.
Civil actions were taken against misconduct related to continuous disclosure, and one administrative action was taken against emerging misconduct involving cyber and cryptocurrency elements.
ASIC’s largest civil penalty outcome came to fruition in October 2020, when the Federal Court ordered that AGM Markets and two of its authorised representatives, OT Markets and Ozifin Tech, pay a total of $75 million in penalties for “systemic unconscionable conduct” while providing OTC derivative products to retail investors.
Vulnerable investors were encouraged by trusted account managers to make deposits and trades which resulted in trading losses totalling approximately $32 million, but which translated to revenue earned by the three providers.
Refunds were ordered to be paid to approximately 10,000 former clients.
Corporate governance
ASIC is also responsible for ensuring that companies treat investors fairly, in addition to consumers. This involves being accountable to investors through accurate, timely and clear disclosure.
ASIC recorded only one corporate governance-related result in the reporting period, whereby the Tennis Australia director was ordered to pay a penalty of $90,000 for failing to properly discharge his directors’ duties. The misconduct was in connection with awarding broadcast rights for the Australian Open to the Seven Network.
ASIC had 12 criminal and three civil matters related to corporate governance still before the courts as at 1 January 2021.
Small business
ASIC may take actions against small businesses which fail to comply with their duties.
129 small business-related results were recorded, consisting of 98 criminal actions and 31 administrative actions.
149 criminal prosecutions were still in progress as at 1 January 2021.
In one case, a former company director was sentenced to a two-year community corrections order, ordered to perform 200 hours of community service and pay a fine of $2000 for engaging in illegal phoenix activity.
Conclusion
ASIC is recording increasingly high civil penalties, sending a strong message of deterrence against financial services and market-related misconduct. There has also been a significant increase in criminal proceedings, demonstrating that jail time is a possibility for engaging in this type of misconduct.
It is not only the big players being targeted by ASIC. All companies are responsible for ensuring strong corporate governance and compliance with relevant laws, including small businesses, and actions will be taken against non-compliance.
