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Thursday, 24 June 2010
Page: 6531

Mr BOWEN (Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services) (11:04 AM) —I move:

That this bill be now read a second time.

Today I introduce a bill to amend the Corporations Act 2001, the Australian Securities and Investments Commission Act 2001 and the Telecommunications (Interception and Access) Act 1979.

This bill contains two separate but related key measures, both aimed at improving investor trust and confidence in the Australian share market and cracking down on those doing the wrong thing.

The first measure reforms the regime governing access to information contained on company member registers, specifically banning improper uses of company registers.

The second measure strengthens increases the penalties for market offences in the Corporations Act, such as insider trading, and enhances the investigative powers of the Australian Securities and Investments Commission to catch those who would commit these offences.

Access to Registers

A company’s register of members is required to contain members’ names, postal addresses and shareholding details. Until now, anyone could demand a company provide a copy of its register without providing any indication of the purpose for which they intend to use the information.

Today, the government has introduced legislation to prevent members’ contact details being used for improper purposes.

The purposes will be spelled out in regulations but the government has made it clear that we intend this reform to have the effect of stamping out the predatory practice of making unsolicited below-value share offers to vulnerable shareholders.

The bill will do this by limiting the instances in which a copy of a register of members of a company or registered scheme may be obtained.

A person seeking a copy of the register will have to apply to the company and state the purpose for which they intend to use the information contained in the copy of the register. The company can refuse to provide a copy where the purpose is listed as an improper purpose, which will be provided in the Corporations Regulations.

Examples of these improper purposes are:

  • the solicitation of a donation from a member of a company;
  • the solicitation of a member of a company by a broker;
  • gathering information about the personal wealth of a member of a company; and
  • making an unsolicited off-market offer to purchase shares in a listed company—other than as part of a genuine takeover offer.

As such, the bill will ensure that vulnerable investors are protected from individuals or businesses that seek to profit by purchasing their shares for less than their value.

Penalties for Market Offences

The second arm of the bill increases the criminal penalties associated with breaches of the insider trading and market misconduct provisions in part 7.10 of the Corporations Act.

Insider trading and market manipulation unfairly distort Australia’s financial markets and cause serious harm to their fair and efficient functioning. These markets function best when information is widely dispersed and investors have confidence in their fairness.

It is therefore essential that the penalties reflect the serious impact that breaches of these provisions have on financial markets.

Moreover, the benefit that can be gained from engaging in insider trading or market manipulation often far outweighs the maximum penalty that can currently be imposed for a breach.

Therefore, the maximum fine for individuals found to have breached the provisions will be increased to 4,500 penalty units (currently $495,000) or three times the benefit attributable to the breach. The maximum term of imprisonment will be increased to 10 years.

The maximum penalty for a corporation will be:

  • 45,000 penalty units (currently $4.95 million);
  • three times the benefit attributable to the breach; or
  • 10 per cent of the corporation’s annual turnover during the applicable period.

The bill also clarifies how criminal liability is imposed under section 1041B of the Corporations Act.

Improved Offence Detection Powers

The bill also includes the insider trading and market misconduct provisions in part 7.10 of the Corporations Act in the list of serious offences in section 5D of the Telecommunications (Interception and Access) Act 1979.

Insider trading and other market offences are difficult to investigate, as these offences by their very nature involve complex networks of people, technological sophistication and avoidance of paper and traceable communications. In addition, the transactions often occur in real time, meaning that telephone conversations are often the only evidence of the offence.

This bill enables authorities to obtain direct evidence of these offences—such as the content of conversations—rather than simply relying on circumstantial evidence, such as the mere existence of suspect telephone calls.

These amendments bring ASIC into line with the Australian Competition and Consumer Commission.

Of course, when serious powers such as these are provided, proper protections must also be in place as a safeguard. For that reason, the bill makes it clear that such material can only be obtained by a proper agency, such as the Australian Federal Police, under a judge-issued warrant.

Separately, the bill amends the search warrant power in the ASIC Act to permit ASIC to apply for a search warrant without first having to issue a notice to produce the material sought by the warrant. The current arrangements provide those under investigation with an opportunity to destroy incriminating material.

Minco Approval

The Ministerial Council for Corporations has been consulted and has approved the amendments contained in this bill. I commend the bill to the House.

Debate (on motion by Mrs Markus) adjourned.