Continuous Disclosure: Testing the Correspondence between State Enforcement and Compliance

Abstract

The literature on regulation theory asserts that regulators are best able to encourage compliance when they are armed with a wide range of sanctions otherwise to compel compliance. It has been argued that the enactment of a wide range of sanctions and the use of those sanctions by a regulator should deter future contraventions of the law and lead to greater compliance. This paper discusses the early findings of a research project that tests some of the assumptions of regulatory theory in the corporate law context.

The questions to be examined in the research project are whether or not there is a correspondence between the introduction of an enforcement regime and an increase in the level of compliance with the law which is being enforced, and whether or not there is a correspondence between enforcement activity by a regulator and an increase in the level of compliance with the law which is being enforced. This project aims to test these assumptions in the context of ASIC’s enforcement of the continuous disclosure provisions contained in Corporations Act 2001 (Cth) s 674(2).

That provision requires listed disclosing entities to comply with the continuous disclosure obligation contained in ASX Listing Rule 3.1. Subject to certain exceptions, ASX Listing Rule 3.1 states that ‘[o]nce an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.’ If an alleged contravention of Corporations Act 2001 (Cth) s 674(2) occurs, the Australian Securities and Investments Commission (ASIC) can instigate enforcement action under the criminal, civil penalty or administrative penalty regimes. These regimes were introduced in 1994, 2003 and 2004 respectively. This project will examine data on the disclosure of information to the ASX to determine whether or not the enactment of the different enforcement regimes, and the use of those regimes by ASIC, corresponded with an increase in the level of compliance with the continuous disclosure requirements by disclosing entities.

This research project is in its initial stages. Funding for the data collection was obtained in 2008. At the date of writing this paper the data collection had not been completed. The paper sets out the research questions which will be examined, the theory underpinning the project, the reasons for the choice of the continuous disclosure regime, the methodology to be employed, some limitations of the study and some preliminary analysis of the data collected to date.

Keywords: continuous disclosure, regulation theory, compliance, corporate law