Higher penalties for directors on the way; here comes the BEAR

On 20 April 2018, the government has announced that it intends to significantly increase maximum civil and criminal penalties for individuals and corporations under the Corporations Act. The changes were announced as part of the government’s response to the ASIC Enforcement Review Taskforce Report, which followed a period of public consultation.

Maximum civil penalties for individuals are set to increase more than fivefold. The current penalty of $200,000 per contravention will be increased to the greater of $1.05 million, or three time the benefit obtained or loss avoided.

Corporations currently face a maximum civil penalty of $1 million per contravention under the Corporations Act. This maximum penalty is set to significantly increase to the greater of $10.5 million, three times the benefit obtained or loss avoided, or 10% of the company’s annual turnover. The maximum fine will be capped at $210 million.

Criminal fines and penalties are also set to increase for individuals, with the government proposing to increase imprisonment terms for a range of offences from five to ten years, and increasing maximum fines to the greater of $945,000, or three times the benefit gained or loss avoided.

Corporations will face the larger of $9.45 million, three times the benefit gained or loss avoided, or 10% of the company’s annual turnover.

The government also proposes to expand ASIC’s enforcement powers, including proving greater scope for ASIC to ban individuals from performing any role in financial services when they are found to be unfit, improper, or incompetent, and strengthening ASIC’s investigation tools.

The government has also agreed to remove imprisonment as a possible sanction for strict liability and absolute liability offences.

The AICD supports increased penalties under the Corporations Act. While they are significant increases, it is essential that penalties act as an adequate deterrent for misconduct in order to promote community trust in Australia’s corporate governance framework.

As these proposed changes move towards legislation, the AICD will endeavour to engage with the government to ensure these laws are designed appropriately, and continue to keep members updated on how matters progress.

BEAR on the way

The Banking Executive Accountability Regime (BEAR) is set to commence for large Authorised Deposit-taking Institutions (ADIs) in July of this year, with small and medium ADIs subject to the regime from 1 July 2019.

In addition to the commencement of the BEAR for ADIs, a recent Parliamentary Inquiry has recommended its expansion to life insurance, while there have been media reports that the government intends to announce all APRA-regulated entities (including insurers and superannuation funds) will be brought into an expanded BEAR regime.

Given the significance of the BEAR to corporate governance in Australia’s financial services sector, the AICD is co-hosting a Directors’ Forum with Herbert Smith Freehills on 10 May 2018, Sydney at 5:30pm on the implications of the BEAR.

This Directors’ Forum will include guest panellists Mr Wayne Byres MAICD (APRA Chairman), Anne Loveridge GAICD (NAB director), Anne Brennan FAICD (Rabobank director), and Michael Vrisakis (Partner, Herbert Smith Freehills), and will be chaired by Ian Laughlin FAICD (former APRA Deputy Chairman).