What is an ASIC investigation? Why and how are they conducted?
The Australian Securities and Investments Commission (ASIC) investigates and prosecutes breaches of corporate law by corporations, directors and officers. Their work is carried out under the Commonwealth Corporations Act 2001. Breaches of corporate law can have some serious consequences for a business and the director of a company.
An ASIC investigation or prosecution may be undertaken if it is suspected that:
- The company director/s are committing acts of fraud against the company
- A company is taking on financial services without appropriate licenses
- There is falsification of company records
- There are offences of insider trading and other market manipulation tactics against the stock market
In these types of instances, ASIC has the authority to serve a company with notice. This requires the directors to produce documents, attend a compulsory examination and generally assist ASIC with their investigations. It is considered a criminal offence if a company fails to comply with these investigative requirements.
How does the ASIC investigation process work?
Understanding the ASIC investigation process is important for two reasons:
- to ensure that you are complying with the requirements.
- to ensure that there is little disruption to your business during the process.
Below are the key steps to be aware of before, during and after an ASIC investigation:
Pre-investigation and preventive action
It is important that businesses have governance, risk and compliance practices in place. These practices need to be rigorously monitored to ensure that they are effective, as they could prevent an investigation from happening in the first place.
- Review existing policies and practices to ensure that they are effective
- Review files from the perspective of a regulator to identify areas for improvement
- Undertake mock surveillance and investigations
- Undertake a legal risk assessment
- Review the adequacy of controls
- Review insurance policies to determine whether they respond effectively to regulatory investigations and their consequences
- Engage a specialist solicitor to look over each of these areas
ASIC investigation is triggered
An ASIC investigation can be triggered by any number of ways, including a complaint from a customer or client, routine ASIC surveillance, referral from another regulator or a report to ASIC. It is important that the company voluntarily offers to take remedial steps to address ASIC’s concerns. This response and willingness to work to resolve the issues can play a critical role with future actions taken against the company.
- Get in touch with a solicitor to undertake a preliminary review of your processes, procedures and guidelines, and advise on the immediate remediation steps which can be taken while ASIC investigations are progressing.
- Gain an understanding of the scope of the ASIC notice and the appropriate response.
- Consider possible remediation steps, including improvements to governance, risk and compliance practices, or disciplinary action.
- Ensure any documents that are to be submitted to ASIC are within the scope, and identify any possible issues.
ASIC initiates investigation
If ASIC decides to commence a formal investigation, they are likely to call for meetings with the licensee, issue notices for further documentation, request formal responses on certain issues and they may interview key people of interest. A businesses cooperation and support during this stage is absolutely critical and will set the tone for the entire investigation.
- Seek legal advice, requesting solicitors to review the issues which are being investigated and provide the director with advice on how to respond.
- Ensure all documentation and evidence submitted is within scope
- Show willingness to participate in formal examinations and assist with the investigations
- Notify insurers of the ASIC investigation
Independent review of client files
During the investigation process, ASIC may request an independent third party to review client files. This step can be voluntary but you also may be compelled to do so.
- Develop terms of reference for the review.
- Develop or advise on the appropriate template or framework for the client review.
- Seek legal advice promptly – lawyers may be able to assist to coordinate the review and advise you on appropriate steps to take.
Negotiating an administrative outcome
ASIC has the authority to enforce remedies as a result of the findings from their investigation. These penalties may include prosecution, injunctions, suspension of licence, bans, public warnings, compensation or infringement notices. To best determine the most appropriate remedy for the breach, ASIC will look at the extent of harm or loss to both investors and consumers.
- Seek legal advice on the enforcement action.
- Respond to the enforcement action and implement any remediation steps agreed.
- Prepare client communications and preview any ASIC media releases that are likely to be made.
- Submit an insurance claim.
Further support with an ASIC investigation
It’s important for businesses and directors to seek legal advice as early as possible during potential ASIC investigations to protect you and your business. It is crucial that your lawyer is familiar with
- how to respond to a Notice to Produce Documents;
- preparing for a s19 compulsory examination;
- knowing when directors, senior managers or employees need independent advice or representation; and
- identifying and managing issues of legal professional privilege and commercial-in-confidence documents.
If you or your business are facing allegations from ASIC, it is imperative that you get in touch with an experienced commercial litigation lawyer.