EUs do work says university study
Enforceable Undertakings (EUs) may be a far more effective tool than has been portrayed by the Royal Commission according to new research commissioned by the Australian Securities and Investments Commission (ASIC) and undertaken by the University of NSW.
The study found that financial services and credit providers fear being sanctioned by EUs, despite speculation that the regulatory contracts are ineffective.
The study was led by Professor Dimity Kingsford-Smith who said the clear finding of the study which was unanticipated was that a majority of interviewees reported their organisation being deterred by EUs with their competitors.
Besides ASIC, EUs are used by more than 20 other Australian regulators, to improve failing compliance. The contracts are supervised by an external expert and provide for compensation where required.
“There has been controversy about the effectiveness of EUs in deterring competitors of financial services and credit providers in the financial sector which accept an EU,” Kingsford Smith said. “Most of the discussion around this has been anecdotal and speculative.”
But she said the study found that financial services and credit providers wanted to avoid the perceived effects of harsher sanctions, such as civil penalties.
Interviewees also wanted to avoid the financial and time costs in discharging the terms of EUs to effect change in the business.
“The critical mechanisms of deterrence referred to by many interviewees were the costs of EUs and avoiding reputational damage and loss,” Kingsford Smith said.
Businesses were also motivated by EUs to avoid the intrusion of outsiders, such as supervising experts, in the operation of the business, she said.
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