The Aust today - Extract only Bosses in ASIC’s crosshairs The...

The Aust today - Extract only

Bosses in ASIC’s crosshairs

The corporate watchdog plans to target senior executives and company directors as part of a tough new police-style approach to enforcing the law set out in a confidential internal report obtained by The Australian.

Under the new regime proposed by the Australian Securities & Investments Commission’s enforcement specialist, Daniel Crennan QC, the regulator plans to focus on bringing prosecutions against both large corporates, especially in the scandal-ridden finance sector, and “individual accountability, particularly at executive and board level”.

The proposals respond to community expectations following the royal commission and a five-year wave of finance sector scandals that include the desire for a tougher regulator and the rejection of negotiated settlements including enforceable undertakings, where a company agrees to mend its ways but often does not admit it did anything wrong in the first place.

In other reforms, Mr Crennan also proposes a strict six-month time frame between ASIC receiving a report of misconduct and deciding whether or not to prosecute — a time period regarded within the regulator as ambitious — and says detailed reasons should be provided when investigations end with no action being taken.

“Such an attitude cannot be tolerated,” he said. “When appropriate, proceeding against both the corporation and the individual corporate officers responsible for the contravening actions of the company should be the Office of Enforcement’s primary objective.”

“Boards which fail to drive a culture of strict compliance with the law will find their directors subject to reputational damage,” he said.

When setting up the Office of Enforcement, he said ASIC should consider the principles recently adopted by the Division of Enforcement at the US Securities and Exchange Commission, which include focusing on retail investors and individual accountability.

The model also involves separating ASIC’s regulatory role, where it concerns itself with trying to uphold standards across entire industry sectors, with the more narrow-minded role adopted by a law enforcement body such as a police force, which measures its effectiveness through the number of arrests it makes and criminals it locks away.

Mr Crennan said ASIC’s functions and powers “extend far into all aspects of commercial activity in Australia”.

Under the new model, ASIC will adopt a four-stage investigation process, starting with an initial assessment of misconduct reports, before moving to preliminary inquiries, a formal investigation using the regulator’s suite of compulsory information-gathering powers and finally a decision on whether to go to court for criminal or civil proceedings or accept an enforceable undertaking.

In a move that will dramatically up the stakes for corporate Australia, ASIC will no longer cut deals with suspected wrongdoers until the end of the formal investigation.

At the end of any investigation that fails to come up with enough evidence to support legal action, ASIC officers will also be required to write a two-page report detailing the reasons why.

All investigations that end without a result are currently recorded in a “no action report”, but these have sometimes been unsatisfyingly brief documents that have occupied as little as half a page.

The Office of Enforcement is to have its own oversight committee, made up of a former judge or senior silk, a legal academic, an economist and a senior law enforcement officer from outside ASIC.

Mr Crennan also endorsed the ideas of expanding the criminal jurisdiction of the Federal Court and Federal Circuit Court to take in ASIC cases.