New research has revealed financial services and credit providers fear being sanctioned by enforceable undertakings (EU) and find it a deterrent despite speculation that the regulatory contracts are ineffective.
The pilot study, conducted by the University of New South Wales (UNSW), also found financial services and credit providers are eager to avoid the perceived effects of more severe sanctions, such as civil penalties.
The Australian Securities and Investments Commission (ASIC) engaged the UNSW Centre for Law Markets and Regulation last year to conduct the analysis, in response to a recommendation by the Australian National Audit Office that ASIC should periodically assess the effectiveness of EUs.
UNSW Centre for Law Markets and Regulation director Dimity Kingsford Smith said she did not anticipate the findings of the study, which discovered most of the interviewees reported their organisation found EUs a deterrent with their competitors.
“There has been controversy about the effectiveness of EUs in deterring competitors of financial services and credit providers in the financial sector which accept an EU,” Kingsford Smith noted.
“Most of the discussion around this has been anecdotal and speculative.”
She also said interviewees in the study wanted to avoid the financial and time costs in implementing terms of EUs to achieve change in the business.
“The critical mechanisms of deterrence referred to by many interviewees were the costs of EUs and avoiding reputational damage and loss,” she said.
Businesses also want to avoid the intrusion of outsiders such as supervising experts in running the business, the study found.
The small pilot study is the first to gather empirical evidence from interviews with competitors of parties to EUs.
ASIC said it will conduct a scoping study on potential options for further research into the impact of EUs and other regulatory actions and will discuss with other regulators the potential to collaborate for future research.
Besides ASIC, more than 20 other Australian regulators use EUs to tackle non-compliance.
