Dear ASIC: How to respond to a regulatory notice

A poorly planned and inadequate response to either a general inquiry or statutory notice from ASIC typically leads to protracted surveillance and action. Hamilton Blackstone Lawyer's Cristean Yazbeck provides some tips on how best to engage with the regulator.

Trying to avoid an ASIC notice is futile. AFSLs and advisers should accept that, at some point, they will get one, and probably multiple.

Responding to notices and dealing with regulators is just part of being in business.

A notice, in and of itself, isn't cause for concern. It isn't necessarily a sign of wrongdoing, although it's natural to worry. Even the most seasoned legal and compliance professionals get nervous when they see that blue bricked diamond.

Every year, ASIC receives thousands of tip-offs about misconduct and also uncovers misconduct through its own monitoring and surveillance activities.

As part of a formal investigation, ASIC gathers information from those that are the subject of investigation, as well as people and entities that may have relevant information but are not suspected of any wrongdoing. This may even include clients.

Voluntary or compulsory

At a high level, ASIC may seek a person's voluntary participation, or they may issue a statutory notice, which is compulsory. They are both very different and require a different approach.

A general enquiry will usually be by email or phone call. If a formal statutory notice is not attached to an email, it is a voluntary request.

It's natural and commendable to think, 'I've done nothing wrong and I've got nothing to hide so I'll handover information,' but that approach may not be in a person's or company's best interest. As a general rule, businesses should not voluntarily hand over information.

Responding to a general enquiry

1. Don't ignore it

Read the request carefully, treat it seriously and enact your Regulatory Response Plan (RRP).

Every business should have a formal RRP that helps them to respond quickly and effectively to various requests. For businesses that are yet to formulate a plan, the points below provide a good starting point.

2. Get to the bottom of the matter

Examine the basis of the request and consider the events, past and recent, that may have given rise to ASIC's communication. In the initial request, ASIC may not spell out the reasons for making contact, especially if it's a fishing expedition.

That said, the information they are requesting will provide an indication of their agenda.

3. Seek professional advice

The average advice business does not have the necessary skills and experience inhouse to fully understand if, firstly, they should provide the requested information and, secondly, the consequences of providing (or not providing) that information.

4. Respond in a timely manner

Do not keep ASIC waiting, as a lengthy delay can raise concerns.

In most situations, the appropriate response will be to acknowledge ASIC's request but state a preference to respond to a statutory notice to ensure that statutory protections are in place.

In some cases, ASIC will not issue a subsequent statutory notice, however, firms should expect and prepare for one. Statutory notices which request information and records from the business, are usually addressed to the licensee. However, advisers may receive is a Section 19 notice compelling their attendance at an examination.

Responding to a statutory notice

A compulsory notice shouldn't immediately be treated negatively although, historically, they have very quickly become negative for AFSLs.

The biggest single mistake people make is not treating the notice as a legal exercise. If your business is on ASIC's radar, your RRP needs to be enacted.

1. Enact your Regulatory Response Plan

Again, if your business does not have a plan yet, the points below provide a good starting point.

2. Treat the notice extremely seriously

It is an offence not to comply with a statutory notice, which will usually ask a person or company to produce certain books and records, and/or appear before ASIC to answer questions.

3. Determine why ASIC is interested in you and your business

A statutory notice is a legal document that will contain more information than a voluntary request, including the reasons why ASIC is seeking information. Under the ASIC Act, ASIC has the power to seek information for the purposes of an investigation or in respect of 'an alleged or suspected contravention'.

4. Seek professional advice

A statutory notice signals that ASIC is in litigation mode. It is investigating someone, usually in your business. ASIC is trying to obtain evidence in a form that may be used in subsequent enforcement action.

A lawyer can help you understand the scope of a notice, ask for clarification, and craft your responses without disclosing too much and exposing the business.

5. Ask for an extension or for the scope to be reduced

Depending on the type of notice, companies will be given a specific amount of time to respond, typically up to 28 days. By law, a person or company must provide 'all reasonable assistance' to ASIC but, in some situations, a request could be deemed unreasonable.

Negotiating an extension can be difficult, as the concept of reasonableness is subjective. The onus is on AFSLs and advisers to establish unreasonableness, and businesses can, and often do, come undone by claiming a lack of resources.

6. Be honest and truthful

Do not mislead or conceal information from the regulator. It can be easy to think, 'If I don't tell them, they won't know', but ASIC is clearly investigating a specific issue and will not stop until the full truth is uncovered.

7. Do not waive legal professional privilege

AFSLs and advisers don't have to, and in most cases shouldn't, produce documents that are protected by legal professional privilege. All too often, businesses hand over privileged material or disclose the substance of advice provided by a lawyer, which waives legal professional privilege.

Take your time but move swiftly

While it's never a good idea to keep ASIC waiting, the quality of your response to a notice will determine what happens next.

A poorly planned and inadequate response to either a general inquiry or a statutory notice typically leads to protracted surveillance and action.

On the flipside, a thoughtful, well-planned response can demonstrate to ASIC and other stakeholders the strength of a company's risk and compliance function. It can highlight the quality of a licensee's records and files, and the presence of robust controls including monitoring and supervision.