ASIC casts doubt on fault-based framework

Moving to a faults-based framework for law enforcement would present “practical difficulties”, the Australian Securities and Investments Commission has told Parliament. 

In its submission to the Senate on the Treasury Laws Amendment (Measures No.1 2021) Bill, ASIC said there were “practical difficulties” involved in establishing fault. 

Under the proposed changes in the Bill, ASIC would need to demonstrate the listed entity knew or was reckless or negligent as to whether information alleged to be the subject of a disclosure obligation would have a material effect on the price or value of the relevant securities. 

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“ASIC would be required to establish a fault element in order to bring civil penalty proceedings where an entity fails to comply with an infringement notice. In investigating the matter, it is likely that ASIC will need to obtain evidence to establish the fault element to ensure that it can take civil penalty action in that event.” 

One particular example covered the disclosure of information that appeared to have been disclosed later than it should have been, which the regulator said “happened often” and took time to investigate as information evolved.  

“It is likely that it will be difficult for ASIC to prove that an entity is reckless or negligent with respect to the materiality of information of which it was not aware but should have been. Introducing clear attribution rules will provide an incentive for market-sensitive information to be elevated to a board or senior officer in a timely manner and for existing practices to be maintained. 

The regulator also stressed there was a difference between litigation on a private level and enforcement action by a regulatory body. 

For private litigants, they would need to establish a fault element to establish liability for a breach of continuous disclosure provisions and misleading and deceptive conduct provisions. This was aligned with the US and UK, but using the proposals for a regulator would leave Australia “out of step” on a global stage. 

“There is a distinction to be drawn between private litigation, and enforcement action by regulators. While it is difficult to make a direct comparison between different jurisdictions in light of different legislative frameworks and available remedies, introducing a fault-based framework for ASIC enforcement litigation may place Australia out of step with the United States and the United Kingdom where it appears regulators can take enforcement action without establishing fault,” ASIC said in its submission. 

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