ASIC has released its Corporate Plan 2021-25 outlining its strategic priorities over the next four years. The emphasis on building the litigation enforcement landscape appears to have shifted, but has it really?

With ASIC stating its role as “protecting consumers and investors from harm” and “to enhance trust in the financial system”, we can expect continued scrutiny for corporate Australia.

New strategic priorities

In stepping away from its mantra of ‘why not litigate?’ following the Hayne Royal Commission, ASIC says it will use its regulatory tools ‘in a targeted and proportionate way, to identify and reduce the risk of misconduct in the markets and sectors’ it regulates.

ASIC’s four external priorities are:

1. To promote economic recovery: More efficient regulation, facilitation of innovation and the targeting of regulatory and enforcement action to ‘areas of greatest harm’;
2. Reducing the risk of harm to consumers: This will see an enhanced use of the product and deign powers, and more focus on scam prevention;
3. Cyber resilience and security enforcement; and
4. To drive industry readiness and compliance with law reform initiatives e.g. Financial Accountability Regime, reforms in superannuation and insurance, and design and distribution.

As would be expected, the support for the Government’s economic goals and COVID-19 pandemic recovery is of paramount importance in its statement of intent.

There is intent to continue to litigate but the considerations and areas where we can expect to see more litigation will be targeted. The superannuation and insurance sectors are areas that are heavily regulated and given the issues arising from COVID-19 on insurance and the range of financial products and services, it would be naïve to expect that enforcement in these areas will be down played. The scams arising from COVID-19 whether via cyber or otherwise will be high on the list.

The durability of the ‘Why not litigate approach?’

The Hayne Royal Commission report in 2018 criticised the ‘soft’ approach of the regulator by too often entering into negotiations with parties and accepting financial penalties without admissions of guilt. It was described as a ‘toothless tiger’. In response, ASIC changed its approach to enforcement with the adoption of ‘Why not litigate?’ This was welcomed by the Commissioner who stated that ASIC should be given time to demonstrate its approach and that the ‘changes are durable’.

ASIC’s explanation of the ‘Why not litigate/ approach was threefold:

1. Did a breach of the law ‘more likely to occur than not’?
2. The facts of the case show pursuing the matter is in the public interest; and
3. Then actively ask: why not litigate?

Between 2018 and 2020, ASIC recorded a 64% increase in civil penalty provisions and a 36% increase in criminal proceedings. This has yielded AU$77.65 million in imposed penalties. In the last half of 2020 there were 18 civil penalty cases before the Courts.

Is this what was expected?

Sure there have been some substantial penalties against large financial corporations but there have also been some very public and high profile losses including the notorious ‘shiraz and wagyu’ responsible lending case and the Mitchell loss, both of which have hefty costs orders attached to them.

Overall though, ASIC is way more successful than not and there is no doubt that litigation has increased in line with its mantra.

The future approach

Will the future be that different with a more targeted and proportionate approach?

It seems that litigation will continue at the same rate and level although the limited resources of ASIC will be more focused on the industry and sectors which will support economic recovery.

The messaging of this approach and the supportive stance to assist the government through economic recovery and to protect consumers from COVID-19 scammers in this unprecedented era is the right way to proceed and the tone is one that is appropriate and is likely to be embraced by government, business and consumers.

What remains certain though is that ASIC still has teeth and it will be ready to pounce.