Enforceable Undertakings (EU) get a lot of criticism but they are an effective enforcement tool in the ASIC tool kit. However, they can be used a little more effectively.
Peter Whyntie from Peter Whyntie & Associates told the GRC Professional that the Australian Securities and Investments Commission has come under fire for resorting to EUs. This comes just after the regulator accepted an enforceable undertaking from the Commonwealth Bank of Australia (CBA) for the Bank Bill Swap Rate (BBSW) manipulation in 2012.
For 2018 the corporate regulator has already accepted 16 EUs and in 2017 the regulator accepted 23 EUs.
Whyntie has experience with EUS when it comes to management, acting as an independent compliance expert (ICE) and advising the client on the management of EU and engaging with their ICE.
“ASIC has come under considerable public criticism through its resorting to obtaining EUs in circumstances where some critics have argued it should have pursued prosecution,” He said. “Perhaps there were specific situations where that may be valid. However, my reading of much of the criticism is that there is not a great deal of detailed appreciation of the impact on an organisation of an EU, nor of the long-term benefits.”
Writing for ABC News, Dan Ziffer reported in May that Associate Professor Andrew Godwin of Melbourne Law University said that EUs are ‘cost effective when it comes to compliance and enforcing rules’, but he said that the public doesn’t believe that the punishment fits the crime.
He said that in his experience EUs cost an organisation more financially than a fine would have. Beyond professional service fees, client remediation and infrastructure and culture ‘rectification’, there are also what Whyntie refers to as ‘hidden fees’.
• Product development • Marketing cancelling or deferred • And distraction to management and the board
“In contrast, a court-imposed punishment will invariably be narrow, restricted to fines, and perhaps orders relating to the narrow area that is directly related to the matter being prosecuted,” Whyntie explained. “The exception would be jail time. However as that appears to be highly unlikely to be imposed in Australia, other than where an individual has been prosecuted for something like fraud, we can essentially dismiss this as a deterrent”.
However, he said that the EUs may not have been utilised in the best way, he said that an EU usually lasts for a period of three years and they are usually assigned and ICE which does an annual report to AISC at the end of each year.
Usually, at the end of the second year the shock of having the EU has worn off, and sometimes this has to do with the fact that the manager or directors have been reassigned to some other part of the organisation
“The prominence of the EU will have reduced as the initial project focus transitions to business-as-usual. And simply, memories dim.” He explained.
EUs need to be effective “In my view, an EU should have a longer tail, such as requiring a follow-up inspection by either the regulator itself or the ICE or another independent party, after saying a 2 year period from the end of the initial EU period,” he said. “Or perhaps it could be mandated. In the case of an AFS Licensee that has been subject to an EU that the annual AFSL audit should be required to include the measures required by the EU to be in place and an opinion on their effectiveness. That might extend to the first 2 such audits following the end of the EU.”