Australia - The Privilege Implications Of ASIC's Plan To Embed Supervisors In The Big Four Banks.

Legal News & Analysis - Asia Pacific - Australia - Regulatory & Compliance - Banking & Finance

26 September, 2018

 

What you need to know

 

Last month the government announced plans to implement a new and more intensive supervisory approach: the regular placement of ASIC staff onsite in major financial institutions to closely monitor their governance and compliance with laws.

 

There are not yet many details of this proposal and a number of questions remain about how it will work in practice. One such question is how it will impact on privileged advice and whether it will create risks of waiver.

 

ASIC's expectations in terms of attending Board and committee meetings and whether it will expect to be present during discussion of issues subject to legal professional privilege are not currently clear.

 

ASIC may well publish further guidance about dealing with privilege, including by extending the current guidance. This existing guidance explains ASIC's approach to claims of legal professional privilege and sets out how ASIC may elect to receive voluntarily produced privileged information on written terms of confidentiality.

 

As noted by this existing guidance, however, any such agreement does not prevent a third party from contesting that privilege has been waived generally. 

 

While there is some case law in support of the proposition that a limited disclosure to ASIC should not amount to a wider waiver of privilege, the law on this is not settled and so there will at least be a risk of waiver of privilege if there is no legislative protection enacted.

 

What you need to do

 

Monitor the developments with ASIC's plans in regards to the supervisory approach and how it proposes to deal with privilege issues.

 

Carefully consider how ASIC is to receive any privileged information once the supervisory regime commences. Also carefully consider the risks of waiver of privilege in any privileged material provided to ASIC as part of that regime.

 

Last month, the (then) Federal Treasurer Scott Morrison announced plans—together with the announcement of a suite of funding packages to bolster ASIC's enforcement capabilities—to implement a new and more intensive supervisory approach: the regular placement of ASIC staff onsite in major financial institutions to closely monitor their governance and compliance with laws. 

 

The new proposal—which ASIC has indicated does not need legislative approval to be implemented—is expected to be rolled out in the near term and will involve teams of three to 20 ASIC staff being embedded for weeks or months at a time with the big four banks and AMP. The initial focus is on governance and management systems around identifying, reporting and remediating misconduct.

 

There are not yet many details of the new supervisory approach and a number of questions remain about how it will work in practice. One such question is how it will impact on privileged advice and whether it will create risks of waiver.

 

While it remains to be seen exactly what ASIC's expectations will be in terms of attending Board and committee meetings, ASIC Chair James Shipton has said publicly that there will be occasions where this will be expected. It is also unclear if ASIC will expect to be present during discussion of issues subject to legal professional privilege. Given the issues in Board and committee meetings which may be the subject of legal advice, ASIC may consider its being excluded from those meetings would undermine the purpose of the new intensive supervision regime.

 

If ASIC were to seek to be present during privileged discussions, it will be interesting to see the protocols which it proposes for the arrangement to work. Information Sheet 165 explains ASIC's (current) approach to claims of legal professional privilege, and sets out how ASIC may elect to receive voluntarily produced privileged information on written terms of confidentiality. It may be that ASIC looks to extend that existing guidance in light of the new proposed supervisory regime. 

 

As noted by ASIC in Information Sheet 165, however, any such agreement does not prevent a third party from contesting that privilege has been waived generally. One can imagine litigation updates to Boards being a particular risk area, for example, with parties in litigation seeking production of privileged documents tabled at Board meetings and arguing privilege in those documents have been waived on the basis that discussing those issues with ASIC present is inconsistent with the maintenance of privilege. 

 

In Cantor v Audi Australia Pty Ltd [2016] FCA 1391, the Federal Court held that the disclosure of privileged documents on a confidential basis to a German regulator did not amount to a waiver of privilege for the purposes of class actions in Australia in which those documents had not been deployed in a manner inconsistent with maintaining privilege. This decision provided some support to the proposition that a limited disclosure to ASIC should not amount to a wider waiver of privilege. As noted by Bromwich J in that case, however, there are limitations on using prior cases other than for points of principle, and a fact-based inquiry is required in order to determine whether the requisite inconsistency is manifest for a waiver to be established.

 

Time will tell whether these issues will need to be revisited in the context of an alleged waiver due to ASIC being embedded in the banks. On the current case law, there will at least be a risk of waiver of privilege if there is no legislative protection.

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For further information, please contact:


Andrew Carter, Partner, Ashurst
[email protected]