Each regulator has its own policies and principles guiding compliance and enforcement, from small-scale regional supervisors to large-scale federal institutions. Compliance regimes may highlight the importance of cooperative compliance, voluntary reporting and warnings. However with an increased media focus on worst-case scenarios these lower scale responses are giving way to rhetoric such as ASIC'S new approach of "Why not litigate?".1
The current change in culture means that regulators are looking to increase their influence pre and post contravention. Balancing this new imperative will always be the other side of the coin, which is the imperative not to make industry inefficient due to unreasonable, ineffective or impracticable regulatory impositions.
The most recent glaring example of the rebalancing of regulatory imperatives has been the Financial Services Royal Commission ('FSRC') led by Commissioner Hayne. A central criticism of the Commission was the culture within the banks' conduct regulator – namely ASIC.
On the issue of soft vs hard enforcement options, Commissioner Hayne saw ASIC's approach of negotiation rather than litigation as deficient. He stated that when a conduct regulator is faced with misbehaviour, the starting point should not be asking how the issue can be resolved by agreement.2 ASIC rarely sought judicial intervention for punishments or the public denunciation of companies. Instead of receiving disciplinary enforcement, financial institutions often went through remediations and negotiations with ASIC which resulted in some infringement notices and enforceable undertakings. These lesser consequences were said to be immaterial when compared to the large banks' profit margins.3
ASIC Commissioner Sean Hughes readily accepted the Royal Commission's report and warned of the regulator's imminent change of focus in pursuing litigation, emphasising criminal litigation actions i.e. prosecution.4 ASIC's litigation success rate has been above 90 per cent, which is thought much higher than the ideal success rate of 'closer to the 70s'. Hughes declared that financial institution codes of conduct implemented from the findings needed to be more than 'PR fluff'. Although policies may be comprehensive, nonetheless corporate cultures have the potential to depart from these policies so whether they are followed has occasionally been a different story.
For the regulator to be feared, Hughes said, there must be a genuine threat to individuals as well as corporations. He therefore sent a message to all financial institutions that criminal sanctions will be enforced and executives could face jail time for serious offences. Although Hughes would prefer not to wield a 'big stick', he acknowledged it is necessary to address the problems in the banking industry.
Commissioner Hayne also stressed the role ASIC plays for financial institutions is not as a client's advisor but should involve stringent policing and investigating.5 There needs to be a strong firewall created between regulators and those they regulate. The pressure is building for regulators to increase prosecutions to avoid the perception of inappropriately close relations with those whom they regulate.
The immediate repercussions of the banking Royal Commission and this change in public attitude stress the importance of strict enforcement. However, regulators must be cautious in blindly bending to this pressure or else run the risk of abusing their powers.
Malicious prosecution and public misfeasance are, although rare, torts in Australia which can apply to regulators. Malicious and unreasonable court proceedings will avail a plaintiff to seek damages from an overly zealous regulator.6 Public office-holders will be liable for public misfeasance when they misuse their public power. This can occur when inspectors knowingly or recklessly act outside of their statutory power.7 Civil actions may, on appropriate occasions, provide a useful avenue for companies wishing to resist unreasonable regulator behaviour.
In the FSRC's Final Report, Commissioner Hayne suggested that APRA and ASIC should be subjected to capability reviews at least every four years.8 Hayne also recommended the financial regulators should have specific oversight authorities to assess their effectiveness. These authorities must be independent of government and should report to the relevant Minister at least every two years.9 These recommendations may be implemented across all Australian regulators, however they do raise questions of over-regulation and paradoxical issues of ad infinitum regulation.
Impact on Corporates in the WHS space
Recent workplace health and safety incidents have seen the Queensland WHS and Mine Safety Regulators10 tightening safety laws and providing for an 'Industrial Manslaughter' offence in Queensland.11
These are but one example of Corporates across Australia (in particular on the East coast) are beginning to feel the product of this wider upswing towards more severe regulatory actions. We will now likely see regulators push the boundaries of their enforcement powers. Recently, Queensland's building industry watchdog issued at least 103 show cause notices to construction companies failing to meet reporting requirements (see Significant increase in compliance activities by Queensland's building regulator).
Companies should expect to see more civil and criminal proceedings commenced for WHS breaches. Regulators are receiving mounting pressure to pierce corporate veils and pursue Directors and senior officers for WHS offences. There is an accompanying change in philosophy in insuring against personal liabilities.12 It is unclear how far this emphasised attack on personal liability will go because it may increase compliance but it may hinder the willingness of individuals to take on senior management roles with WHS exposure.
How can Corporates adapt to the new norm?
The main way to guard against the changing regulatory culture is to be proactive in the way you interact with the inspectorate and regulators generally. Internal policies should be in place that deal with regulator intervention (for example: site visits, requests for documents, incident investigations). Staff must be trained in these protocols so they know who is authorised to communicate with regulators and what powers can the regulator exercise.
We now expect the WHS Regulators to bring more prosecutions and to prosecute Directors and senior officers in appropriate cases.13
We recommend that all senior officers who may meet the definition of an 'executive officer' should undergo due diligence WHS training with respect to their obligations under s.27 of the harmonised WHS laws.
We would like to acknowledge the contribution of Lachlan Thomas to this article.
2 FSRC, Interim Report, vol 1, 277
3 FSRC, Interim Report, vol 1, 121-122, 271-277.
4 ABC, ASIC's Sean Hughes Warns Insurers to Ignore Hayne Lessons at Their Peril, https://www.abc.net.au/radio/programs/worldtoday/asics-sean-hughes-warns-insurers/10853598
5 Final Report, vol 1, 424
6 A v New South Wales (2007) 233 ALR 584 .
7 Northern Territory v Mengel  HCA 65 .
8 Final Report, Recommendation 6.13
9 Final Report, Recommendation 6.14
10 Six fatalities in Qld in the last year – see https://www.thesaturdaypaper.com.au/news/rural/2019/07/13/queensland-mining-industry-reckons-with-spate-deaths/15629400008436
11 See https://www.worksafe.qld.gov.au/laws-and-compliance/best-practice-review-of-workplace-health-and-safety-queensland and https://www.safeworkaustralia.gov.au/law-and-regulation/model-whs-laws/review-model-whs-laws
12 See CFMMEU v ABCC (The Non-Indemnification Personal Payment Case)  FCAFC 97, where a union official had to personally fund penalties under the Fair Work Act 2009. And see http://www.mondaq.com/australia/x/670826/Insurance/Indemnification+of+personal+penalties