{"id":125,"date":"2018-02-13T00:00:00","date_gmt":"2018-02-12T13:00:00","guid":{"rendered":"https:\/\/hub.findingsimple.com\/au\/royal-commission-banking-financial-services-update\/"},"modified":"2026-04-22T13:06:22","modified_gmt":"2026-04-22T02:06:22","slug":"royal-commission-banking-financial-services-update","status":"publish","type":"post","link":"https:\/\/insight.thomsonreuters.com.au\/legal\/posts\/royal-commission-banking-financial-services-update","title":{"rendered":"The Royal Commission: Beware its Teeth"},"content":{"rendered":"
\"Dr<\/a>
Dr Tom Middleton, Associate Professor in the School of Law, James Cook University, Townsville and author of Thomson Reuters\u2019 ASIC Corporate Investigations and Hearings<\/em><\/figcaption><\/figure>\n

As news breaks of the banking and financial services industry deceiving customers and regulators, we chat to Dr Tom Middleton, author of ASIC Corporate Investigations and Hearings<\/em><\/a>, about the powers of the Commission to refer those suspected of deliberate rip-offs for enforcement action \u2013 at any time during the Commission’s inquiry.<\/p>\n

There\u2019s a yawn factor when yet another Royal Commission is announced. For many it\u2019s seen as a costly, political device to divert attention from the real issues. And for others it\u2019s a toothless tiger whose recommendations will gather dust in filing cabinets.<\/p>\n

However, the truth is something different. Legislatively, Royal Commissions are robust, muscular beasts with teeth. So, practitioners whose clients may need to appear before the Royal Commission, will need to be ready for it to bite.<\/p>\n

The Royal Commission can act \u2013 and act at any time<\/strong><\/span><\/p>\n

The Royal Commissions Act 1902<\/em> (Cth) (the Act) that authorises the Federal Government, through the Governor-General, to initiate this inquiry is bristling with powers that enable the Royal Commission to inquire into and report upon any matter specified in the Letters Patent and refer any suspected contraventions to the regulators for enforcement.<\/p>\n

\u201cUnder s 6P of the Act, the [Royal] Commission can, if it thinks it\u2019s appropriate, refer any misconduct to the relevant regulator responsible for that area of law, such as the ATO, ASIC, APRA or the ACCC,\u201d explains Dr Tom Middleton, Associate Professor in the School of Law, James Cook University, Townsville and author of Thomson Reuters\u2019 ASIC Corporate Investigations and Hearings<\/em><\/a>.<\/p>\n

\u201cSo the regulators don\u2019t need to wait for any final report, the Royal Commission can refer a suspected contravention of the law to a regulator for action at any time during the course of the inquiry.<\/p>\n

\u201cParticularly something that\u2019s urgent, that needs a quick response, for example when ASIC needs to act to stop money being transferred out of the country by the defendants.\u201d<\/p>\n

Royal Commission pre-empts compensation claims<\/strong><\/span><\/p>\n

The Royal Commission has dashed the hopes of many alleged victims of misconduct that it can order defendants to pay compensation to them, by stating on the front page of its website that it \u201ccannot resolve individual disputes. It cannot fix or award compensation or make orders requiring a party to a dispute to take or not to take any action\u201d.<\/p>\n

True, it can\u2019t do any of these things itself, but it fails to explain it can refer at any time cases that it considers appropriate for enforcement action or consideration to the relevant regulator. For example, it can refer any suspected misconduct in the financial services sector to the Australian Securities and Investments Commission (ASIC) which has a swag of enforcement powers to deal with the disputes or claims.<\/p>\n

ASIC \u2013 one of the Royal Commission\u2019s enforcers<\/strong><\/span><\/p>\n

What the Royal Commission lacks in enforcement powers is supplemented by its octopus of enforcers. Conversely, the Royal Commission has freer rein than enforcers, such as ASIC, to investigate complaints and compel witnesses to attend the Royal Commission and give answers under oath \u2013 without needing the initial threshold suspicion that\u2019s a statutory requirement for, and can hamper, ASIC\u2019s ability to initiate formal investigations.<\/p>\n

Dr Middleton explains that under s 13(1) of the Australian Securities and Investments Commission Act 2001<\/em> (Cth) (the ASIC Act), ASIC has to reach a threshold of suspicion, to show that ASIC has \u201creason to suspect\u201d that a contravention \u201cmay have\u201d occurred and needs investigating. The Royal Commission doesn\u2019t need to meet this threshold, allowing it to investigate complaints without the statutory burden that applies to and restricts ASIC. There are added advantages.<\/p>\n

\u201cRather than ASIC spending its funding on its own investigations, the [Royal] Commission can release its findings to ASIC which can then decide, on the basis of that information, whether to commence enforcement proceedings in relation to that matter.<\/p>\n

\u201cIn some ways that may save ASIC\u2019s investigation budget. However, the information released by the Royal Commission may result in increased enforcement activity or litigation by ASIC which may require additional funding.\u201d<\/p>\n

ASIC\u2019s \u201cenforcement pyramid\u201d<\/strong><\/span><\/p>\n

So what actions can ASIC take in relation to matters that the Royal Commission refers to it?<\/p>\n

The so-called enforcement pyramid (actually a triangle) is a strategic structure of sanctions available to ASIC, ranging from the persuasion-focused resolution methods at the base to the big-gun sanctions at the apex. The idea is that, psychologically, defendants see the penalty path and sanctions ahead, and comply early. Evidential and procedural complexity and the associated costs and delay increase as the enforcement response escalates up the pyramid.<\/p>\n

Back to the Royal Commission. If a suspected contravention is revealed in evidence through a voluntary submission or a witness summoned to appear, the Royal Commission can refer that suspected misconduct to any agency or government department under s 6P of the Act (see above).<\/p>\n

If the suspected misconduct were referred to ASIC, there are several courses of action available to it under the pyramid referred to above, which aren\u2019t available to the Royal Commission.<\/p>\n

The Royal Commission: enforcement by referral<\/strong><\/span><\/p>\n

Over to Dr Middleton who explains ASIC\u2019s enforcement options in detail.<\/p>\n

1. Administrative\/non-judicial proceedings<\/strong><\/p>\n

These proceedings are at the base of the enforcement pyramid. For example, ASIC can ban persons from operating in the financial services industry where they\u2019ve breached the financial services laws (including a failure to meet the \u201cfit and proper person\u201d or \u201cgood fame or character\u201d requirements). The individuals are afforded a hearing at ASIC\u2019s office. After that hearing, ASIC may make a banning order. There\u2019s no court, it\u2019s a quick result.<\/p>\n

ASIC may also obtain enforceable undertakings in relation to suspected contraventions of the financial services laws whereby persons undertake to ASIC to comply with ASIC\u2019s requirements thereby achieving the relevant regulatory objective without the need for more protracted and costly court proceedings.<\/p>\n

2. Civil proceedings<\/strong><\/p>\n

Where victims have suffered losses as a result of the contraventions, ASIC may seek court orders requiring the defendants to pay compensation to those victims.<\/p>\n

ASIC can also apply to the court for \u201casset preservation orders\u201d or \u201cinterim injunctions\u201d to stop the defendants transferring assets out of the country so that those assets are available to meet any future compensation orders made by the court.<\/p>\n

3. Civil penalty proceedings<\/strong><\/p>\n

ASIC can apply to the court for \u201cdisqualification orders\u201d against directors to prevent those directors from managing corporations for a specified period. These orders are designed to both protect the public (by removing that director from the control of public funds) and punish those directors for their conduct (by depriving them of the right to earn a living as a corporate manager for a specified period).<\/p>\n

ASIC can also ask the court to impose a pecuniary penalty against those directors of up to $200,000 for each contravention.<\/p>\n

4.  Criminal proceedings<\/strong><\/p>\n

This is the last resort, at the apex of the enforcement pyramid. These are lengthy and costly proceedings involving the most egregious or serious misconduct, requiring a jury trial and a higher standard of proof (of beyond reasonable doubt) than in civil\/civil penalty proceedings. Criminal proceedings are reserved for cases that involve the \u201cfault elements\u201d of a criminal offence, such as where the accused has acted recklessly or with intentional dishonesty.<\/p>\n

In some cases, ASIC may pursue defendants at multiple levels of the enforcement pyramid in order to achieve its regulatory objectives, including protecting the public, promoting personal and general deterrence and compliance, and promoting public confidence in the integrity and effectiveness of the regulatory laws.<\/p>\n

It\u2019s an easy and not un-cheesy analogy to picture the Royal Commission as a beating heart pumping referrals to its regulatory organs. For those submitting their complaints to the Royal Commission, this may be a salutary metaphor. For the practitioners representing them, this will come as a warning.<\/p>\n

The Royal Commission form guide
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