Tough new regime for enforceable undertakings

Financial institutions giving enforceable undertakings to the Australian Securities and Investments Commission face a tougher process, following changes to ASIC's approach.

ASIC issued updated enforceable undertaking guidance in February, with changes to provisions covering public reporting of undertakings and also the criteria to be used for assessing the independence of experts. Those changes have now taken effect.

ASIC said its aim was to increase the transparency of outcomes under enforceable undertakings.

Gadens Lawyers partner Amber Warren said entering into an enforceable undertaking with ASIC would be more rigorous and lengthy, and would be a much more public exercise.

An enforceable undertaking is a remedy available to ASIC for breaches of the laws it enforces. It is an administrative settlement, initiated by a company or responsible entity, which provides an alternative to court action.

Under the new guidance, ASIC will report publicly about compliance with the terms of an undertaking and also disclose the content of any expert report required by the terms of the undertaking. Reporting on compliance may include interim and final reports.

ASIC will not accept an enforceable undertaking that does not include details of the misconduct and it will not accept an undertaking in confidence.

In an expanded section on community service obligations, ASIC said an enforceable undertaking may require a "promisor" to perform a community service, such as disgorging profits from unlawful conduct and paying it to affected consumers, funding an education program or paying money to a charity or community organisation.

ASIC said an offer to perform community service would not influence its choice of whether or not to refer the promisor to the Commonwealth Director of Public Prosecutions.

Some enforceable undertakings contain terms requiring an independent expert to review and report on specific matters. In most cases the promisor may appoint the expert but, under the terms of the revised guidance, ASIC will require the expert to demonstrate its competence, independence and the existence of arrangements to manage any conflict of interest that might arise during the engagement.

ASIC said it would issue summaries of expert reports or statements outlining the contents of reports. "Publication of summaries of expert reports will promote the integrity of, and public confidence in, our financial markets and corporate governance," it said.

In some cases ASIC will appoint the independent expert. It said it would tend to appoint the expert itself where the matter was complex or large scale, or where significant compensation or remediation was likely to be involved.

Warren said the updated guidance would dispel any notion that an enforceable undertaking was a soft option.

"An enforceable undertaking remains an attractive option because it allows an entity to get back to business as usual more quickly, but it will now be a more rigorous, lengthy and public exercise," she said.