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ASIC Charging for Investigation

Posted on August 17th, 2015 by Sophie Gerber in AFSLs

In July 2015 the Australian Securities and Investments Commission (ASIC) issued a media release outlining the new procedures they will follow to recover costs for regulatory investigations. Currently, under Section 91 of the Australian Securities and Investments Commission Act 2001, ASIC has the power to recover costs for investigations but rarely exercises that right. The new procedures give ASIC greater power in recovering such costs. The new procedures indicate that ASIC will use its statutory powers to recover the costs of an investigation where possible. This will apply to all individuals and entities (defendants) subject to an ASIC investigation after 29 July 2015.

In circumstances where a defendant is convicted or a judgment is made in favour of an ASIC investigation, ASIC will be able to make an order which requires the defendant to reimburse ASIC’s investigative expenses.

The types of expenses ASIC may claim include:

  • salary costs for ASIC staff who have worked on the investigation;
  • travel expenses when required to interview witnesses;
  • the cost of external legal counsel; or
  • the cost of employing an expert to perform an analysis.

The most concerning aspect of this change in procedure is that the defendant who is the subject of the investigation may be required to cover the salaries of ASIC staff involved in the investigation. Presumably these salaries will not be disclosed prior to the commencement of the investigation and this may mean that defendants with judgments or orders made against them could be subject to a very expensive invoice at the end of the investigation. This means that a significant level of risk and financial management needs to be implemented prior and during the investigation in order to ensure they are financially capable of paying the costs of the investigation.

ASIC will consider a range of factors when deciding whether to recover costs of an investigation. These factors may include:

  • impecuniosity of the individual or entity;
  • the amount recoverable under an order;
  • the effect on victims; and
  • the scope of the investigation.

The defendant will be notified prior to a recovery order being made against them and will be given an appropriate amount of time to make submissions to ASIC. ASIC will set what it believes as a reasonable amount of time for the defendant to make submissions. Given the likelihood of legal counsel being utilised to make these submissions, this simply serves to increase the final cost for the defendant. Any defendant who does not comply with the order made against them by ASIC will be subject to a fine, imprisonment or both. ASIC also has the power to commence proceedings in a relevant court for any amount due to ASIC by a defendant.

The increased likelihood of ASIC recovering costs against the defendant is likely to be at the detriment of the defendant. The defendant will be required to cover not only their own legal expenses but also the expenses incurred by ASIC. Previously, there were no large annual costs imposed on Australian Financial Services Licence (AFSL) holders or Australian Credit Licence (ACL) holders. The cost of an AFSL or ACL holder being the subject of an ASIC investigation could become quite onerous and may impact on the AFSL or ACL holder’s ability to meet their ongoing financial requirements.

AFSL and ACL holders should speak with their professional indemnity insurance providers to determine if their policy will cover any of these costs, or whether it an be extended at a reasonable price to cover any such costs order.

The changes to the ASIC costs structure come off the back of their stated agenda to recover costs from those who monopolise ASIC’s time as a means to refocus their agenda. The costs structure was introduced through the Senate’s inquiry into the performance of ASIC.

For further information visit the ASIC media release at http://asic.gov.au/about-asic/asic-investigations-and-enforcement/recovery-of-investigation-expenses-and-costs/

 

 

Sarah Murray

Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah also works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.