As the primary regulator for financial planning, ASIC has significant powers that can impact your business. Engaging with the regulator in a sensible and productive way can make the process quicker and less stressful.

Most financial planners go their whole career without having to deal with an investigation by ASIC. If the corporate regulator should come knocking on your door, some basic information about the process and tools they may use can help you respond professionally and appropriately.

This article provides a high-level overview of the process that ASIC may adopt and includes some practical tips for engaging in that process. These tips can also apply to how you communicate with and respond to other regulators for the financial planning profession.

Changes in ASIC activities

Since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, ASIC has been increasing its enforcement activity significantly.

There are two key factors in successfully navigating an investigation by ASIC:

• Understand the process and tools that ASIC may use
• Seek sensible advice about the process and protections available to you.

Having this basic information about the process that ASIC adopt and how to navigate it will make the process less stressful and result in a better outcome.

ASIC’s role is to:

• Maintain, facilitate and improve the performance of the financial system and entities in it.
• Promote confident and informed participation by investors and consumers in the financial system.
• Administer the law effectively and with minimal procedural requirements.
• Receive, process and store, efficiently and quickly, information we receive.
• Make information about companies and other bodies available to the public as soon as practicable.
• Take whatever action which is necessary, to enforce and give effect to the law.

In October 2019, ASIC adopted its ‘Why not litigate?’ policy. This means that once ASIC is satisfied breaches of the law are more likely to have occurred than not, and the facts of the case show pursuing the matter would be in the public interest, then ASIC will actively ask itself: why not litigate this matter?

While the focus of ASIC’s recent enforcement action has been primarily with the ‘big 4’ banks, it is reasonable to assume that the new policy will result in a change in mindset that will see more enforcement activity at every level.

Sensible and strategic engagement with the regulator can reduce the length and cost of an investigation and can reduce the risk that you or your firm will face an eventual prosecution.   In other words, it makes good business sense to have a productive relationship with the regulator.

How ASIC engage

The most common ways that ASIC will seek to engage with you and your firm are:

• A request for documents
• Interviews
• Legal proceedings

Practical tips

• Understand your role

The most important factor when dealing with a regulator is to know your role in the investigation. Are you the target of the investigation or does ASIC think that you may be able to assist with an investigation in relation to another target?

Your role in the investigation will most likely change the approach you take to responding to requests and notices by ASIC. For example, if you are not the target of an investigation there may be some benefit to engaging in an interview voluntarily to allow the process to be dealt with quickly and easily. On the other hand, if you are the target of an investigation, it may be preferable to take a more defensive stance and only attend an interview when required to do so by a notice.

• Producing documents

ASIC can issue a notice requiring a person to produce documents under sections 30 and 33 of the ASIC Act. The documents that ASIC can request under these sections are very broad and include any documents relating to the affairs of a body corporate. A failure to comply with a notice requesting documents is an offence under both sections.

Notices to produce documents issued by ASIC are sometimes drafted based on what documents (or classes of documents) ASIC thinks may exist. When a notice is unclear, imprecise or too broad, the response may depend on the general approach being adopted in relation to the investigation. For example, if a notice is drafted in very broad terms, contacting ASIC to explain the work that will be involved in complying (and the time that proper compliance will take) may lead to the notice being narrowed. Similarly, if the notice is unclear, sensible engagement with ASIC to determine what they are looking for can make the process easier.

Whenever documents are being produced by compulsory process, it may be necessary to consider whether the documents are subject to legal professional privilege. Documents that are privileged do not ordinarily need to be produced. However, if production is resisted ASIC will require an explanation as to why certain documents are not produced.

Finally, notices issued by ASIC are often drafted by lawyers in a certain way. Similarly, there is a certain way that they are interpreted and responded to. Having a lawyer review any notice or request for documents will generally assist with proper compliance and avoid costly back and forth on the adequacy of production.

• Attending interviews

ASIC can make a request that a person attend its offices voluntarily for an interview. ASIC can also issue a notice under section 19 of the ASIC Act requiring a person to attend an interview to answer questions. The interview is in private and is to be treated as confidential. For example, an employee cannot report back to their employer, or anyone else, about the matters discussed. A person attending an interview is permitted to have a lawyer present.

Whether or not to attend an interview voluntarily will depend on a number of factors. Refusing to attend an interview voluntarily is not necessarily viewed as the person having something to hide. For example, if a person is subject to confidentiality obligations (to their clients or employer) it would be preferable to attend an interview under compulsion rather than voluntarily, to avoid any allegations that those obligations have been breached.

Careful and thorough preparation for any interview will make the process easier for everyone involved. Obtaining and reviewing relevant documents early will assist the witness to prepare for an interview and enable them to answer questions directly and clearly.

• Enforcement proceedings

This is the final and most drastic action a regulator can take. After an investigation, by way of requests for documents and/or interviews, a regulator may commence a proceeding alleging contraventions of the relevant legislation and seeking penalties.

Litigation is a difficult process at the best of times and enforcement proceedings by a regulator are no exception. Additionally, enforcement proceedings are a specific type of litigation and benefit from specialised legal advice. The best tip is to engage competent lawyers to act on your behalf in any Court proceedings

Tony Peterson is a Commercial Litigation Lawyer with Roberts Legal in Newcastle.