Go to our Contact page for our office details.
This is Part Two of our four-part series on the impact of the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
On 14 February 2019, the Senate passed the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 which very significantly increases penalties and prison terms for corporate and financial sector misconduct and adds penalties for provisions which were not previously the subject of financial penalty. The amendments look likely to pass the House of Representatives and become law in the next few days.
Of particular note, is the introduction of a civil penalty for Australian Financial Services Licensees for a failure to ensure that their financial services are provided ‘fairly, efficiently and honestly’ in accordance with section 912A of the Corporations Act.
The materially increased penalties and introduction of a penalty regime applying to subjective concepts like ‘fairly and efficiently’ will fundamentally alter the enforcement landscape for corporates and financial services licensees.
Key aspects of the amendments include:
In passing the draft legislation, the Senate made two amendments to the previous draft of the bill:
In a significant development, the draft legislation also extends the civil penalties regime to obligations imposed on Australian Financial Service Licence holders under the Corporations Act, including:
Accordingly, the amendments will impose on financial services licensees extraordinary financial penalties (up to $525 million per contravention) in respect of provisions ostensibly designed to operate as a normative structure to guide licensee conduct and to provide a benchmark as to matters which should be notified to the regulator as part of its general supervisory functions. Imposing extremely high penalties in respect of ephemeral and subjective concepts like ‘efficiency’ and ‘fairness’ fundamentally alters the compliance and enforcement landscape for licensees and will ensure that section 912A takes on a new found prominence, if not pre-eminence, in enforcement scenarios concerning financial services.
A more detailed summary of key aspects of the draft legislation can also be found here.
As we have previously identified, corporations operating in Australia, particularly financial services providers, should expect to face materially increased regulatory scrutiny and enforcement in 2019, and a proactive regulator with new powers and an increased appetite for enforcement action. The passing of this legislation, in combination with the release of the Final Report of the Banking Royal Commission, will further embolden ASIC as it embarks on a more aggressive approach to regulatory action.
The legislation will commence immediately upon receiving royal assent, but will not be retrospective and will only apply to offences or contraventions occurring after the legislation has commenced.