The Australian government is currently considering a Senate report into white-collar crime that could affect directors and officers across the country.
Directors and officers make the difficult decisions required to guide companies towards specific strategic objectives. But with great power comes great responsibility, and executives can face considerable liabilities if their actions are later deemed wrong.
This is why organisations typically protect their most senior professionals with directors and officers liability insurance, ensuring any costs and penalties that arise from a claim are covered.
Businesses may wish to consider how their key employees could be affected by new regulatory requirements.
However, the federal government and the Australian Securities and Investments Commission (ASIC) may be about to take a harder line against directors and officers for alleged misdeeds.
White-collar crime under investigation
Earlier this year, the Senate Economics References Committee published a report titled ‘Penalties for white-collar crime and corporate and financial misconduct in Australia’.
The committee made a number of recommendations aimed at strengthening civil and criminal laws against individuals and corporations that breach their fiduciary duties.
Specifically, the report noted the inadequacy of maximum monetary penalties for non-criminal matters of corporate misconduct. Such incidents are governed under the Corporations Act 2001, which enforces a maximum penalty of $200,000 for individuals, while body corporates face charges of up to $1 million.
These amounts haven’t changed since they were introduced in 2001 and 2004, respectively, with ASIC arguing that they are proportionately low given the seriousness of many cases.
Stephen Mayne, director of the Australian Shareholders’ Association, claimed individuals should face fines of $1 million, while corporates could be liable for up to $5 million.
An increase in monetary penalties is just one recommendation among many, although it’s not yet clear which suggestions the Australian government will introduce.
The impact on directors and officers
The report is likely to lead to more stringent legislation regarding the enforcement of civil and criminal prohibitions under the Corporations Act.
This could significantly increase the exposure of directors and officers across the country at a time when ASIC’s Enforcement Review Taskforce is already exploring whether its current regulatory powers are sufficient.
The Senate report shines an important spotlight on directors’ and officers’ liability, indicating that legislative changes could be on the horizon.
Businesses may wish to consider how their key employees could be affected by new regulatory requirements, and whether or not their D&O insurance adequately covers potential risks – both now and in the future.
Please get in touch with MGA Insurance Brokers to talk about your business insurance needs.