The Australian Securities and Investments Commission (ASIC) released today a report of a pilot study by the Law Faculty of the University of New South Wales (UNSW) on the deterrent effect of Enforceable Undertakings (EUs) on peer financial services and credit providers. The study was undertaken, and the report written by an UNSW team led by Professor Dimity Kingsford-Smith.
The UNSW Law Faculty team were commissioned in June 2017 to undertake the pilot study in response to a recommendation of the Australian National Audit Office (ANAO) that ASIC should periodically assess the effectiveness of EUs.
The aims of the pilot study were:
- to appraise the general deterrent effects of EUs in changing the behaviour of peer providers; and
- to report to ASIC generally on the ‘efficiency’ or ‘effectiveness’ of EUs in acting as a deterrent through observations drawn from qualitative empirical data.
The qualitative component of the pilot study found that the majority of the peer providers interviewed do perceive deterrence effects of EUs entered by competitors. Deterrence was motivated by a number of factors: avoiding the perceived penal effects of harsher sanctions and intrusion of outsiders; avoiding financial and time costs and distraction from the business; and critically, avoiding reputational damage or loss.
The pilot study identified several opportunities for future research. ASIC proposes to proceed with a scoping study on potential options for further research into the impact of EUs and other regulatory actions. ASIC will discuss with other regulators the potential to work collaboratively on future research.
Further details on the methodology and findings of the study are set out in the report.
In June 2014, Senate Economics References Committee released a report on its inquiry into the performance of ASIC. In that report, the Committee raised a number of aspects of ASIC’s performance, including to its use of EUs. The report also included a recommendation that the Auditor-General undertake a performance audit of ASIC’s use of EUs.
The Australian National Audit Office (ANAO) undertook the audit and issued a report on ASIC’s Administration of Enforceable Undertakings (June 2015).
The ANAO report recommended that ASIC periodically assess the effectiveness of enforceable undertakings. In responding to the audit report, ASIC committed to implement the ANAO’s recommendation.