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Penalties for financial misconduct to increase

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Reporter 5 minute read

The Treasury is consulting on extending maximum prison terms, increasing civil penalties and expanding ASIC’s ability to implement infringement notices as part of a move to crack down on corporate and financial sector misconduct.

Currently, the Australian Securities and Investments Commission (ASIC) can undertake a range of regulatory and enforcement sanctions and remedies to respond to misconduct that occurs in the corporate, financial market or financial services sectors.

However, following a proposal from the Financial System (Murray) Inquiry to substantially increase the maximum civil and criminal penalties for corporate and financial sector misconduct, the ASIC Enforcement Review Taskforce was established to review ASIC’s enforcement powers, including the penalties regime, and has proposed a range of improvements.

These proposals aim to address concerns that the current penalties “may not be effective” as a deterrent and “do not reflect community perceptions as to the seriousness of engaging in certain forms of misconduct”.

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A consultation has now been launched on strengthening ASIC’s enforcement powers to act as a “credible deterrent” and reflect the gravity of the misconduct.

The consultation asks stakeholders to consider 16 proposals, with the key positions being:

- lengthening the maximum terms of imprisonment — for example, extending the penalty for those banned or disqualified from engaging in credit activities from two years to five, and increasing the highest penalty under the Corporations Act to 10 years’ imprisonment, 4,500 penalty units ($945,000) or three times the benefits for individuals; and 45,000 penalty units ($9.45 million) or the times the benefits or 10 per cent annual turnover for corporations;

- increasing maximum civil penalty amounts in the Corporations Act 2001 and National Consumer Credit Protection Act 2009 (Credit Act) to 2,500 penalty units ($525,000) for individuals; and either the greater of 12,500 penalty units ($2.625 million), or three times the benefit gained (or loss avoided) or 10 per cent annual turnover for corporations;

- increasing penalties in the Australian Securities and Investments Commission Act 2001 from 2,000 penalty units ($420,000) for individuals to 2,500 penalty units ($525,000); and from 10,000 penalty units ($2.1 million) for corporations to the greater of 50,000 penalty units ($10.5 million), three times the benefit gained (or loss avoided) or 10 per cent annual turnover; and

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- enabling ASIC to seek disgorgement remedies (removal of benefits illegally obtained or losses avoided) in civil penalty proceedings brought under the Corporations, Credit and ASIC Acts.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said the the government is committed to improving outcomes for consumers and investors and a “strong penalty framework” plays a crucial part.

“The Taskforce process will help to ensure that ASIC has the right tools to combat corporate and financial sector misconduct and to protect consumers,” Minister O’Dwyer said.

She added that the proposals seek to foster greater industry compliance and improve public confidence in the financial system.

The closing date for consultation submissions is on 17 November. The Taskforce will provide its recommendations to Government by the end of November 2017.

[Related: ASIC to recover $9m from credit intermediaries]

Penalties for financial misconduct to increase
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