Overview of ASIC
ASIC and the Civil penalty Regime
Media Criticism of ASIC
Judicial Criticism of ASIC
Expanded mandate of ASIC
The Australian Corporate Scene
Different economies in the world are witnessing growth in the number of business premises. The growth and expansion of business enterprises is a positive sign in any economy. It implies the potentiality of the economy to grow. The increase in the number of business transaction is preceded by an increase in business transactions. The rise in the volume of business transactions can be disadvantageous to the economy. This is especially when proper rules are not enacted to govern and moderate the corporate world. Therefore, corporate law has been developed to govern business and corporate sectors in different countries. Each country in the world has its own set of laws that regulate companies and other business enterprises operating in the country (Kirkpatrick and Organisation for Economic Co-operation and Development legislations, 2004).
Various states have established entities to ease the enforcement of the corporate law. Australia is one such country. The Australian government appointed the Australia Security and Investments Commission to ease the enforcement of corporate law. The major role of this body is to regulate corporate law of Australia (Tomasic, 2001). In the course of carrying out its duties, the commission has been critiqued by many entrepreneurs in the corporate sector. However, many people have applauded the functions of the commission with the thesis that the commission has helped in raising the standards of management in the corporate sector. The commission has also boosted the contribution of the corporate sector to the growth of the Australian economy. This paper carries a discussion of the criticism laid on the ASIC. It weighs these criticisms and gives a standpoint on the role played by ASIC in regulating the corporate sector of Australia.
Overview of ASIC
The commission has to ensure effective regulation of corporate law in Australia. Effective regulation involves two critical aspects. These are a proper regulatory structure and effective enforcement of the structure. ASIC began operating in Australia in the year 1991 as the Australian Securities Commission. When it began its operations, the commission acted as a distinct regulatory body. It was responsible for the administration and enforcement of corporate legislation. The body adopted its new name – ASIC in the year 1998 (Lucy, 2007). The change in the name was accompanied by adjustments in the mandate of the organization. The commission was given the responsibility to administer legislation on consumer protection. It also took up the role of regulating the Australian financial markets, regulation of products and services like insurance and deposit-taking, superannuation and later credit control. These roles were added to the major role of the commission – company law watchdog. Today, the commission has an extended mandate though its key role remains to be the administration of corporate law (Lowry, 2012).
The extended mandate of ASIC is what puts it in tandem with the people operating in the corporate sector. Many stakeholders in the corporate sector have raised questions on the ability of the commission to handle all these duties efficiently within the constrained resource environment. As the chief regulator of the corporate sector, the Australian Securities and Investments Commission (ASIC) has a broad mandate. It regulates the conduct and actions of all market operators and financial service providers in Australia. ASIC oversees the registration of companies, liquidators, auditors and investment schemes. The commission reviews the merger and acquisitions suggestions, reviews fundraising activities and maintains corporate databases for public scrutiny. The commission runs several consumer protection programs. It also enforces the Corporations Act and other pieces of legislation that are related to the act. This is to say that the operation of the financial and investment sector entirely depends on the commission. Failure to have this regulator in place will mean that the financial markets will be exploited by unscrupulous traders. Also, the consumers will be exploited by traders as has been witnessed in many countries in the world. Since the establishment of ASIC, Australia has witnessed a growing trend in economic growth. This is because of confidence in the markets, which has been instigated by the operation of the commission. ASIC has given a suitable environment for the Australian investors to take part in activities within financial markets. The rates of risks in the financial markets have been brought down. The resultant upsurge in investors within the financial markets, though this creates room for fraud activities by opportunistic traders. Such traders seek to exploit new and seemingly inexperienced investors in the market. In turn, this calls for the commission to be vigilant in its regulatory role. The commission continues to invest and investigate the risk areas to investors in the financial markets. The positive market conditions that results from the enforcement of the corporations act puts pressure on companies thus enabling them to maintain high rates of growth (Lucy, 2005).
ASIC and the Civil penalty Regime
The civil penalty regime in Australia was introduced in the year 1993. The regime emanated from the reforms that were made in the regime of sanctions which oversaw the enforcement of the roles of the mandates of company officers. The introduction of this regime was meant to reduce the use of criminal law such as criminal sanctions in corporate governance. During the introductory stages of the regime, ASIC faced challenges in enforcing the regime because of the problems that were associated with the use of criminal law. The civil penalty regime was developed to help reduce the use of criminal processes and thus increase the effectiveness of ASIC in dealing with corporate misconduct. Civil penalties were to constitute a substantial part of the enforcement mechanism of the corporate law. Despite the introduction of the civil penalty regime in 1993 and the numerous legislations that have been made by the Australian parliament, it has not attained effectiveness in ASIC. The regime has failed to provide a solid ground for the key regulatory efforts. A major problem of the use of civil penalty litigation by ASIC was seen in the Rich vs. ASIC case. The case exposed the weakness of the regime and its implementation by ASIC. The case resulted in amendments of the regime (Comino, 2009).
Media Criticism of ASIC
Criticisms have been levelled against ASIC for failing to consider fundamentals principles and facts about the corporate legal and regulatory systems of the corporate sector of Australia. The media have been blaming ASIC basing on the number of cases that ASIC has lost in the recent past. The media have argued that ASIC is not prosecuting corporate crimes in the country. The role of ASIC is not to prosecute those who commit the corporate crimes. It only does the investigation. The prosecution corporate offense is done by the Director of public prosecutions. ASIC does not have the prosecution powers and mandate. It only makes a recommendation to the director of public prosecutions who determines the procreation of the corporate crime cases laid before the office. Investigatory functions differ from prosecutor functions in three ways. Moreover, corporate crimes are extremely sensitive and comprehensive in the sense that their prosecution requires more resources. These resources are used in the investigation. ASIC ensures proceed of cases which have a high probability of being successful. It also ensures that cases that have more impacts to the economy proceed to trial (O’Bryan, 2010).
The other factor of which ASIC has been critiqued is the separation of civil and criminal penalties. The critics point out that more often, the commission gets confuse on whether to launch criminal or civil cases against firms that go against the corporate law. For the last ten years, which is the tenure of the commission, the corporate sector of Australia has witnessed a rise in civil penalty proceedings. Civil penalty proceedings have been accepted in the Australian corporate laws because of the benefits of such proceedings. Civil penalties enable ASIC to control proceedings in entirety. Civil penalties can also be addressed through the court. Civil penalties have enabled corporate regulators, ASIC, to launch and pursue civil penalty proceedings. In fact, this is what has enabled the regulator to launch and conclude many corporate crime cases in Australia. ASIC has a high percentage rate of success – quoted at around 90% in litigation. This comes from the fact that ASIC has been able to run difficult cases most times (O’Bryan, 2010).
Judicial Criticism of ASIC
The question of directors duties has also been a bond of contention between different directors and ASIC in the conduct of civil cases. It is argued that the corporate act, which is the basis on which ASIC works, has serious flaws concerning the role of directors in companies. In conducting their functions, the directors of companies do make decisions which may result into problems at some stage. This is referred to as error of judgement. There is inadequate guidance on when a matter can be considered to be an error of judgement. Too little consideration is paid to this judicial aspect in most of the corporate cases that corporate crime cases. Business judgement rule provides for the error of judgement on the side of directors. In order to pay much respect to the protection of statutory-business judgement rule, a business judgement has to meet a number of conditions (Waring, 2008). The directors must prove that the judgement was made for a terrific course and that the directors had no personal interests in the judgement. Directors must also prove that there was extensive discussion and debate before the judgment was made. Also, the directors have to ascertain that the judgement was made to benefit the corporation. The difficult question to answer is whether directors do make judgements or decisions by basing on all of these criteria. This is what makes ASIC be stricter with cases even when this issue is brought out. It is quite hard for company directors to prove the use of these criteria in decisions that they make. Moreover, these rules were added into the corporate act to ensure that directors and corporate officers do not take irrational decisions. The argument about the breach of the directors’ duties is based on breach of statutory duties (Du, Bagaric and Hargovan, 2010).
Most business firms in Australia have been opting to use the non-statutory financial reporting in presenting the cash flow and business performance. This has put many forms at loggerheads with the Australian Securities and Investments Commission. Perhaps this is the reason why many firms are ganging against ASIC. ASIC argues that non statutory reporting has many leakages. Financial reporting entails the utilization of accounting measures that are set by the Australian securities and investment commission in partnership with the Australian securities exchange limited. When firms fail to follow the accounting procedures as it is required by ASIC, they become liable to litigation. This is what ASIC has been doing in the recent times. It has been pressuring firms to use the statutory financial reporting that is open, transparent, and responsible (King, 2010).
One of the major goals of corporate law is to protect the interests of investors. With the growth in stock markets and the rise in share performance of companies, many people are opting to invest in firms by way of buying shares. However, some companies end up collapsing due to poor policies and other mal-practices. When these firms collapse, investors in the companies do get a lot of problems in recovering their benefits from the companies. However, through corporate law enforcement, ASIC has proven to be efficient in protecting the interests of consumers whenever cases of this nature arise. Guided by the principles of social law, ASIC has been taking legal action against companies to ensure that investors are compensated. One example is the case that pitted ASIC and Westpoint when Westpoint collapsed in the year 2005. ASIC sought for compensation for investors in the company. ASIC launched a criminal case against the directors of the company. It has been able to push the case and made reasonable gains in the compensation effort (Taylor, 2007). On September 30, 2011, ASIC had recovered quite a large sum of money from Westpoint. It paid the investors approximately 57 million US dollars which had been recovered from the company. This money plus the accrued interest was paid to the company liquidators as had been ordered by the federal court on first of September 2011. ASIC has continued to pursue the case and liaise with those who had invested in the company. This was to ensure full compensation. This is just one of the instances which are a pointer on how the commission is helpful to the Australian economy (Lowry, 2012).
ASIC has boosted the confidence of investors in the Australian economy. The commission has created an exceptionally strong and effective regulatory and institutional framework. This has encouraged transparency accountability as a result of open and free information flow from corporations to investors and vice versa. A high percentage of market participants in the Australian markets have shown a high confidence in the markets and thus have increased their investments in Australian businesses. This confidence is pointed to the active work that ASIC has done in regulating the operating of companies in the country. As amendments are made to strengthen the Corporates Act that was created in the year 2001 and strengthen the mandate of ASIC, an investment friendly environment is created (Bradbury, 2012).
Expanded mandate of ASIC
The responsibility of ASIC has further expanded. In the year 2010, the commission took up the responsibility of supervising the real- time trading activities in the domestic licensed markets. This has supplemented its responsibility of enforcing legislation against misconduct in the financial markets and the financial services sector. The changing role resulted from the 2009 reforms in the financial services sector that was proposed by the Australian Treasurer and minister for financial services; Superannuation and corporate law. ASIC has fully assumed the responsibility. The commission has established integrated market surveillance system. This has strengthened the day to day operations in the markets. This new system has enabled ASIC to be involved enquiries into the potential market misconduct activities. The commission can identify the misconduct at early stages thereby minimizing the impacts of such activities. ASIC is quite organized and systemic in handling the cases of market breach. This is done by the Markets Disciplinary Panel which is the disciplinary body of the commission. The panel has members from the corporate sector – investment banks and brokering firms. This eliminates the act of biases in asserting penalties (‘Economic policy’, 2010).
The economy of the modern times is quite volatile. The number of business transactions has been increasing. This increases the possibility of fraudulent activities thus the need for regulation of business. The regulation of business in Australia is attained through the corporations’ law which is enacted by ASIC. As has been brought out in the discussion, ASIC has been remarkably efficient in the regulation of the corporate sector of Australia through the enforcement of laws in the Corporate Act. Most of the criticisms that are directed at ASIC come from directors of corporations who feel pressed by the laws. As has been observed, ASIC has been at the centre of the growth of the Australian economy.