Explanatory MemorandumCirculated by the authority of the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP
Chapter 3 Penalties for market offences and ASIC powers
Outline of chapter
3.1 The Bill increases the magnitude of the penalties that can be imposed for breaches of the insider trading and market misconduct provisions in Part 7.10 of the Corporations Act.
3.2 The Bill amends the current ASIC search warrant power in the ASIC Act to permit ASIC to apply for a search warrant without first having to issue a notice to produce for the material sought.
3.3 The Bill also amends section 1041B of the Corporations Act to clarify how criminal liability is imposed on persons who breach this provision.
Context of amendments
3.4 Insider trading and market manipulation offences cause serious harm to the fair and efficient functioning of Australia's financial markets. These markets function best when information is widely dispersed and investors have confidence in the fairness of markets. It is essential that the penalties associated with these offences reflect the serious impact that a breach can have on Australia's financial markets.
3.5 The penalties for insider trading and market manipulation offences contained in the Bill also reflect that the benefit that can be gained from engaging in this conduct often far outweighs the maximum penalty that can currently be imposed for a breach.
3.6 The search warrant power in the ASIC Act currently requires that ASIC first issue a notice to produce the documentary evidence sought. Due to the risk of destruction of evidence, this power is therefore rarely used. Warrants are instead executed under the Crimes Act 1914 (Crimes Act) and, as a result, the evidence obtained can only be used in criminal proceedings. Information obtained using an ASIC Act warrant can be used to enforce whichever penalty ASIC deems most appropriate, either civil or criminal.
3.7 Section 1041B of the Corporations Act provides that it is an offence to engage in any activity (including specified types of transactions) which is likely to create a false or misleading appearance of active trading. The fault elements for this offence are not expressly identified in section 1041B. This has resulted in confusion regarding the interaction of this offence with the Criminal Code and there has been debate on whether the relevant fault element applies to the act itself (that is, undertaking a specified type of transaction) or to the result of that act (that is, creating a false or misleading appearance).
Summary of new law
3.8 The Bill amends the maximum level of criminal sanctions that may be imposed on both individuals and body corporates for breaches of the insider trading and market manipulation provisions in the Corporations Act.
3.9 The Bill amends the search warrant power in the ASIC Act so that a warrant may be applied for without ASIC first issuing a notice to produce the material sought.
3.10 The Bill inserts a fault element into section 1041B.
Comparison of key features of new law and current law
|New law||Current law|
|The maximum criminal penalties for an individual who breaches insider trading or market manipulation provisions are 10 years imprisonment and/or the greater of 4,500 penalty units or three times the profit gained or loss avoided.||
The maximum criminal penalty for insider trading is five years imprisonment and/or 2,000 penalty units.
The maximum criminal penalty for market manipulation offences is five years imprisonment and/or 200 penalty units.
|The maximum penalty for a corporation that breaches the insider trading or market manipulation provisions is the greater of 45,000 penalty units, three times the profit gained or loss avoided or ten per cent of the body corporate's annual turnover in the relevant period.||
The maximum penalty for a corporation that breaches the insider trading provisions is 10,000 penalty units.
The maximum penalty for a corporation that breaches the market manipulation provisions is 1,000 penalty units.
|ASIC will be able to apply for a search warrant without issuing a notice to produce the material.||ASIC must first issue a notice to produce the material it seeks. Where the material is not produced, ASIC may then apply for a search warrant.|
|The fault elements for the two physical elements of the offence in section 1041B are made explicit.||There is a lack of clarity as to which fault elements apply to the physical elements of the offence in section 1041B.|
Detailed explanation of new law
3.11 The Bill increases the maximum criminal penalty for the following offences to 10 years imprisonment; and/or the greater of 4,500 penalty units, or three times the profit gained or loss avoided for:
- insider trading;
- market manipulation;
- false trading and market rigging - creating a false or misleading appearance of active trading;
- false trading and market rigging - artificially maintaining a trading price;
- dissemination of information about illegal transactions;
- false or misleading statements;
- inducing persons to deal in financial products; and
- dishonest conduct in relation to a financial service or product.
[Schedule 1, Item 20]
3.12 The maximum criminal penalty for a body corporate that breaches the insider trading or market manipulation provisions will be the greater of:
- 45,000 penalty units;
- three times the profit made or loss avoided; or
- ten per cent of annual turnover during the relevant period.
[Schedule 1, Item 20]
3.13 The Bill amends the ASIC Act to remove the requirement that a notice to produce must be issued and not complied with before ASIC can apply for a search warrant.
3.14 The Bill clarifies the fault elements of the offence in section 1041B in accordance with the requirements of the Criminal Code. That is, criminal liability for such an offence would require:
- intention with respect to the act itself; and
- intention, knowledge or recklessness with respect to creating a false or misleading appearance.
[Schedule 1, Item 15]
Application and transitional provisions
3.15 The provisions contained in this Bill commence on proclamation.
3.16 The amendments made to the search warrants power in the ASIC Act apply in relation to warrants issued after commencement. [Schedule 1, Item, 22]