APRA and ASIC defend EU process

APRA and ASIC defend EU process

The prudential and corporate regulators have outlined to the royal commission reasons why enforceable undertakings should remain an available enforcement action in their respective 'toolkits'.


The final day of Round 2 of the banking royal commission saw ASIC senior executive Louise Macaulay questioned by senior counsel assisting Rowena Orr QC about the efficacy of enforceable undertakings (EUs).

“To your knowledge, are enforceable undertakings with ASIC heavily negotiated?” Ms Orr asked, to which Ms Macaulay had replied in the affirmative.

“And why does ASIC engage in this process of negotiating outcomes with licensees rather than exercising its powers to bring enforcement proceedings such as civil penalty proceedings?”

In light of this line of questioning, APRA made a submission to the royal commission – even though it did not appear before the commission – arguing that EUs “can be a very effective enforcement tool in appropriate circumstances”.

“Enforceable undertakings can be utilised to secure quick and effective remedies for contraventions of regulatory provisions without the need for court proceedings.

“One of the main advantages is that the promises made in an enforceable undertaking can go beyond mere compliance and the payment of financial penalties,” APRA’s submission read.

“They can be tailored to address the level of non-compliance by the regulated entity (or individual) and provide the flexibility to have the entity commit to a range of remedies which are not specifically provided for under the relevant legislation.”

Furthermore, EUs detailed the steps an entity needed to take to rectify failures, according to the submission.

“An undertaking can be specifically designed to inculcate long term organisational cultural change.

“In this way, as a tool, enforceable undertakings can provide the opportunity to design constructive, permanent solutions to regulatory compliance issues.”

Other reasons why APRA would accept an EU was if it was considered more cost-effective than other solutions; if APRA had a “high degree of confidence that the entity will deliver on its promises”; and as a “means to achieve a regulatory outcome considered by APRA to be appropriate in the circumstances” than a ‘final outcome’.

“APRA would be concerned that to characterise the use of enforceable undertakings as a conceptually weak or sub-optimal response would be to potentially undermine their utility, thereby depriving APRA of an important enforcement tool,” the submission said.

ASIC also defended the place of EUs in its enforcement arsenal in its submission to the royal commission, adding that it had “in recent years taken steps to increase transparency in its dealings with financial firms”.

“ASIC’s experience has been that enforceable undertakings can play a significant role in changing industry behaviour as one component of a mix of approaches which also include other punitive and protective measures,” the submission said.

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