The Regulator

John Price provides recent examples of the Australian Securities and Investments Commission’s enforcement actions and outlines how the regulator is using enforcement to promote good governance.

Ready, willing and able to enforce

The conduct of directors remains an ongoing area of focus for the Australian Securities and Investment Commission (ASIC) and our recent enforcement outcomes demonstrate ASIC’s commitment to taking action where serious misconduct is identified. ASIC’s priorities include promoting investor trust and confidence, and ensuring fair, transparent and efficient markets.

We rely on gatekeepers, including directors, to comply with their regulatory obligations to achieve these goals. When a gatekeeper fails in their role, it can have serious consequences for investors and our markets. This is why we take enforcement action to hold gatekeepers to account. Over the past financial year, ASIC has:

• Commenced 19 criminal and 74 civil litigations.
• Obtained convictions against 22 people.
• Disqualified 39 people from directing companies.
• Secured $212 million in compensation and remediation.
• Issued 110 infringement notices (primarily for National Credit Act breaches but also including continuous disclosure and ASIC ASX 24 Market Integrity Rules breaches).
• Banned 141 people from financial services.
• Commenced 206 investigations.
• Completed 175 investigations.

We recently published our enforcement report for the period 1 January 2016 to 30 June 2016. It highlights ASIC’s key areas of focus and outcomes supporting those areas including poor organisational culture in the financial services industry and illegal phoenix activity.

The strong deterrent effect of enforcement outcomes is a key part of our regulatory toolkit. These outcomes can change the behaviour of potential offenders who fear the consequences of getting caught. The recent outcome of the Kleenmaid case demonstrates ASIC’s determination to achieve results. Bradley Young was sentenced to nine years imprisonment for offences in his role as the managing director of a Kleenmaid Group company, including one count of fraud and seventeen counts of criminal insolvent trading. We expect directors to discharge their duties diligently and in accordance with the law. As our recent enforcement outcomes show, where we detect misconduct, we will take strong action, especially where the outcome can establish important principles to change market conduct for the better.

ASIC’s action against Storm Financial directors, Emmanuel and Julie Cassimatis is an important reminder that directors should not cause the companies they control to breach the law. Storm provided “one-size-fits-all” investment advice without considering investors’ individual circumstances. The Cassimatises failed their directors’ duties by failing to ensure that Storm did not breach the law by providing inappropriate investment advice. The Cassimatises were the sole shareholders of the company which was solvent at the time. But the court rejected their argument that this meant they could pursue a risky course of action likely to contravene the Corporations Act.

ASIC’s action against the chairman of Sino Australia Oil & Gas, Tianpeng Shao, for breaching his directors’ duties illustrates that a director’s role comes with significant responsibility. Shao was found to have failed to act with proper care and diligence by signing off on the company’s prospectus without obtaining a full translation, despite not being able to speak or read English.

Another recent enforcement outcome was the five year imprisonment of Garth Robertson, CEO of collapsed debenture issuer, Wickham Securities, for dishonestly obtaining property and money, giving or permitting false information and falsifying company books.

We also act to protect investors by disqualifying directors from managing companies where directors have a history of involvement in failed companies where their conduct directly contributed to the failure. Our role extends much further than enforcement. We rely on a broad regulatory toolkit, including educating investors, providing guidance to gatekeepers, undertaking surveillance, and giving policy advice to government, to promote and uphold Australia’s strong culture of compliance and good corporate governance.