House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, The Hon Josh Frydenberg MP)

Chapter 6 Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Harmonising and enhancing ASIC's search warrant powers

6.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

6.2 Schedule 1 to the Bill strengthens ASIC's ability to carry out its enforcement functions by modernising and harmonising its search warrant powers, while ensuring appropriate safeguards are in place to balance the imposition on individuals' property and personal rights.

Human rights implications

6.3 Schedule 1 to the Bill engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR) because it provides ASIC with the ability to seek a search warrant.

6.4 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

6.5 The purpose of the amendments in Schedule 1 to the Bill are to allow for the disclosure of a thing to facilitate civil penalty and criminal investigations as well as other law enforcement purposes. As this goes to maintaining public order and protecting other rights, the purpose is directed towards a legitimate objective.

6.6 New proposed section 3ZQUA in the ASIC Act and Credit Act supports the right to privacy by limiting access to a thing seized under the search warrant power by a private litigant except where required under a court order or an order of a tribunal.

6.7 Also in order not to be arbitrary, interferences must be reasonable and necessary in the particular circumstances, as well as proportionate to the objectives they seek to achieve.

6.8 ASIC's strengthened search warrant powers are reasonable, necessary and proportionate to the achievement of a legitimate objective as the powers allow a constable and ASIC to perform their investigative and enforcement functions.

6.9 The new search warrant provisions are proportionate as ASIC is only able to seek a search warrant for an indictable offence.

Conclusion

6.10 Schedule 1 to the Bill is compatible with human rights because to the extent that the Bill may limit human rights, those limitations are reasonable, necessary and proportionate.

Access to Telecommunications Interception Information

6.11 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

6.12 Schedule 2 to the Bill amends the TIA Act to allow ASIC to receive and use intercepted information for its own investigations and prosecutions of serious offences.

Human rights implications

6.13 Schedule 2 to the Bill engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because it provides for information about interception warrants and intercepted information to be communicated to ASIC, and ASIC can communicate the received information to another person who is involved with ASIC's investigations and subsequent reporting and prosecutions.

6.14 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

6.15 Schedule 2 to the Bill would not expand the range of offences for which telecommunications intercept warrants could be sought under the TIA Act, the range of evidence that could be obtained pursuant to a telecommunications intercept warrant or broaden the admissibility of lawfully intercepted information obtained under a telecommunications intercept warrant.

6.16 The changes will only permit ASIC to receive information that has already been lawfully intercepted by interception agencies where that information relates, or appears to relate, to a matter that ASIC can investigate involving a serious offence or the likely commission of a serious offence. In addition, when in receipt of information about interception warrants or lawfully intercepted information from an interception agency, ASIC would be subject to the strict limitations and restrictions already in place under the TIA Act.

Conclusion

6.17 Schedule 2 to the Bill is compatible with human rights. To the extent that it limits the right to privacy under Article 17 of the ICCPR, the limitation is reasonable, necessary and proportionate.

6.18 The changes are necessary to ensure ASIC can effectively investigate serious offences and take enforcement action where necessary. This category of offences includes insider trading, market manipulation and financial services fraud, each of which can result in serious harm to the integrity of markets and to the public at large.

6.19 The changes are proportionate to the legitimate objective of strengthening ASIC's ability to investigate and pursue serious offences. The changes are limited in nature as they do not provide for ASIC to intercept information itself but rather allow ASIC to receive and use information already intercepted by other agencies. The existing safeguards in the TIA Act will continue to apply, ensuring appropriate protection for the privacy of affected individuals.

Licensing and false or misleading documents

6.20 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

6.21 Schedule 3 to the Bill amends the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 (Credit Act) to strengthen ASIC's licensing powers and the offences for false and misleading documents.

6.22 The amendments in Parts 1 and 2 of Schedule 3 generally update the requirements for obtaining an Australian financial services licence and an Australian credit licence to ensure consistency between the respective licensing regimes and to improve their overall operation. These amendments do not engage any applicable human rights or freedoms.

6.23 The amendments in Parts 1 and 2 of Schedule 3 also introduce new obligations on Australian financial services licensees and Australian credit licensees to notify ASIC when they have a change in control or if they do not begin to provide financial services, or engage in credit activities, within 6 months of a licence being granted.

6.24 The amendments in Part 3 of Schedule 3 align the consequences for making false or misleading statements in documents provided to ASIC in the Australian financial services licence and Australian credit licence contexts. The changes align the existing offences that apply under Corporations Act 2001 and the Credit Act by:

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removing the specific offence for false and misleading statements in applications made to ASIC from the Corporations Act 2001 ;

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removing the offence-specific defences that applied for the existing offences under the Corporations Act 2001 ;

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re-writing the existing fault-based offences and offences of strict liability that apply under each Act to ensure consistent treatment; and

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introducing new civil penalty provisions in the Corporations Act 2001 that mirror the fault-based and strict liability offences.

6.25 The amendments in Schedule 3 do not engage any applicable human rights of freedoms to the extent that they apply to corporations.

Human rights implications

6.26 Consideration has been specifically given to the guidance in the Parliamentary Joint Committee on Human Rights' Guidance Note 2: Offence provisions, civil penalties and human rights and to the Attorney General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers , September 2011 edition.

6.27 The impact of the amendments on the following human rights has been considered:

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the right to fair trial under article 14 of ICCPR; and

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the increase of financial penalties for criminal offences and civil penalty provisions.

Strict liability offences introduced by Parts 1 and 2

6.28 The amendments introduce offences for failures by an Australian financial services licensee or Australian credit licensee to notify ASIC of a change in control or a failure by the licensee to provide financial services or engage in credit activities within 6 months of a licence being granted. A failure to notify ASIC of these circumstances is an offence of strict liability that gives rise to a maximum penalty of 30 penalty units.

6.29 A strict liability offence is appropriate as it is likely to enhance enforcement by deterring non-reporting of matters that are directly relevant to whether the licensee's licence should have a particular condition imposed on it, or be revoked. The matters are also within the direct knowledge and control of the licensee. A strict liability offence is also appropriate to ensure integrity of the financial regulatory regime.

6.30 The amount of the penalty is within the range that is generally considered appropriate for strict liability offences in the Attorney General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers .

Re-written offences in Part 3

6.31 The amendments re-write the existing fault-based offences in the Corporations Act 2001 and the Credit Act for documents that are required to be provided under those Acts, and that are materially false or misleading because of a statement or omission that the person knowingly makes. These offences are substantially the same as the previous offences, but are restricted to improve readability and consistency between the Acts.

6.32 As with the previous offences, the maximum penalty for committing the respective offences is 5 years.

6.33 The amendments also re-write the existing offence for failing to take reasonable steps in providing a materially false or misleading document under the Corporations Act 2001 , and convert it to a strict liability offence. Applying the offence as a strict liability offence is consistent with the approach to the equivalent offence in the Credit Act and gives effect to the ASIC Enforcement Review Taskforce's recommendation for aligning the respective regimes. The re-written penalty in the Credit Act is structured differently to the previous penalty, but is broadly the same in its effect.

6.34 The penalty for committing either strict liability offence is 20 penalty units.

6.35 A strict liability offence is appropriate as it will greatly enhance enforcement of provision, and greatly improve compliance with the fundamental policy objective of the provision of ensuring that persons taking all reasonable steps to ensure that documents are not false or misleading.

6.36 The amount of the penalty is within the range that is generally considered appropriate for strict liability offences in the Attorney General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers . It is also consistent with the penalties for the equivalent offence in the Credit Act and so gives effect to the ASIC Enforcement Review Taskforce's recommendation about aligning penalties under the two regimes.

Removal of offence-specific defences by Part 3

6.37 The amendments do not replicate the offence-specific defences that were previously contained in the Corporations Act 2001 . These defences set out particular circumstances that a person could prove in order to demonstrate that they had taken reasonable steps to ensure that a document was not false or misleading. The defences essentially acted as safe-harbours that could apply even where a person had not objectively taken all reasonable steps. Their removal enables the Court to take into account all facts and circumstances in determining whether a person has taken all reasonable steps. The removal of these defences ensures greater consistency between the provisions of the Corporations Act 2001 and the equivalent provisions of the Credit Act, which do not contain equivalent defences.

6.38 Removing these exceptions also gives effect to recommendation 7.3 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, where the Commissioner noted that exceptions and qualifications to generally applicable rules of conduct make the law more complex. This additional prescription can leave regulated entities 'with little more than a box-ticking task', and creates an incentive to comply with the letter, rather than the spirit, of the law.

Civil penalties introduced by Part 3

6.39 The amendments introduce new civil penalty provisions into the Corporations Act 2001 that mirror the fault-based and strict liability offences. The grounds for contravening these civil penalty provisions are identical to the grounds for committing the equivalent offence.

6.40 These civil penalty provisions are already contained in the Credit Act and are not affected by the amendments in Schedule 3.

6.41 The maximum pecuniary penalty applicable to these contraventions is 5,000 penalty units for individuals, although this can also be increased where the Court can determine a benefit derived or detriment avoided because of the contravention.

6.42 These applicable penalties are the standard penalties that apply to 'uncategorised' penalty provisions under the Corporations Act 2001 (which are penalties that are neither a corporation/scheme penalty provision nor a financial services civil penalty provision). The amount of such penalties was increased through Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 .

6.43 As noted in the Statement of Compatibility with Human Rights for the Bill that became that Act, the maximum penalties are justified where consequences of not complying can cause consumer detriment. Not complying with the obligations under the Corporations Act 2001 , and other acts, can harm consumers and create distrust in the financial services sector. The maximum penalty is considered appropriate to adequately deter misconduct.

6.44 While the civil penalty amounts are intended to deter misconduct, none of the civil penalty provisions carry a penalty of imprisonment. The civil penalty provisions should not be considered 'criminal' for the purpose of human rights law due to their application in a financial services regulatory context. Therefore, the civil penalty provisions do not create criminal offences for the purposes of articles 14 and 15 of the ICCPR.

6.45 Furthermore, the increased penalty for civil penalty provisions will apply to offences that are committed after the Bill commences, and therefore applies prospectively, therefore upholding article 15 of the ICCPR.

Conclusion

6.46 Schedule 3 to the Bill is compatible with human rights because to the extent that the Bill may limit human rights, those limitations are reasonable, necessary and proportionate.

Banning Orders

6.47 Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

6.48 The amendments in Schedule 4 to the Bill expand the scope of ASIC's powers to ban a person from performing functions in a financial services or credit business. These changes ensure that ASIC is appropriately empowered to remove individuals from continued involvement in the financial sector, particularly those in senior positions of control and influence, and expand the grounds on which ASIC can issue banning orders.

Human rights implications

6.49 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

6.50 Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues.