The focus of my book “Australia’s ‘Company Law Watchdog’ – ASIC and Corporate Regulation” (a book that is entirely dedicated to the Australian Securities and Investments Commission, ASIC) is the extent to which ASIC can and does effectively regulate corporate misconduct, and most importantly, how it might be made more effective. Its publication comes at a time of heightened public interest in regulation and ASIC, especially in view of a number of high profile cases in recent years, including those brought against the directors and executives of One.Tel, HIH, James Hardie, Centro and the Australian Wheat Board (AWB), as well as a string of highly publicised financial scandals that engulfed the major Australian banks. There have also been various parliamentary inquiries. These include the recent Senate inquiry into ASIC’s performance, the Financial System Inquiry (Murray Inquiry) and the ASIC Capability Review.
In 1993, the law concerning enforcement of the statutory duties of company officers in Australia underwent a dramatic transformation when the civil penalty regime, currently contained in Pt 9.4B of the Corporations Act 2001 (Cth), was introduced. It replaced the earlier criminal law regime, which because of the difficulties associated with the use of the criminal law, including the need to satisfy the criminal rules of evidence and higher standard of proof, was not seen as an effective enforcement regime. The policy source of the civil penalty regime was the 1989 report of the Senate Standing Committee on Legal and Constitutional Affairs entitled, “Company Directors’ Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors” (the Cooney report). It embraced the idea of ‘strategic’/ ‘responsive’ regulation. At the heart of this theory is the ‘pyramid of enforcement’ model, developed by Ian Ayres and John Braithwaite. The theory recognizes that it is impossible for regulators to detect and enforce every contravention of the law they administer and provides insights into how regulatory compliance can be secured most effectively. It posits that enforcement actions should be backed up by a framework of sanctions pyramidal in shape. Regulators should begin with informal measures, such as persuasion and warnings at the base of the pyramid, escalating responses to include administrative and civil penalty sanctions as contraventions become more serious, with criminal action at the apex only for continued non-compliance or the most serious breaches of the law.
By following this approach, where reliance on the criminal law would be reduced in favour of new mechanisms centering on civil penalty sanctions (such as management disqualification orders and pecuniary penalties), the expectation was that Pt 9.4B would be a ‘boon to effective law enforcement’. This is mainly due to ASIC having the advantage of civil procedural rules and standard of proof (proof on the balance of probabilities), rather than the limitations of criminal procedural rules and standard of proof (beyond a reasonable doubt), in civil penalty proceedings.
The book identifies the factors that have hampered ASIC’s ability to be an effective corporate regulator and which have contributed to its mixed record of success. These factors include the conceptually flawed implementation by the Federal Government of the laws within which ASIC had to operate and the seemingly deep-seated reluctance on the part of the courts to accept various aspects of the regulatory scheme. Among them has been the courts imposing criminal procedural protections in civil penalty proceedings, notwithstanding Parliament’s preference for civil, not criminal procedural processes in such proceedings (Corporations Act, s 1317 L). In teasing out the reasons for ASIC’s limited effectiveness, the book offers a prescription for how ASIC might lift its game. By situating ASIC, the laws it must implement, and the practical issues posed for a regulator by complex corporate wrongdoing within the wider context of modern regulatory theory, the book is able to formulate a set of recommendations for how ASIC might be a more effective regulator.
Dr Vicky Comino is a Lecturer at The University of Queensland.