ASIC RG 73 — ASIC Regulatory Guide – RG 73 Continuous disclosure obligations: Infringement notices

Page 1 REGULATORY GUIDE 73 Continuous disclosure obligations: Infringement notices October 2017 About this guide This guide is for anyone who is subject to continuous disclosure obligations, including listed and unlisted disclosing entities. It covers:  our general approach to the infringement notice remedy; and  the stages in the infringement notice process. Page 2 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in October 2017 and is based on legislation and regulations as at the date of issue. On 5 July 2023, we updated the information on maximum penalties in RG 73.32(a). Previous versions:  Superseded Regulatory Guide 73, updated June 2012  Superseded Continuous disclosure obligations: infringement notices— An ASIC guide, issued May 2004, rebadged as Regulatory Guide 73 in July 2007 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 3 Contents A Overview ........................................................................................... 4 Summary............................................................................................ 4 Our overall approach ......................................................................... 4 Our use of infringement notices ......................................................... 4 Infringement notice process............................................................... 4 B The infringement notice process ................................................... 6 Stage 1: Investigation of alleged breach ........................................... 6 Stage 2: An ASIC delegate is briefed ................................................ 7 Stage 3: The ASIC delegate examines the matter ............................ 7 Stage 4: A hearing notice is issued ................................................... 7 Stage 5: The hearing is conducted .................................................... 8 Stage 6: An infringement notice may be issued ................................ 9 Stage 7: The infringement notice is served ..................................... 11 Stage 8: The disclosing entity responds to the notice ..................... 11 Stage 9: Action following response to the notice ............................. 11 Stage 10: Publication by ASIC ........................................................ 14 Key terms ............................................................................................... 15 Related information ............................................................................... 16 Page 4 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 4 A Overview Key points We consider continuous disclosure obligations to be fundamental to maintaining the integrity of the market by ensuring transparency and equal access to information. We issue infringement notices to address less serious breaches of the continuous disclosure laws. Summary RG 73.1 Infringement notices are a means by which ASIC can respond to alleged breaches by disclosing entities of the continuous disclosure obligations in Ch 6CA of the Corporations Act 2001 (Corporations Act). We tend to use infringement notices as a regulatory response to alleged breaches that are considered to be less serious. Our overall approach RG 73.2 ASIC’s key role in administering Ch 6CA is to ensure that listed and unlisted disclosing entities disclose material information on a timely basis and comply with any relevant listing rules. Our approach is based on the principle that the continuous disclosure obligations are fundamental to maintaining the integrity of the market by ensuring transparency and equal access to information. Our use of infringement notices RG 73.3 Infringement notices provide a regulatory tool for ASIC to address less serious breaches of the continuous disclosure obligations. They are designed to provide a fast and effective regulatory response that is proportionate and proximate in time to the alleged breach. The matter will be dealt with in a timely way, while still providing significant protection to the disclosing entity. Infringement notice process RG 73.4 The process for issuing infringement notices for breaches of s674(2) or 675(2) of the Corporations Act consists of the 10 stages listed in Table 1. Page 5 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 5 Table 1: The 10 stages of the infringement notice process Stage Description More information 1. Investigation of alleged breach If a possible breach of the continuous disclosure obligations has been identified we may conduct an investigation using our compulsory powers. In the course of the investigation we will decide whether use of the infringement notice remedy is appropriate. RG 73.5–RG 73.8 2. An ASIC delegate is briefed If we consider that the issue of an infringement notice may be an appropriate remedy, an ASIC delegate is briefed on the matter to determine if there has been a breach. The delegate will not have been involved in the investigation of the suspected breach, and will look at the matter for the first time when receiving the brief. RG 73.9 3. The ASIC delegate examines the matter The delegate examines the matter and forms a belief as to whether or not there may have been a breach. In forming that belief, the delegate must have regard to the views of the relevant market operator. RG 73.10 4. A hearing notice is issued If the delegate believes there has been a breach, a written statement (the hearing notice) will be issued to the disclosing entity. The notice will set out the reasons for believing there has been a breach. RG 73.11–RG 73.12 5. The hearing is conducted The delegate will hold a hearing to determine whether to issue an infringement notice. In the hearing the disclosing entity may give evidence and make submissions. RG 73.13–RG 73.19 6. An infringement notice may be issued The delegate takes all submissions and evidence into account and may decide to issue an infringement notice if there are reasonable grounds to believe there has been a breach. RG 73.20–RG 73.24 7. The infringement notice is served The infringement notice is served on the disclosing entity, with a compliance period of 28 days. RG 73.25–RG 73.27 8. The disclosing entity responds to the notice The disclosing entity may comply with the notice or seek an extension of time to comply or seek to have the notice withdrawn or choose not to comply with the notice. RG 73.28–RG 73.29 9. Action following response to the notice If the infringement notice is complied with, we cannot begin proceedings against the entity. If the notice is not complied with, we may commence civil proceedings against the entity under Pt 9.4B and/or s1324B of the Corporations Act. If the notice is withdrawn, ASIC is not restricted in the action it may take against the entity. In any event, we will consider exercising exclusion powers. RG 73.30–RG 73.38 10. Publication by ASIC If the infringement notice is complied with, we will publish details of the notice. If we begin proceedings against the entity following withdrawal of, or failure to comply with, a notice we will publish that fact. RG 73.39–RG 73.41 Page 6 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 6 B The infringement notice process Key points This section details the stages of the infringement notice process. Stage 1: Investigation of alleged breach RG 73.5 We have a number of mechanisms for identifying and receiving information about possible failures by entities to comply with the continuous disclosure obligations. When we identify or receive such information, we conduct an initial analysis to determine if the matter needs to be investigated. We may use our compulsory powers to obtain relevant documents and examine people who may be able to provide relevant information. RG 73.6 In the course of our investigation we will decide whether use of the infringement notice remedy may be appropriate. We will consider all of the relevant facts and circumstances of the matter and we will generally have regard to: (a) the seriousness of the alleged breach; and (b) the view of the relevant market operator. RG 73.7 In determining the seriousness of an alleged breach, we will have regard to a number of different factors depending on the circumstances of the matter. Relevant considerations may include: (a) the impact of the alleged breach on the market for the entity’s securities (including, for example, any change in price of the securities and/or the number of securities traded during the period of the alleged breach); (b) the materiality of the information the subject of the alleged breach (such as whether the information went to the heart of the entity’s continued operations); (c) the factual circumstances giving rise to the alleged breach (such as whether the conduct giving rise to the alleged breach was negligent, reckless or deliberate); (d) the adequacy of the entity’s internal controls, and whether they were complied with; and (e) the conduct of the entity before the alleged breach (including whether the entity sought and followed professional advice in relation to disclosure) and after the alleged breach (for example, whether the entity took immediate steps to correct the failed disclosure). Page 7 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 7 RG 73.8 We must consult with the relevant market operator before issuing a notice of hearing to a listed disclosing entity for an alleged breach of s674(2) or 675(2) of the Corporations Act, although we are not bound by the opinion of the market operator. Stage 2: An ASIC delegate is briefed RG 73.9 If we consider, as a result of our investigation, that an infringement notice may be an appropriate remedy, we will provide a brief to an ASIC delegate for their consideration. The brief will consist of all the material that the investigation team believes is relevant to establishing the suspected breach. The delegate will not have been involved in ASIC’s investigation of the suspected offence, and will look at the matter for the first time when receiving the brief. Stage 3: The ASIC delegate examines the matter RG 73.10 The delegate considers the brief provided by the investigation team and forms a belief as to whether or not the disclosing entity has contravened s674(2) or 675(2) of the Corporations Act. In forming the belief the delegate will consider the view of the relevant market operator. Stage 4: A hearing notice is issued RG 73.11 If the delegate believes that the disclosing entity has breached s674(2) or 675(2) of the Corporations Act, the entity must be notified in writing of the basis for issuing the infringement notice. The delegate provides a written statement (the hearing notice) that sets out the reasons for their belief that there has been a breach. The hearing notice will include: (a) the sections of the Australian Securities and Investments Commission Act 2001 (ASIC Act) or Corporations Act under which the hearing is being conducted; (b) the purpose of the hearing; (c) the issues of concern (i.e. why the delegate believes that the entity has breached s674(2) or 675(2)); (d) details of the disclosing entity’s opportunity to appear at a private hearing before the delegate, and give evidence to the delegate and make submissions; Page 8 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 8 (e) the date, time and place of the hearing, and how long the delegate estimates it will take (21 days is considered adequate time to prepare for the hearing); (f) that, if a representative of the disclosing entity does not want to appear, the entity may make a written submission that will be taken into account; (g) what happens if the disclosing entity does not respond to the notice (i.e. the delegate will make a decision on the basis of the information available); and (h) a copy of Information Sheet 1 Administrative hearings (INFO 1), which provides an outline of how we conduct our administrative hearings, and how to obtain a copy of Regulatory Guide 8 Hearings practice manual (RG 8). RG 73.12 We will keep the fact of the hearing notice confidential. Stage 5: The hearing is conducted RG 73.13 An ASIC delegate must hold a hearing to determine whether to issue an infringement notice. A representative of the entity can give evidence and make submissions at the hearing. The hearing will be run as closely as possible in accordance with RG 8—there will only be departures where this is necessary for the hearing to proceed promptly and fairly. Where relevant, Div 6 of Pt 3 of the ASIC Act applies to the hearing process: see s51 and 54– 62. Further information about how we administer these provisions and the delegate’s responsibilities when conducting hearings is set out in RG 8. There are a number of important points to note about the hearing process. There is no obligation to appear RG 73.14 Although the Corporations Act requires the delegate to issue an invitation to appear at the hearing, the entity is not obliged to appear. An entity may simply provide written submissions to the delegate, or it may decline to appear or take part in the process in any way. In the latter case the delegate will still make a decision. A right to representation RG 73.15 The entity has a right to legal representation. Other people, such as a corporate officer, may also appear as a representative. The delegate has the discretion to allow people other than the representative of the entity to appear at the hearing. Page 9 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 9 The hearing is fact-finding, not adversarial RG 73.16 In accordance with RG 8, the hearing is a fact-finding one. It is not an adversarial exercise, such as in a court. Hearings are conducted informally and as expeditiously as possible. Rules of evidence do not apply RG 73.17 The rules of evidence and the usual court rules of procedure and practice do not apply to ASIC hearings: see s59(2)(a) of the ASIC Act. A delegate will base their decision on material that is relevant, credible and logically proves the facts. Procedural fairness RG 73.18 We are obliged by the rules of procedural fairness to ensure that an entity appearing before us at a hearing has an opportunity to put its submissions. We consider that, as a matter of general principle, it will not be necessary to call witnesses. In most instances a written statement will be adequate. Expert witnesses RG 73.19 We may rely on the written report of an independent expert witness to establish some elements of the breach. The ASIC delegate may ask the expert to be present to assist at the hearing. Stage 6: An infringement notice may be issued RG 73.20 After a hearing has taken place, or a delegate has received written submissions or been notified that the entity does not wish to participate in a hearing, the delegate is required to take all submissions and evidence into account and make a decision. For a listed entity, the delegate must also consider any guidelines issued by the relevant market operator that relate to the listing rules referred to in s674(1) of the Corporations Act, although the delegate is not bound by these. RG 73.21 If the delegate has reasonable grounds to believe that a disclosing entity has breached s674(2) or 675(2), they may issue an infringement notice. Note: The fact that the delegate issued the hearing notice does not mean that they are biased in their determination of whether to issue the infringement notice: see McLachlan v ASIC (1999) 85 FCR 286. RG 73.22 The issue of an infringement notice, and subsequent satisfaction of it, is not an admission of liability and does not represent a finding that the Corporations Act has been breached. It simply signals our view of the Page 10 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 10 alleged conduct and provides a way to deal with the issue without engaging in lengthy and expensive court proceedings. RG 73.23 The infringement notice will set out what is required for compliance. It will include details (as required by s1317DAE of the Corporations Act), such as: (a) the day on which it was issued; (b) that it is issued by ASIC; (c) a description of the alleged breach, including the date of the alleged breach and the provision that was breached; (d) a statement that if the entity complies with the infringement notice, we may publish details of the disclosing entity’s compliance with the infringement notice in accordance with s1317DAJ; (e) the amount of the penalty—this will be $33,000, $66,000 or $100,000, depending on the circumstances and whether there has been a previous breach of s674(2) or 675(2); Note: The levels of penalty that are to be imposed are set out in s1317DAE(2)–(7). We have no discretion as to the amount of the penalty. (f) the maximum pecuniary penalty that a court could impose under Pt 9.4B of the Corporations Act (civil penalty provisions) for the alleged breach; (g) an explanation that under s1317DAF, the compliance period is 28 days beginning on the day after the notice is issued, and that the period may be extended once by ASIC if appropriate (s1317DAH sets out certain requirements for the extension); (h) an explanation of the effect of s1317DAF, which provides protection from certain other proceedings during the compliance period (if the notice has not been withdrawn) and after the notice is complied with; (i) an explanation of the effect of s1317DAG, which sets out the effects of a failure to comply with an infringement notice that is not withdrawn (although certain proceedings are not available, a civil penalty action by ASIC is available); and (j) a statement that the entity may make written representations to ASIC seeking the withdrawal of the infringement notice, in accordance with s1317DAI. RG 73.24 We will aim to issue an infringement notice promptly after identifying the alleged breach, consistent with properly assessing the facts and our conclusion that there has been an actionable breach. We will not make the fact of the issue of the infringement notice public. Page 11 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 11 Stage 7: The infringement notice is served RG 73.25 The infringement notice is served on the disclosing entity by leaving it at, or posting it to, the entity’s registered office, or delivering a copy personally to a director residing in Australia. RG 73.26 The compliance period for an infringement notice is 28 days beginning on the day after the notice was issued, unless it is extended by ASIC, in which case the extension must not be for longer than 28 days. RG 73.27 During the compliance period, provided the infringement notice is not withdrawn, the proceedings that we may begin or continue against the entity are limited. We cannot begin proceedings for the alleged breach specified in the infringement notice or for an offence constituted by that conduct. However, some proceedings may be commenced or continued against the entity by third parties: see s1317DAF(6) of the Corporations Act. The most significant of these are referred to in RG 73.31. Stage 8: The disclosing entity responds to the notice RG 73.28 The disclosing entity has several options when it receives the infringement notice. It may: (a) satisfy the infringement notice within the compliance period by paying the specified penalty and disclosing to the market or lodging a document about any specific information referred to in the notice; (b) seek an extension for the compliance period (see s1317DAH); (c) make written representations to ASIC seeking the withdrawal of the notice (see s1317DAI); or (d) decline to satisfy the infringement notice within the compliance period. RG 73.29 Decisions to issue and withdraw infringement notices are excluded from review by the Administrative Appeals Tribunal (AAT). The AAT merits review does not apply because there is no obligation on an entity to comply with the notice. Stage 9: Action following response to the notice Effect of compliance with an infringement notice RG 73.30 If the infringement notice is complied with, we cannot take civil or criminal proceedings against the entity for the alleged breach specified in the infringement notice. Compliance with the infringement notice does not, however, preclude ASIC from taking civil penalty proceedings under Page 12 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 12 s674(2A) or 675(2A) of the Corporations Act against people involved in the alleged breach. RG 73.31 Compliance with the infringement notice does not affect the right of third parties, who have been adversely affected by the entity’s conduct, to bring certain proceedings against the entity in relation to the alleged breach. Proceedings that individuals may take against the entity are set out in s1317DAF(6) of the Corporations Act. They include proceedings brought under s1317HA, 1101B and 793C of the Corporations Act. Effect of failure to comply with an infringement notice RG 73.32 If an entity does not comply with the infringement notice, we cannot enforce the notice. However, if the notice is not withdrawn we may take the following action against the entity: (a) We may begin civil penalty proceedings against the entity under Pt 9.4B of the Corporations Act seeking a declaration that the entity breached the provision specified in the infringement notice and a pecuniary penalty order. The size of the pecuniary penalty is not limited to the amount specified in the infringement notice: (i) The maximum pecuniary penalty for an individual is the greater of: (A) 5,000 penalty units; and (B) three times the benefit derived and detriment avoided. (ii) The maximum pecuniary penalty for a body corporate is the greatest of: (A) 50,000 penalty units; (B) three times the benefit derived and detriment avoided; and (C) 10% of the annual turnover for the 12-month period ending at the end of the month in which the body corporate contravened, or began to contravene, the relevant provision (capped at 2.5 million penalty units). Note: For more information about penalties, including the value of a penalty unit, see www.asic.gov.au/penalties. (b) We may (if applicable) begin proceedings under s1324B of the Corporations Act seeking an order that specified information be disclosed in the manner required by the infringement notice. (c) Where a court has made any of the orders set out in RG 73.32(a)– RG 73.32(b), we can make an order under s91 of the ASIC Act for recovery of expenses of our investigation into the breach specified in the infringement notice. We can also bring proceedings to enforce that order. Page 13 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 13 (d) We can accept an enforceable undertaking under s93AA of the ASIC Act and bring proceedings to enforce the undertaking. RG 73.33 We cannot otherwise begin or continue any proceedings against the disclosing entity for the alleged breach specified in the infringement notice. RG 73.34 Failure to comply with the infringement notice does not affect the right of third parties to bring proceedings against the entity for the alleged breach. Proceedings that individuals may take against the entity are set out in s1317DAG(4) of the Corporations Act. Withdrawal of an infringement notice RG 73.35 The entity may seek the withdrawal of the infringement notice by making a written request to ASIC. We may withdraw the infringement notice (whether or not the entity has sought its withdrawal) if the infringement notice has not been satisfied. We will advise the entity in writing if the notice is withdrawn. If a notice is withdrawn, we are not restricted in the action we may take against the disclosing entity for the alleged breach. We may consider criminal proceedings against the entity. Limit on use of information given to ASIC RG 73.36 If we begin proceedings after withdrawal of, or failure to comply with, an infringement notice, any evidence or information given to us by a representative of the entity at a private hearing under s1317DAD, or in the course of making written representations to ASIC seeking the withdrawal of the notice, is not admissible in evidence against: (a) the entity in any proceedings; or (b) the representative of the entity in any proceedings (other than proceedings for an offence based on the evidence or information given being false or misleading). ASIC’s exclusion powers RG 73.37 We will also consider making determinations under s708A(2), 713(6), 713A(23), 1012DA(2) or 1013FA(3) in circumstances where an infringement notice has been issued to an entity. These determinations exclude entities from relying on certain provisions of the Corporations Act that only require limited disclosure in regulated documents or ‘cleansing notices’, having regard to the continuous disclosure obligations. RG 73.38 We will consider making determinations under our exclusion powers irrespective of whether the entity has complied with the infringement notice. We may make these determinations if we are satisfied that in the previous 12 months the entity has contravened the continuous disclosure provisions. Page 14 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 14 Stage 10: Publication by ASIC Publication of compliance with an infringement notice RG 73.39 If the disclosing entity complies with an infringement notice we will publish details of the notice. Publication is limited to one or both of the following: (a) publishing a copy of the infringement notice in the Gazette together with statements that: (i) the disclosing entity has complied with the infringement notice; (ii) compliance with a notice is not an admission of guilt or liability; and (iii) the disclosing entity is not regarded as having breached the provision specified in the notice; and/or (b) issuing a statement (whether written or oral) about the disclosing entity’s compliance with the infringement notice, where the statement is limited to an accurate summary of the infringement notice including: (i) the name of the entity; (ii) the amount of the penalty payable; (iii) the conduct specified in the notice for which the infringement notice was issued; (iv) a statement that the disclosing entity has complied with the infringement notice; (v) a statement that compliance with the notice is not an admission of guilt or liability; and (vi) a statement that the disclosing entity is not regarded as having breached the provision specified in the notice. RG 73.40 We are restricted from otherwise publishing details of an infringement notice or a disclosing entity’s compliance with an infringement notice. This does not prevent us from publishing information on an aggregate and anonymous basis, including for example the number of infringement notices issued and the number resulting in fines or civil penalty proceedings in a given period. Publication of commencement of proceedings RG 73.41 If we begin proceedings against the entity following withdrawal of, or failure to comply with, an infringement notice we will publish the fact of commencement of the proceedings and details of the outcome of the proceedings in a media release. Page 15 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 15 Key terms Term Meaning in this document AAT Administrative Appeals Tribunal ASIC Australian Securities and Investments Commission ASIC Act Australian Securities and Investments Commission Act 2001 Ch 6CA (for example) A chapter of the Corporations Act (in this example, numbered 6CA), unless otherwise specified Corporations Act Corporations Act 2001, including regulations made for the purposes of that Act disclosing entity Has the meaning given in s111AC of the Corporations Act hearing Has the meaning given in s5 of the ASIC Act hearing notice A written notice issued under s1317DAD(1) of the Corporations Act INFO 1 (for example) An ASIC information sheet (in this example numbered 1) infringement notice An infringement notice issued under reg 7.2A.04 of the Corporations Regulations 2001 RG 8 (for example) An ASIC regulatory guide (in this example numbered 8) s674(2) (for example) A section of the Corporations Act (in this example, numbered 674(2)), unless otherwise specified Page 16 REGULATORY GUIDE 73: Continuous disclosure obligations: Infringement notices © Australian Securities and Investments Commission October 2017 Page 16 Related information Headnotes continuous disclosure obligations, disclosing entity, hearing, hearing notice, infringement notice Regulatory guides RG 8 Hearings practice manual Legislation ASIC Act, Pt 3, Div 6; s51, 54–62, 91, 93AA Corporations Act, Ch 6CA; Pt 9.4B; s674(1)–(2A), 675(2)–(2A), 708A(2), 713(6), 713A(23), 793C, 1012DA(2), 1013FA(3), 1101B, 1317DAD– 1317DAJ, 1317HA, 1324B Cases McLachlan v ASIC (1999) 85 FCR 286 Information sheets INFO 1 Administrative hearings