In 2021, the Australian Securities and Investments Commission (ASIC) launched an immunity policy for certain market misconduct offenses, including insider trading and market manipulation. The ASIC immunity policy grants a full exemption from civil and criminal sanctions (specifically immunity) to individuals who have colluded with others to contravene a provision of Part 7.10 of the Corporations Act 2001. The first individual to report that contravention to ASIC will be eligible for exemption, provided certain pre-conditions are satisfied. These pre-conditions include that the individual (a) has not coerced any other person to engage in the misconduct, (b) admits participation in the misconduct, (c) was not the instigator of the misconduct, (d) has either ceased or is prepared to immediately cease involvement in the misconduct, and (e) provides “full, frank and truthful” disclosure, cooperates “fully and expeditiously” when making the immunity application, and undertakes to continue to do so throughout ASIC’s investigation and any ensuing court proceedings.
ASIC states that Part 7.10 of the Corporations Act deals with the “most serious, complex and difficult-to-detect” contraventions in financial markets. The ASIC immunity policy is based on a recognition that it may be in the public interest to incentivize those who have combined with others to break the law, to reveal misconduct that may otherwise have remained undiscovered.
The use of immunity (or leniency) policies, where immunity is offered to the first eligible person to self-report their participation in misconduct, is well-established in the competition regulation context, specifically in anti-cartel enforcement. Such policies are based on the game theoretic model of the prisoner’s dilemma: the rationale is to strongly incentivize participants in a joint illegal enterprise to defect from the enterprise and report the illegal conduct to the enforcement authority, thereby exploiting any distrust between the participants and destabilizing the enterprise. While immunity policies have a long history of use in anti-cartel enforcement, they do not appear to have been used in other contexts, including in the regulation of market misconduct. The ASIC immunity policy is especially notable as it seems to be the first immunity policy introduced in the market misconduct context.
An argument supporting the ASIC immunity policy is that it should allow for more effective detection and prosecution of misconduct. In addition, the policy may have a deterrent function – an increased probability of detection, if coupled with high sanctions, increases the costs relative to the benefits of participation in misconduct, thereby reducing the incentive to engage in the misconduct.
Some question the benefits of immunity policies. The availability of immunity lowers the penalty level relating to the misconduct and could, in theory, have a negative impact on deterrence. Others observe that the granting of immunity to a person who has engaged in criminal conduct is at odds with the concept of retributive justice. Also, the use of an immunity policy necessarily involves unequal treatment of the offenders in question, as the immunized person is granted immunity while co-offenders receive full punishment for the same conduct.
The Australian Competition and Consumer Commission (ACCC) has had an immunity policy in relation to cartel conduct since 2005, and it is evident that the ASIC immunity policy draws on the ACCC policy. However, there are some notable differences between the two policies and these differences may impact the effectiveness of the ASIC policy. First, even though the provisions of Part 7.10 of the Corporations Act apply to both corporations and individuals, the ASIC immunity policy is not available to corporations. The ACCC immunity policy is not limited in this way.
Second, the ASIC immunity policy excludes “instigators” or ringleaders from eligibility for immunity. Presumably, ASIC’s decision to exclude ringleaders was taken as a concession to principles of retributive justice, as the tension between immunity policies and retributive justice is especially acute in the case of a ringleader, but the exclusion may limit the effectiveness of the policy.
Third, while the ASIC immunity policy only offers immunity if ASIC has not already commenced an investigation into the misconduct, the ACCC immunity policy offers immunity unless the ACCC already possesses evidence likely to establish a contravention. That is, the timeframe during which immunity is available under the ASIC policy is narrower than that applicable under the ACCC policy.
Fourth, the ASIC immunity policy only covers immunity from civil and criminal penalties. It does not extend to immunity from administrative penalties, which may include disqualification from managing a corporation, a ban on providing financial services, or the revocation, suspension, or variation of the conditions of a license. The ACCC policy is not limited in this way.
Taken together, these differences may operate to make the ASIC policy less effective than the ACCC policy.
The ASIC immunity policy is a novel, possibly unprecedented, enforcement tool in the market misconduct context. If it works well, it may increase the number of prosecutions and successful convictions that ASIC brings for market misconduct. However, our analysis indicates that it is uncertain that it will improve the detection and deterrence of market misconduct.
Mihika Upadhyaya is a former researcher at the Centre for Corporate Law at Melbourne Law School.
This post is adapted from their paper, “The Australian Securities and Investments Commission’s New Immunity Policy: An Evaluation” available on SSRN.
The views expressed in this post are those of the authors and do not represent the views of the Global Financial Markets Center or Duke Law.