Enforcement of Continuous Disclosure Laws by the Australian Securities and Investments Commission

Abstract

The Australian Securities and Investments Commission (ASIC) regards continuous disclosure by listed companies as “fundamental to market integrity” and “a central tenet of fair and efficient financial markets”. Given the importance placed upon the continuous disclosure laws, there is, understandably, considerable interest in how these laws are enforced. This research note provides insights into how ASIC enforces the continuous disclosure laws and, in particular, identifies which of the enforcement options available to ASIC are used most often. The enforcement options include a criminal action, a civil action, an administrative action for an infringement notice, an enforceable undertaking, or a determination by ASIC that a company cannot issue a prospectus with reduced content.

The key findings include the following. First, there is increasing reliance by ASIC on infringement notices (48% of continuous disclosure enforcement actions are undertaken by way of infringement notices). Possible reasons for this are explored. Infringement notices have benefits for ASIC. They allow ASIC to issue a sanction (a monetary penalty) but without the need to commence court proceedings and without the need for ASIC to establish liability or for the company to admit liability. In addition, ASIC views the payment of an infringement notice as an enforcement win, even though there is no admission of liability by the company. The use of infringement notices might also be a recognition by ASIC of the difficulties that can confront directors and officers in the area of continuous disclosure. Second, small capitalisation companies are those most likely to receive an infringement notice. Third, companies in the resources industry tend to receive the most infringement notices. Fourth, while ASIC has sought monetary penalties (either though infringement notices or civil penalty actions) and it has also sought to improve companies’ continuous disclosure compliance systems through the terms of enforceable undertakings, it has typically not sought compensation on behalf of investors. It might be that the growth of shareholder class actions means ASIC views these as performing an adequate compensation function such that ASIC can focus on other types of enforcement actions.