August 26, 2019
The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) (Act) amends existing acts such as Corporations Act 2001 (Cth) (Corporations Act), ASIC Act 2001 (Cth) (ASIC Act), National Consumer Credit Protection Act 2009 (Cth) (Credit Act) and Insurance Contracts Act 1984 (Cth) (Insurance Act) to:
- consolidate penalty frameworks under the acts; and
- increase the existing penalties – longer prison sentences for criminal offences;
- introduce new penalties,
for corporations and individuals.
Going forward, corporations, financial institutions and individuals will face far greater financial exposure for misconduct under the acts covered by the Act. The changes will result in affected entities and individuals to:
- review current compliance and regulatory risk assessments and processes, and ensure that the processes meet the new standards;
- review how matters are prioritised, investigated and managed;
- implement processes to ensure that allegations of misconduct can be managed, investigated and where required, reporting or disclosures being made.
What are the key changes?
The key changes made by the Act can be divided into the following categories:
- increase in severity of penalties for criminal offences for individuals and bodies corporate;
- increase in severity of penalties for civil breaches for individuals and bodies corporate;
- increase in scope of the civil penalty regime, to cover new provisions;
- increase in the range of scenarios for which infringement notices can be issued; and
- lowering of the threshold for establishing 'dishonesty' under dishonesty offences under the Corporations Act.
The new penalties which apply under the acts:
Serious criminal offences – increase to 15 years (previously limited offences carried a maximum penalty of 10 years but most carried a maximum penalty of 5 years). Serious offences includes:
the s912A general obligations of Australian financial services licensees (AFSL holders) under the Corporations Act;The civil penalty regime will be extended to cover a wider range of provisions in financial services laws, including:
- the obligation on AFSL holders to lodge breach reports with ASIC under s912D of the Corporations Act;
- the disclosure requirements in Chapter 7 of the Corporations Act;
- the general obligations of credit licensees imposed by s47 of the Credit Act;
- the duty to act in utmost good faith and the obligation to provide a key facts sheet imposed by s13(1) and s33C(1) of the Insurance Act; and
- a range of other provisions of the Corporations Act and Credit Act.
- certain additional provisions of the Credit Act; and
- s33C of the Insurance Act.
- For most offences (including strict and absolute liability offences), the maximum penalty payable will be half of the maximum pecuniary penalty payable for that offence.
- For most civil penalty provisions, the maximum penalty payable will be 12 penalty units for individuals ($2520) and 60 penalty units for corporations ($12,600).
- For Credit Act offences, the maximum amount payable is one fifth of the maximum penalty for that offence, and for Credit Act civil penalty provisions, the maximum amount payable will be 50 penalty units for individuals ($10,500) and 250 penalty units for bodies corporate ($52,500).
The new test for dishonesty is a 'single limb' test which states that conduct is dishonest if it is 'dishonest according to the standards of ordinary people'. It will no longer be necessary to prove that the conduct was known by the person to be dishonest, according to the standards of ordinary people.
Priority for compensation:
What you need to do
- Directors and companies need to be aware of the changes.
- Implement training regarding the provisions.
- Company officers should also review their D&O insurance arrangements.