Australia’s corporate and securities regulator, the Australian Securities and Investments Commission (ASIC), has extensive enforcement powers that it can use to ensure compliance with the law. One of these is the power to issue infringement notices. An infringement notice is an administrative mechanism that ASIC can use as a response to misconduct. It is issued where ASIC has reasonable grounds to believe that the recipient of the notice has contravened the law and the notice specifies a monetary penalty that the recipient may elect to pay. If the recipient pays the penalty, then this is not an admission of liability and ASIC can take no further action in relation to the alleged misconduct specified in the notice. If the recipient does not pay the penalty, ASIC may take alternative enforcement action, depending on the particular type of infringement notice that it has issued.
Infringement notices have been extensively used by ASIC since they were introduced in 2004 for breaches of the continuous disclosure requirements (ie, the obligations imposed on listed companies to immediately disclose price sensitive information to the market), and they are considered by ASIC to provide it with a faster and more efficient means of deterring and punishing minor contraventions of the law than taking the matter to court.
However, infringement notices are controversial for several reasons. First, the areas of law which are subject to infringement notices have expanded substantially since ASIC’s infringement notice regime was introduced for continuous disclosure. Now, ASIC may issue an infringement notice in relation to continuous disclosure, consumer credit, consumer protection, market integrity, derivative transactions, client money, financial benchmarks, insurance contracts and financial advice. Second, the amount that is potentially payable under an infringement notice can be very substantial: for example, the maximum amount payable in relation to a single alleged contravention of a market integrity rule or client money reporting rule is A$4.125 million (from 1 January 2023) — however, if the notice relates to multiple contraventions (as many previous market integrity rules notices have), the penalty amount could be even higher. When infringement notices were first introduced in relation to continuous disclosure, the maximum amount payable was A$100,000 (and still is for this kind of infringement notice). Third, infringement notices are used by ASIC in areas of the law which are both complex and have serious offences for contraventions, leading some to argue that courts should decide the penalties rather than ASIC. Fourth, it has been argued that infringement notices may be disproportionately used against individuals or companies that cannot afford to challenge the regulator in court and the publicity associated with an infringement notice may create a public perception of guilt (despite compliance with a notice not amounting to an admission of guilt or liability by the recipient).
Given these debates, we undertook a study to investigate ASIC’s use of infringement notices. We examined all infringement notices issued by ASIC between 2004 and 2022, documenting how the use of the notices differs substantially according to the area of law and also how the use of infringement notices has varied over time.
Between the commencement of the infringement notice regime for continuous disclosure in July 2004 and December 2022, ASIC successfully issued 436 infringement notices with penalty amounts totalling A$15,637,890. These notices related to consumer credit, consumer protection (ie, unconscionable conduct and consumer protection in relation to financial services), market integrity (ie, the obligations imposed on operators and participants in licensed financial markets), continuous disclosure and derivative transactions.
ASIC’s most commonly used infringement notice regimes are the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) regime and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) regime. There were 194 notices for alleged contraventions of the Credit Act (with A$3,696,500 in penalties), 123 notices for alleged contraventions of the ASIC Act consumer protection provisions (with A$1,316,040 in penalties), 70 notices for alleged contraventions of the market integrity rules (with A$7,798,250 in penalties), 44 notices for alleged continuous disclosure breaches (with A$2,152,000 in penalties), three notices for alleged contraventions of the derivative transaction rules (with A$653,500 in penalties) and two notices for alleged contraventions of the Competition and Consumer Act 2010 (Cth) using powers delegated to ASIC by the Australian Competition and Consumer Commission (with A$21,600 in penalties). ASIC has not yet used its infringement notice powers available in relation to the derivative trade repository rules, the client money reporting rules, the benchmark rules or s 33C of the Insurance Contracts Act 1984 (Cth).
Our research also found that ASIC’s use of infringement notices has varied substantially over time. Infringement notices were little used in the early years of their availability but as more areas of the law became subject to infringement notices, their use increased. ASIC’s issuance of infringement notices reached a peak in 2015–2016 (109 notices), with a decrease in 2016–2017 and 2017–2018 (74 and 55 notices) then a significant decrease in 2018–2019 to 2021–2022 (14 in 2018–2019, four in 2019–2020, three in 2020–2021, three in 2021–2022). This was followed by an increase in 2022–2023 (nine notices to 31 December 2022).
We identify reasons for these findings including first, a decline in the use of infringement notices since 2019 because ASIC moved to more court-based enforcement strategies; and second, the recent use by ASIC of infringement notices to respond to a new area of concern — “greenwashing”, which occurs when companies misrepresent the extent to which their practices (or particular financial products or investment strategies) are environmentally friendly, sustainable or ethical.
With a renewed interest by ASIC in negotiated enforcement outcomes, it may be that we will continue to see the use of infringement notices increase from their very low recent numbers, particularly given the areas of law now subject to infringement notices.
Ian Ramsay is Redmond Barry Distinguished Professor Emeritus, Melbourne Law School, the University of Melbourne.
Miranda Webster is a Research Fellow, Melbourne Law School, the University of Melbourne.
This post was adapted from their article, “The Rise and Fall, and Possible Rise Again, of the Use of Infringement Notices by the Australian Securities and Investments Commission” available on SSRN.