#7360 - Asic Investigation And Enforcement Powers - Securities and Financial Services Regulation

ASIC collects information through both its general intelligence (complaints, economic research) and four other ways whereby persons are required to provide it with information:

• Lodgment by regulated entities and others of reports or documents

• ASICs exercise of statutory powers requiring provision of information/books as part of ‘surveillance’

• The hearings power

• The exercise of its powers icw investigations following the commencement of proceedings

[Confidentiality] ASIC is required to take all reasonable measures to protect information that is given to it in confidence or icw the performance of its functions under the corporations legislation from unauthorised use (s 127(1)

ASIC is also required to act consistently with the principles of natural justice and give an examinee an opportunity to be heard before making the confidential record available before public hearings.

• There may be exceptional situations where the principle doesn’t require this – e.g. if it would frustrate an investigation

This includes requirements for AU market license and CS facility holders as well as duties on certain people such as trustees/debenture holders

More relevantly, the holder of an AFS license is required to notify ASIC of certain matters under s 912D and provide information to ASIC about its ARs under s 916F

• AFSL are also s.t. special financial reporting requirements in Pt 7.8 Div 6 and are required by the conditions placed on its AFSL to notify ASIC of matters like a material adverse change in its financial position (reg 7.6.04)

Generally speaking a person is required to produce a relevant document even if it might incriminate them or make them liable to a penalty – but they aren’t required to hand over a document to which LPP applies

ASIC’s information gathering powers include:

• ASICA s 29: A general power to inspect books kept in accordance with the corporations legislation

  • This includes their financial records under s 286 CA

• ASICA ss 30, 30A, 31, 32A and 33 confer power on ASIC to issue written notice requiring the production of books

  • These powers can only be exercised ftpo specified in the ASICA s 28 which include the performance or exercise of any of ASIC”s functions or powers ftpo ensuring compliance with the corporations legislation, in relation to a suspected contravention of the relevant law

  • This includes obtaining books and information for possible contempt proceedings against a person ASIC suspects of having contravened an order under s 1323 CA

  • These powers are reinforced by ss 35, 36, 36A to apply for and execute a warrant to search and take possession of the relevant books

  • Such a notice of production may require a company to undertake investigation such as making enquiries of officers, employees and agents – the mere fact that the notice is inconvenient to provide an answer to and that it will require considerable resources and time will be insufficient to have it set aside (Melbourne Home of Ford v TPC)

  • Where documents under the scope of a ASICA Pt 3 Div 3 notice it may be possible to mask that information

[Power to give notices]

• ASIC’s power to require production of books under notice include:

  • S 30(1): Books relating to the affairs of a BC

  • S 30(2): Books relating to the operation of an RMIS

  • S 31: Books relating to a range of specified matters to do with financial products – like business or affairs of a FM, dealing in financial products, advice given, analysis/report issued/published about FPs etc.

    • The range of persons to whom the notice can be given include FM and CS facility operators and their board members, persons who cary on an FSB, their representative and nominees

  • S 32A applies ftpo consumer protection provisions in Pt 2 Div 2 ASICA and covers books relating to FS and their supply

• s 33: ASIC’s general power to require the production of books relating to these matters form anyone in possession of them.

  • This encompasses people with no involvement in the relevant investigation – the only characteristic for validity is if the document has the necessary characteristic (e.g. relates to the affairs of the BC) (ASC v Zarro)

  • ‘Possession’ includes both custody and control (s 86) and includes the legal entitlement to require them to be produced, or those held by a person’s solicitor (ASC V Dalleagles)

[Form and purpose of the notice]

• See 72: Formal requirements, failure to substantially comply can invalidate

• [Ulterior purpose]

  • IF a person to whom a Pt 3 Div 3 notice is directed can demonstrate it was issued for an ulterior purpose like coercion or intimidation it may be set aside (ASC v Lucas) but the onus of doing this rests on the recipient of the notice who seeks to challenge it (Spargos Mining)

  • It isn't improper for ASIC to use its notice powers to obtain information following the commencement of civil penalty proceedings even where the use of those powers might put it in a different position from other litigants

[Reasonable excuse for non-compliance]

• The recipient of a notice issued under Pt 3 Div 3 may not refuse or fail to comply with a notice unless they have a reasonable excuse (else they commit an offence – s 63(1))

  • A reasonable excuse

    • Can include a sufficient practical difficulty in complying on time (CAC v Yuill)

    • Is not provided by a contractual duty of confidentiality (von Doussa v Owens)

    • Is not provided by the fact that the relevant book tends to incriminate the person or make them liable to a penalty (s 68(1))

[Legal Professional privilege]

• [Scope of privilege] At general law a client may assert LPP to resist disclosure of a communication between a legal practitioner and his/her client which is confidential in character and which was created for the dominant purpose of the lawyer giving, or the client obtaining, legal advice or for use in existing litigation or litigation within the reasonable contemplation of the client (s 118, 119 EA)

  • In CAC v Yuill it was said that LPP doesn’t apply to a Pt 3 Div 3 notice

  • But in Daniels v ACCC the HC held that LPP is a fundamental CL immunity and thus didn’t apply to the former s 155

    • Though they didn’t overrule Yuill’s Case it was distinguished on the basis that it was different legislation but the majority did say that Yuill may be decided differently today

[Warrant to seize books]

• s 35 ASICA authorises ASIC to obtain a search warrant by applying to a magistrate, if a staff member has RG to suspect that books whose production could be required under Div 3 are or will be in 3 days, on particular premises

  • Further formal requirements on 75

[Use to which books may be put] s 37 sets these out and includes taking possession, inspect, making copies of extracts, using or permitting their use in a proceedings etc

[Requirements to provide explanation of books]

• A person who produces books in response to a 3/3 notice and any person a party to compiling those books may be required to provide an explanation of any matter about the compilation of those books (s 37(9)) and cannot refuse on the grounds that it might incriminate or expose them to a penalty (ASICA s 68(3))

• The explanation or the fact that the person provided it isn't admissible in a criminal proceedings or proceedings for the imposition of a penalty if he/she claims that it might tend to incriminate the person or expose him or her to liability to a penalty, before making that explanation, and the explanation might in fact tend to incriminate that person or expose them to a penalty (s 68(2)-(3)

  • BUT information provided under 3/3 subject to a claim for the statutory privilege under the ASICA s 68 is admissible in proceedings for disqualification or banning order, license suspension or cancellation within specified provisions (s 1349(4)-(5))

[Information about dealing] ASICA 3/4 empowers ASIC to obtain certain information concerning dealings in financial products - these are especially important given the anonymity of stock markets etc.

• ASICA S 43 – ASIC can obtain information about dealings in securities from the issuer or from certain other named persons, but only in the circumstances set out in s 43(3) which are where ASIC considers that certain circumstances may have occurred (e.g. contraventions of provisions)

• s 47: The disclosure is to be made in private, s 48 a legal representative may be present

[Information regarding AFS Licensees]

• S 912C provides that ASIC may, by written notice to an AFSLEE, direct them to give ASIC a written statement containing specified about the financial services provided by the licensee or its AR, ro the FSB carried on by the licensee

  • This provision doesn’t abrogate the self-incrimination privilege

• [Information under the consumer laws] s 12GY ASICA applies if a person has made a claim or representation promoting the supply of a financial service – ASIC can require that person give information or produce documents to ASIC to ‘substantiate or support’ that claim

  • S 12GYB(3): An individual can refuse or fail to give information or produce documents on the grounds of self-incrimination

Licensees are required to assist ASIC in the discharge of its functions in the form or providing access to books or giving ASIC information,.

• s 912E requires a FSL and its representative to give such assistance to ASIC as it reasonably requests in relation to whether the licensee or its...