When the Australian Securities and Investments Commission (ASIC) identifies that an Australian Financial Service Licence holder has contravened legislation, the organisation may offer ASIC a court enforceable undertaking as a response to ASIC’s concerns about their behaviour. Generally called “court enforceable undertakings” or “CEUs” (formerly known as Enforceable Undertakings or EUs) these actions are intended to address the specific activities that led to a compliance breach.
Court enforceable undertakings occur in many forms and can impact how an Australian Financial Services Licence (AFSL) holder does business. For this reason and many more, AFS licensees must understand this kind of legal action and how to respond.
Defining a Court Enforceable Undertaking
Regulatory Guide 100 (RG 100) defines a court enforceable undertaking as “an administrative remedy for contraventions of legislation administered by ASIC”. These undertakings can be entered by a person, company, responsible entity of a registered scheme or trustee of a superannuation fund. After ASIC accepts the CEU, it can be enacted through court proceedings.
The process includes four basic steps:
- Proposed court enforceable undertaking: After ASIC has identified contraventions of regulations, either ASIC or a representative party can initiate a CEU. While both can begin the process, neither can compel the other to do so.
- Terms: Both ASIC and the representative party negotiate terms. ASIC’s Commission or a delegate will finalise the undertaking, which will not take effect until formally accepted by ASIC.
- Records: Each party keeps a signed original of the CEU. These records are publicly available through ASIC’s court enforceable undertakings register.
- Action: As a legally binding agreement, the CEU lays out compliance expectations. If the applicable party doesn’t comply, ASIC may seek court action, including fines and fees.
ASIC won’t accept a court enforceable undertaking in cases of criminal conduct, deliberate misconduct or anything involving “a high level of recklessness.” Furthermore, it will only accept a CEU when the organisation believes “it will achieve an effective and appropriate regulatory outcome that is in the public interest.” To establish this, ASIC considers multiple factors, including:
- Likelihood of compliance, including the party’s compliance history.
- Likely impact on the relevant party’s future behaviour.
- Public interest, including compensation for affected consumers.
- Market and community significance.
- Nature and seriousness of alleged contravention.
Because CEUs are just one of multiple enforcement remedies ASIC uses, the organisation may weigh the effectiveness of other options before offering a court enforceable undertaking. ASIC may even combine multiple actions depending on the nature and relevance of the alleged breach.
Finally, ASIC notes that CEUs are accepted on a case-by-case basis. Accepting a proposed undertaking doesn’t guarantee that ASIC will agree to similar terms for another party with a similar contravention or even the same party in a different scenario.
Need Help With a Court Enforceable Undertaking?
If your organisation is facing a court enforceable undertaking, you may need expert support. The MIntegrity team has extensive experience in compliance, licence requirements, regulatory change management, policy governance and more, making us an effective partner every step of the way.
Additionally, MIntegrity can perform an independent review of any aspect of your regulated business on a proactive basis and before any ASIC action is contemplated. Such a review can help identify and remediate any deficiencies, thereby potentially alleviating the need for a CEU. You can also appoint us as an independent expert to help implement remediation steps recommended by another expert or regulatory body.
MIntegrity Navigate ASIC Court Enforceable Undertakings with our complete guide Ensure compliance and safeguard your AFSL with expert support today!
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