To ban, or not to ban? ASIC’s powers to make banning orders

ASIC’s Powers

ASIC has broad powers in relation to the imposition of criminal and civil sanctions against persons for contraventions of their obligations.

However, in accordance with sections 920A and 920B of the Corporations Act 2001, ASIC also has powers to take administrative action, including to make a banning order against a person, prohibiting them from doing a number of things, including providing financial services, controlling an entity that carries on a financial service or being involved in any financial services business.

Relevant Factors

A banning order may be appropriate where the person’s impugned conduct involves serious incompetence or misconduct. In making that determination, ASIC’s Regulatory Guide 98 sets out the relevant factors ASIC will consider, including:

1. Nature and seriousness of the suspected misconduct, including any evidence of dishonesty, impact of the alleged contravention and any prior history of poor compliance;
2. Whether the person complied with internal processes;
3. The conduct after the alleged contravention occurred, including the person’s level of cooperation and any remedial steps that may have been taken;
4. The expected level of public benefit, including the protective effect for investors and consumers and the reinforcement of the integrity and reputation of the financial services industry;
5. The likelihood that the person’s behaviour in response to a particular action and general deterrence; and
6. Any mitigating factors, such as any personal hardship that may be suffered, whether this is an isolated incident and whether the misconduct was inadvertent.

Banning periods

Banning orders are generally made with the aim of protecting investors and consumers and deterring misconduct both of the person subject to the banning order, as well as others in the profession. A longer banning period will apply to persons who pose a higher risk to investors and consumers. Generally, someone who has engaged in dishonest conduct, or conduct which they know could potentially adversely affect investors or consumers, poses a higher risk than those whose should have realised the potential for adverse consequences (but did not) or whose conduct was careless or inadvertent. Similarly, a person who shows a deliberate or flagrant disregard for compliance with their obligations poses a higher risk than those who have failed to comply with their obligations simply due to incompetence.

In Re Hres and Australian Securities and Investments Commission [2008] AATA 707, Senior Member Taylor noted that the appropriate banning period depends on the nature of the impugned conduct and its objective seriousness, both in terms of the extent of the departure from appropriate standards and its actual consequences. Senior Member Taylor goes on to suggest that a banning period of 3 years may be a “conventional threshold” that distinguishes between conduct that has involved serious incompetence and conduct of lesser seriousness.

In the most egregious of circumstances, ASIC may impose a permanent banning order. These orders are generally made where the impugned conduct involves an element of dishonesty, serious incompetence and irresponsibility, wilful conduct or intention to defraud, a disregard for legal obligations or market integrity rules or a likelihood of further contravening conduct. Examples of such conduct may include the misappropriation of client funds, fraud or theft, substantial insider trading or falsification, concealment or deliberate destruction of records required to be maintained.

Lavan comment

If you are in the business of providing financial advice, it is important that you understand your obligations. If you’re not sure what obligations you may have, or if you think you may be facing an investigation or action from ASIC and looking for legal advice, contact Cinzia Donald.