The public is baying for blood so ASIC is getting punchier
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The corporate cop is being pushed into more action by a public that’s baying for blood, ASIC deputy chair Daniel Crennan QC said at the regulator’s annual get-together yesterday.
Crennan said the well-publicised new ‘why not litigate’ stance at ASIC was part of a broader societal shift in Australia towards regulation that favours punishment over protective measures.
He pointed to legislative measures that could made penalties harsher.
In April, Attorney General Christian Porter launched a law review into increasing personal penalties for company directors.
ASIC shifting to a more punitive system may come as a surprise to some small cap market participants, but not to others.
Complaints by investors that ASIC has not taken misconduct seriously at their end of the market include LWP Technologies (ASX:LWP). In that case the corporate cop said there wasn’t enough evidence to follow through with prosecution. Investors plead otherwise.
But others have told Stockhead that they are seeing a ramp-up in activity by the corporate cop at the small and micro end of the market.
Crennan says they are still committed to using “protective measures” from education through to supervision and enforceable undertakings.
Combining a softly-softly approach with the big stick of the courts is a better deterrent than just hitting companies and directors with a legal case, says UNSW Law professor Dimity Kingsford Smith.
“The takeaway from the deterrence research is mix it up and keep the deterrence space busy,” she said at the ASIC forum.
She said the much maligned court enforceable undertakings, a tool that has been used against companies like Thorn Group’s (ASX:TGA) Thorn Australia last year, where it agreed to pay a total $22.1m in fines, fees and refunds after the Federal Court found its own subsidiary Radio Rentals had lent to people without first finding out if they could pay.
Not only do they generate a “fear effect” among competitors but they also give people inside the company a signal to start working out their internal problems.
But she said regulators “need the cover” of having a legal pointy stick above that in order to make enforceable undertakings work.
But as of last month ASIC now has a bigger stick: both houses of Parliament passed a law in April giving the corporate cop product intervention powers.
It means that financial product makers must have a “customer-focused approach”.
If they don’t, or if the regulator sees that a product poses a significant detriment to consumers yet is still legal such as some methods of pay-day lending, it can shut that product down.
Financial Rights Centre chief Karen Cox says small volume lending, consumer credit insurance, and accident insurance are three areas where the market isn’t working but is still legal.
“We have spent years at our work trying to mould existing laws to fit the problem, when there is no law to fit the problem,” she said.
Right now they’re “stuck” with using the unconscionable conduct laws and it’s very hard to get products that are “patently unfair” out of the market or prosecuted.