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How the corporate regulator puts its ‘lofty ambitions’ into practice

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By Rhea Nath
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5 minute read

ASIC has unpacked the importance of strengthened penalties as part of its market supervision and how it determines regulatory action, touching upon the recent case involving JP Morgan Securities Australia.

ASIC commissioner Simone Constant has stressed the importance of a clean financial market that inspires confidence, explaining that building this trust remains front of mind for the corporate regulator.

Speaking at the Stockbrokers and Investment Advisers Association (SIAA) 2024 Conference in Melbourne last week, she said the Australian Securities and Investments Commission (ASIC) reverts to its raison d’etre of ensuring confident and informed participation and a continually improving financial system.

“To get to those lofty and important ambitions, you need a market that is trusted. It’s about confidence. I’ve been in markets most of my career and it’s about confidence, therefore when we approach how we think about regulation and our responses, we have that very front of mind,” Constant told audience members.

ASIC has previously elaborated on the many enforcement actions at its disposal, including fines and penalties, disqualification orders and bannings, stop orders, and in some of the most severe cases, criminal proceedings.

According to the commissioner, the impact on market integrity remains important when ASIC determines its proportionality of response or regulatory tool to use.

“It goes to this harm question. So as a commission, we evaluate the degree of harm. Harm can be in terms of confidence in that market integrity. It can be in terms of looking at an issue that seems systemic. It may be one issue, but it may be repeated and repeated by an entity at scale and I have been at entities where system issues were repeated and it was a systemic issue, [like] some of the things that came forward in the royal commission,” she said.

“We also think about the conduct leading in and after becoming aware of the event, the harm, the notification. [We] look at all our evidence and then consider all that and the question of public benefit.”

Constant added the regulator is “in court every day of the week” with a view to ensuring a fair and efficient financial system.

“At the end of the day, we are a law enforcement agency and we’re in court every day of the week. Under the same act that says we need to inform confident and informed participation, we are required to bring full force in effect of the law when appropriate,” she said.

She also delved into the commencement of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act in 2019, which enabled ASIC, and by extension its Market Disciplinary Panel (MDP), to pursue harsher civil penalties and criminal sanctions.

The amended law strengthened existing penalties and introduced new penalties for those who breach the corporate laws of Australia.

According to Constant, the strengthened laws helped ensure penalties from the regulator weren’t “just a cost of doing business”.

“It’s because it’s really important that there is an understanding of the opportunity, privilege, and rights you have as a participant in Australian markets. [It’s] some of the cleanest, best, most trusted in the world and really well-functioning, and with doing harm to the integrity of that market, you have to have significant deterrents,” she said.

Constant added: “It cannot be that certain institutions can say it’s a cost of doing business, and I think there’s been a real maturity in the sector in understanding that.”

Earlier this year, JP Morgan Securities Australia Limited (JPMSAL) was hit with a $775,000 penalty from the MDP for permitting suspicious client orders to be placed on the futures market, ASX 24.

According to the panel, JPMSAL should have suspected 36 orders placed by a client between 11 January 2022 and 3 March 2022 were submitted with the intention of creating a false or misleading appearance with respect to the market for, or the price of, the Eastern Australia Wheat futures January 2023 contracts.

It found that JPMSAL’s failure to identify its clients’ trading as suspicious was “careless”, including that JPMSAL “should have acted more expeditiously when alerted to it by ASIC”.

For Constant, such action remains vital in retaining confidence in Australia’s markets, with the considerable penalty helping to emphasize the severity of the matter.

“It’s important for the same reasons I’ve been outlining, in that confidence in the market, and it can’t just be a cost of doing business. To put it in really real terms […] commodities are so important in Australia and in the world in the last couple of years. We saw supply chain shocks and look what it did,” she said.

“People need to have confidence in the transparency of that market, and it’s so important when you think about cost-of-living impact too. Energy costs, food costs, these costs associated with the markets that we have the privilege to participate in, they all fit into that value chain.

“You need consumers, investors, participants to have confidence in these markets and it becomes very real when you think about things like commodities, wheat futures, the farmers and purchasers. Quite often, small producers in this value chain, the market needs to be functioning with integrity for them and for customers.”