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Australia's ASIC and "enforceable undertakings."

BIScom Subsection: 
Author: 
Editorial Staff

Australia's Royal Commission into financial services has criticised the Australian Securities and Investment Commission (same word, different meaning) in relation to so-called enforceable undertakings. There is a problem but in part it's caused by factors outside ASIC's control.

Australia has a tendency to try to stand out from the crowd by doing, essentially, the same as other countries but calling it something different. Undertakings are always enforceable. They are given to Courts and to break them is contempt. They are given by lawyers to each other and a breach is professional misconduct. Lawyers give them to regulators as the lightest touch of an enforcement regime, a "slap on the wrist." Breach brings further action.

Undertakings are at the heart of the (as this publication has long argued) fundamentally corrupt "deferred prosecution agreements which also breach the principles of natural justice in too many ways to be listed here. Failure to comply carries the risk of further action.

When undertakings are breached, the effects can be stark: consider the USA's action against ZTE and the way that the USA keeps going back for another bite out of EU banks that it decides, after the event and with no clear guidelines, have not done enough under their DPAs.

During the era where US banks were failing, broadly, at the rate of three a week, this newspaper's research showed that almost every one had entered into one or more "cease and desist" agreements with federal and state regulators, and in doing so entered into undertakings. Breaches, willing or not, were a factor in the decision to order the bank to close.

So, undertakings are always enforceable and the name, as used by ASIC is silly.

But undertakings, per se, are anything but. In fact, they are a long established and powerful weapon.

The issue, then, is not whether to have them, but why they aren't used properly.

In every criticism of ASIC, one comes back to one stark comment made before the Royal Commission. "There are 25,000 financial advisers and we have 60 people to supervise them." Given the vast size, and often sparsely populated regions, of Australia, that means resources are always subject to priority calls.

In relation to undertakings, the risk is that ASIC prioritises new cases against recidivism and the culprits know it and play on it.