As I said in the Interim Report, legislation allowing criminal or civil punishment of conduct proceeds from the premise that engaging in the conduct is harmful to society. In financial services legislation, the premise is more likely to be that the conduct will be harmful to the economy generally. Hence, the ways in which ASIC (or APRA) enforce these laws will affect the overall health of the economy.[1]
It is as well to repeat some basic points made in the Interim Report.
The first point relates to negotiated outcomes. Of course there can and will be some cases of contravention of the law in which the outcome is negotiated between contravener and regulator. Sometimes the negotiations will be completed before proceedings are commenced; sometimes not. Often, institution of proceedings should be, and will be, a step the parties recognise will be taken. But whether or not proceedings are on foot or anticipated, there can be no satisfactory negotiated outcome if ASIC has not first decided what it wants from the negotiation (as distinct from what it thinks the entity is prepared to give).[2]
The second point is about remediation. The regulator is not called on to choose between remediation and enforcement. Remediation for consumers is one important goal. It is not the only goal to be pursued. Often, enforcement will induce an entity to set about remedying the consequences of its default, or committing to doing so, before the penalty is fixed.[3]
The third concerns the size of remedies relative to profits. Financial services entities will often have profited from their contraventions of the law. The regulator must do whatever can be done to ensure that breach of the law is not profitable.[4]
In the end, the critical question whenever ASIC is considering any contravention of the law must be the question ASIC now accepts must be asked: ‘Why not litigate?’. And, much more often than not, ASIC will ask and answer that question in circumstances where the entity has provided a breach notification. That is, ASIC will have to ask and answer ‘why not litigate’ in circumstances where the entity itself has reported that its conduct may have breached a relevant provision of the financial services law. ASIC will approach litigation knowing that the first document to be tendered in evidence will show what the entity has said it has done or may have done in contravention of the law.
Answering the question ‘why not litigate’ calls for skill and judgment. Especially will that be so when it appears that the issue is systemic (as with, for example, the issues about add‑on credit and loan insurance products). As Mr James Shipton, Chair of ASIC, pointed out in his evidence, add‑on insurance was an industry‑wide issue affecting many thousands of consumers.[5]
Issues of that kind will often present in a form such that the way ahead seems anything but clear because they appear to present ‘an overwhelming amount of work’.[6] But from first contact with the matter, whether that is a breach report or a complaint, the regulator must approach the work ahead with a clear view of what kinds of outcome are being considered. And unless and until it is plain that the public interest requires that there be no litigation, all forms of regulatory enforcement must remain under active consideration.
When I say that all forms of regulatory outcome must remain under active consideration, what will be required will be consideration of what forms of regulatory response will be appropriate for the kind of conduct in issue. So, for example, in the case of add‑on insurance, the possible responses would require identification and examination against what appeared to be the essential character of the conduct that is in issue: the selling to consumers of insurance on which they could not claim. As investigation proceeds, the conduct will be better understood and its essential character will be more accurately and easily described. Possible responses will become more detailed and more refined. But at every stage along the way, the regulator is working towards one or more identified end‑points. Those end‑points may require re‑definition from time to time. But the work will remain focused. And if the work is focused, that which is apparently an overwhelming mass is rendered intelligible and manageable.
[1] FSRC, Interim Report, vol 1, 296.
[2] FSRC, Interim Report, vol 1, 295–6.
[3] FSRC, Interim Report, vol 1, 296.
[4] FSRC, Interim Report, vol 1, 296.
[5] Transcript, James Shipton, 23 November 2018, 6952.
[6] Transcript, James Shipton, 23 November 2018, 6952.