Are they watching you?

Myth – Investigations and enforcement by regulators only applies to banks and listed public companies.  

Fact – If you're in business, then this applies to you.

In the wake of the Banking Royal Commission, the Franchising Inquiry and the CBA Prudential Inquiry, the regulators have been given their orders and with them, the powers to investigate anyone of interest from businesses, big or small.

The regulators are keen to show their focus on the "deterrence, public denunciation and punishment"[1] of businesses for misconduct and breaches of the law.

This hardline enforcement approach by regulators such as ASIC and the ACCC is already being felt by many businesses and directors, regardless of their size and industry.

Figures in the most recent ASIC Enforcement Update, for the period between 1 January 2019 and 30 June 2019, demonstrate that:

• ASIC enforcement investigations increased by 20%;

• ASIC wealth management investigations increased by 216%;

• ASIC recorded 278 small business-related outcomes (of which 197 were criminal matters); and

• as at 1 July 2019, ASIC had 161 small-business related criminal matters underway.   

Why not litigate?

ASIC is not the only one getting results from its 'Why not litigate?' approach. The ACCC has also had a number of court wins this year against businesses for misconduct.

Last month, the ACCC had a big win against Cornerstone Investments Pty Ltd, trading as Empower Institute (in liquidation) (Empower).[2]

After the ACCC commenced proceedings, following a joint ACCC and NSW Fair Trading investigation of Empower for breaches of the Australian Consumer Law (ACL), the Federal Court ordered $26.5 million in penalties against Empower for breaches of the ACL relating to enrolment of consumers in VET FEE-HELP funded courses.

This is the highest total amount in penalties ever imposed for breaches of the ACL.

The Federal Court also ordered Empower to repay more than $56 million to the Commonwealth for funding Empower had received for the courses.

Warning!  

In recent months, there is increasing agitation by unelected activists for companies and directors to be held responsible for new and wider social obligations to communities, employees and customers, beyond strict compliance with legal obligations.

The consequences that can flow from failing to embed an effective legal risk management framework and compliance culture in your business include:

• extensive investigation and enforcement by a regulator;

• litigation by a regulator against the company and the company's directors, officers and advisors;

• civil or criminal prosecution (or both);

• class actions by consumers, employees and shareholders; and

• disciplinary action.

It is critical that businesses are proactive in establishing a robust risk management framework that deals with both legal compliance risks and the growing pressures for corporate activism in the Australian business landscape.

Are you prepared?

To find out more, please join Partner Chris Brown and Associate Suzanne Howari as they explore regulatory enforcement matters that will shape the way you do business in this new era. Find out more here.

How can we help?

If you are unsure about your legal compliance or you have been contacted by a regulator in relation to your legal compliance, please do not hesitate to contact Chris Brown or Suzanne Howari.

[1] ASIC Enforcement Update January to June 2019 Report 625, 3.

[2] Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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