As declared in February, Treasury has plans to change the Corporations Act to state companies and officers will only be liable for civil penalty proceedings where they acted with “knowledge, recklessness or negligence”.
Treasurer Josh Frydenberg indicated the aim of the reforms is to discourage class action lawsuits.
But ASIC commissioner Cathie Armour commented the reform will also make it harder for the regulator to prosecute – as the watchdog currently does not need to prove a company’s knowledge, recklessness or negligence.
“We would need to conduct an investigation that looked at those elements before we could bring an action,” Ms Armour told a Senate estimates hearing on Thursday.
A temporary measure that was introduced in mid-May last year had a similar provision, she added, but ASIC has not had the practical experience of developing investigations and taking companies to court under the new law.
“There is a degree of uncertainty. But it is a concern, I guess, or a question we ask ourselves. It seems to us an extra thing that we would need to do,” Ms Armour said.
“We’re not able to draw on international comparisons, because in comparable regimes like the US and the UK, my understanding is the regulator does not have to do that. Whilst private litigators have that test, the regulator does not.”
The regulator’s infringement notice program could also take a hit, if it is harder to pursue civil cases. The criminal enforcement on the other hand, remains unchanged.
To date, the majority of ASIC’s continuous disclosure cases have chased civil penalties.
“There could be a practical impact on our appetite to commence investigations for infringement notices, because the reality is… it may not be rational for a company, depending on the situation, to pay an infringement notice, if they know that to enforce it, effectively, we have to go and establish this higher bar,” Ms Armour noted.
Shareholder and class action advocates have raised concerns the continuous disclosure laws could dampen transparency, executive accountability and market integrity.
The reforms to the Corporations Act and the ASIC Act will also impact two other provisions around false and misleading representations.
“But if we were looking to bring an action about whether a statement made by a company on a public market was misleading or deceptive, we would have to investigate and establish at this higher standard for that particular statement than we do for every other financial product,” Ms Armour said.
“So how that plays through, it’s something we’ll need to work through and think about, but if it does, it does change… the framework we’re operating in.”
