An Empirical Analysis of the Use of Enforceable Undertakings by the Australian Securities and Investments Commission between 1 July 1998 and 31 December 2015

Abstract

This paper analyses enforceable undertakings or formally negotiated settlement agreements between the Australian Securities and Investments Commission (ASIC) and regulated firms and individuals. It reports the findings of an empirical study of 414 enforceable undertakings accepted by ASIC from 1 July 1998 (when ASIC was given the power to accept enforceable undertakings) to 31 December 2015. The first of its kind in size and scope, the study provides detailed insights into ASIC’s deployment of enforceable undertakings to address misconduct issues occurring within its regulatory remit. The study profiles the characteristics of parties giving enforceable undertakings, their misconduct and the undertakings given to address that misconduct. Proprietary companies and directors are shown to be the most common groups of companies and individuals giving enforceable undertakings. Activities involving financial services are the most common subject of enforceable undertakings and non-compliance with financial services laws, the most common form of misconduct addressed by enforceable undertakings. The study finds evidence of the regulator’s strategic use of enforceable undertakings to bring about systemic changes in the financial services industry, especially in relation to the quality of advice provided by the financial planning sector. This is achieved by regulating compliance from within financial planning and wealth management firms and accepting voluntary financial service activity bans from individual advisors and planners engaging in misconduct. This strategy explains the concentration of legal compliance review undertakings and cease and desist undertakings in ASIC accepted enforceable undertakings.

Keywords: enforceable undertakings; compliance; financial regulation; misconduct

JEL Classification: G18; G28; G38; K22; K42; M14