ASIC deputy chair Daniel Crennan QC

When Daniel Crennan QC answered a question from fellow ASIC deputy chair Karen Chester about what the regulator’s new ‘why not litigate?’ mantra really means, he started by saying it was simply “a straightforward phrase”, and “no more than a tool”.

It became apparent, however, that the Commissioners intended to use the panel at the ASIC Annual Forum to clear the air about the catch-phrase, which Chester noted had “a little more media coverage than any other three words associated with ASIC”.

Crennan explained that the phrase is a part of a broader trend towards “punitive measures, rather than protective measures”.

“It’s a tool designed to identify and recognise that there has been a societal shift in Australia in recent times towards regulation which recognises more activity than it did in the past,” Crennan explained.

He recalled recent legislative reforms that, for the first time, either attaches penalties to the provisions that contain “core obligations” or increase the penalties to much higher levels and increase the custodial sentences “to much longer periods of incarceration”.

The ‘Treasury Laws Amendment’ Bill, passed in February, notably introduced a civil penalty for Australian Financial Service Licensees if they fail to provide their services ‘fairly, honestly and efficiently’ in accordance with section 912A of the Corporations Act.

Crennan bristled at the notion that the obligation – which now carries a potential $525 million maximum penalty for contravention by companies – was tricky to comprehend.

“The concept of fairness shouldn’t be difficult to understand,” he said. “When one looks broadly at centuries of ethics and religious thinking about how human beings should behave towards each other and the golden rule… those types of ethical statements that you do unto others and so on… they permeate through many cultures, so to suggest that that type of ethical responsibility towards one’s customers is difficult to observe is difficult to accept.”

He also pushed back on the notion that the new amendments necessitated further clarification on the laws, or “stronger focus on the content of those obligations”. The law hasn’t changed, he explained, just the ramifications.

“The obligations that financial services licensees owe to the customers… are longstanding obligations expressed in plain English, and they have been enforced since, I think, February 2002,” he said.

Skill and judgement

The shadow of the Hayne royal commission loomed over the exchange. In his response to the interim report, ASIC chair James Shipton noted that the securities regulator would henceforth consider litigation to “support interpretations that may have a significant impact on deterring misconduct.”

Hayne then acknowledged this in his final report, calling ‘why not litigate?’ a “critical question” which ASIC “now accepts must be asked”.

“Answering the question ‘why not litigate’ calls for skill and judgment,” Hayne highlighted in the report. “Especially will that be so when it appears that the issue is systemic.”

Crennan was careful to note on the panel at the Forum, however, that a focus on punitive measures does not mean ASIC will “engage in any wholesale abandonment of protective measures”.

“Quite the contrary,” Crennan said. “ASIC is resolute in its pursuit of protective measures and protective tools as part of our regulatory toolkit.”

The regulator will maintain a disciplined approach, he said, and be strategic about which cases it chooses to pursue via punitive measures.

“If those penalties are sufficiently grave and the conduct is sufficiently egregious then it would be more difficult for us to answer the question why not litigate in the negative,” he said. “However, we can’t litigate everything and that would not be a good use of public funds and impossible to exercise.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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