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First EU for the Year/ Combining Enforcement Tools

Wednesday 16 November 2022

 


This week the Australian Securities and Investments Commission (ASIC) announced the acceptance of its first court-enforceable undertaking this year.

The securities and investment commission accepted an EU from Lasarith and Adam Smith. Under the EU the firm's Australian Financial Licence (AFSL) will eventually be cancelled.
Allegations that ASIC made against the advice firm:

  • at least 24 occasions during the 2016/17 and 2017/18 financial years when Lasarith and its authorised representatives failed to provide a statement of advice to clients in accordance with s946A of the Corporations Act; and
 
  • at least 30 occasions during the 2016/17 and 2017/18 financial years when Lasarith and its authorised representatives failed to provide a statement of advice to clients within the period specified in s946C of the Corporations Act.
 
Allegations made against the responsible manager Adam Smith:

  • failed to take sufficient action to prevent breaches of the Corporations Act from occurring, until September 2017; and
 
  • failed to cause Lasarith to notify ASIC of the breaches until September 2021; and
 
 

  • did not fulfil all of his obligations as the responsible manager of Lasarith during the 2016/17 and 2017/18 financial years.
 
Court Enforceable Undertaking as an enforcement tool
The acceptance of this EU comes just a week after AISC commissioner Sarah Court addressed ASIC Forum reminding attendees that the EU is just one tool in the regulator's enforcement toolkit: 


We cannot take every matter to court, and not every matter warrants a litigated outcome. But while we have a range of tools – stop orders, product intervention orders, infringement notices, enforceable undertakings, public warning notices – our current enforcement approach in no way departs from the important recommendations and approach set out in the Royal Commission.
 
The use of enforceable undertakings was found to be a soft touch compared to courtroom litigation Royal Commission final report into the financial services:

The rule of law requires no less. And adequate deterrence of misconduct depends upon visible public denunciation and punishment.

The report continues:

Too often serious breaches of the law by large entities have yielded nothing more than a few infringement notices, an enforceable undertaking (EU) not to offend again (with or without an immaterial 'public benefit payment') or some agreed form of media release.
 
The court said at the forum "they can be a useful remedy in an appropriate case the fact that there has been none this year doesn't reflect a decision that we don't want to use them, or we are not going to sue them, but we have to be very careful to use them in the right cases. ASIC is not the compliance arm of the institutions I don’t know that we are necessarily the ones that should be insisting on enforceable undertakings.”
 
Combining enforcement tools can be effective
 
Professor Dimity Kingsford Smith said at the ASIC Forum that EUs and the rest of the enforcement toolkit are not an either-or equation.

Professor said that what was important was how the regulator projected itself into the market.

"EUs are thought not to be deterrent and commissioner Hayne was very clear that he thought the deterrent value of EUs was very low and that was not providing the denunciation etcetera, that he wished to see. However,  we’ve done some research to suggest that at least the good actors in the market and those who can be persuaded to be good actors are deterred by enforceable undertakings if they are made public.”
 
Check RG100  for guidance on
Enforceable Undertakings