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The Australian Financial Security Authority (AFSA) is an executive agency in the Attorney-General’s portfolio and is responsible for Australia’s personal insolvency and personal property securities systems.
Our purpose is to maintain confidence in Australia’s personal insolvency and personal property securities systems by delivering fair, efficient, and effective trustee and registry services; and risk-based regulation.
Through our compliance, regulation and enforcement activities we:
- apply risk-based strategies—including through targeted use of the statutory trustee function—to encourage legal compliance and adherence to set standards of conduct
- engage with the regulated community in open dialogue and implement measures that encourage compliance while minimising regulatory burden
- use our coercive powers to assist practitioners to obtain information and assets
- take steps to impose appropriate sanctions when serious misconduct is identified.
This policy explains our enforcement role, the tools available to us, how we select matters for enforcement action and how we decide on which tools to use. While the tools for both the personal insolvency and Personal Property Securities (PPS) systems are mentioned here, this document focusses on the enforcement tools used in addressing behaviour in the personal insolvency system. Detailed information about the tools available to the Registrar of PPS is detailed in the Registrar’s Practice statements.
Staff of AFSA’s Regulation & Enforcement Division (R&E) act as delegates of the Inspector-General in Bankruptcy and the Registrar of Personal Property Securities, investigating alleged offences of the Bankruptcy Act 1966 (Bankruptcy Act) and contraventions of the Personal Property Securities Act 2009 (PPS Act).
We aim to foster confidence in the personal insolvency and personal property securities systems through effective regulation and enforcement activities that are timely, consistent and appropriate.
We use our enforcement powers to deter, detect, disrupt and deal with illegal conduct.
We also try and influence industry behaviour that is not regulated and where appropriate refer alleged illegal conduct to other state or federal government agencies.
AFSA cannot pursue all referrals that come to our attention, so we apply a risk based approach to case selection, and record all referrals in AFSA’s database to inform emerging trends, priorities and annual strategic focus areas. We also rely on stakeholder feedback to help us determine the severity of conduct and therefore our priorities.
AFSA’s enforcement operations are conducted in accordance with Professor John Braithwaite’s enforcement pyramid theory (figure 1) and Professor Malcolm Sparrow’s harms-based approach to regulation.
A significant proportion of AFSA’s resources are invested in the level represented as the base of the pyramid, where we assist in achieving compliance through education and guidance. The next level of action involves issuing official cautions and compliance letters in an effort to obtain compliance by deterrence.
To address Bankruptcy Act offences, if alleged conduct is deemed complex and displays a high level of criminality and harm, matters will be investigated and, if sufficient evidence exists, referred to the Commonwealth Director of Public Prosecutions (CDPP) for criminal prosecution.
To address more serious contraventions under the PPS Act, the next level of action is obtaining compliance by enforceable undertakings and then civil penalties. PPS Act matters involving a high level of criminality and harm will be referred to the Australian Federal Police (AFP), recommending investigation and criminal prosecution.
Supplementing the enforcement pyramid, our strategy adopts Professor Malcolm Sparrow’s harms-based approach to identify and prioritise harms that have a large-scale impact. Regulation & Enforcement’s strategic focus areas are published annually in the Personal Insolvency Compliance Program.
We have a number of tools in our toolkit and we make careful decisions in accordance with our framework about the appropriate tool to use for each investigation.
Offences that are subject to the infringement notice regime are detailed in the table listed at section 277B of the Bankruptcy Act and are offences of strict liability.
This regime empowers the Inspector-General in Bankruptcy to issue an infringement notice to an alleged offender for the payment of a specified penalty, in lieu of criminal prosecution action being instigated.
The regime provides an efficient means of penalising behaviour, which, while relatively minor in criminality, can have significant repercussions for the effective administration of bankrupt estates, integrity of the National Personal Insolvency Index or regulation of insolvency practitioners.
The penalty that applies varies depending on the alleged offence and is linked to section 4AA of the Crimes Act 1914 (Cth).
AFSA promotes compliance and where appropriate, will seek voluntary compliance in the first instance.
Compliance-related offences are administrative-type offences where an individual (bankrupt or not) has failed to comply with a requirement under the Bankruptcy Act or Bankruptcy Regulations 1996. Typically these offences involve the person failing to provide specific information or documents and are generally dealt with initially by a letter from AFSA reminding the person of their obligation and informing them of the consequences of non-compliance, and thereby seeking voluntary compliance.
An official caution informs a person that their actions are suspected to be unlawful and seeks to deter and educate them from similar behaviour in the future. Enforcement considers the issuance of an official caution is a legitimate enforcement outcome.
An official caution will only be considered when it appears that there is prima facie evidence of a Bankruptcy Act offence or PPS Act breach and where we consider it would not be in the public interest to investigate and refer a brief of evidence to CDPP. We may also issue an official caution if an investigation would not be in accordance with our strategic priorities.
In some instances, it may be appropriate for an official caution to be sent in relation to a compliance offence. For instance, a bankrupt may have moved and not advised the trustee of their new address but the trustee becomes aware of this from another source. A compliance letter is not appropriate as the trustee is aware of the new address, but an official caution will serve as a reminder of the bankrupt’s obligations.
Refer a brief of evidence to CDPP for prosecution
A brief of evidence contains various documents, statements and exhibits that AFSA prepares for CDPP to consider if there is sufficient evidence to prosecute a case and if it is in the public interest to do so.
AFSA is not responsible for the decision to commence prosecution action—this is the responsibility of the CDPP. When considering referring a brief to the CDPP, AFSA considers the facts of each case and the Prosecution Policy of the Commonwealth.
In determining whether there is sufficient evidence to prosecute a case, the CDPP must be satisfied that there is prima facie evidence of the elements of the offence and a reasonable prospect of obtaining a conviction.
We receive most of our referrals from insolvency practitioners and the Official Trustee. We also receive referrals from creditors, other government agencies, the Registrar of PPS, secured parties (PPS), and victims.
Each referral is assessed to determine if it contains an allegation of an offence or contravention within Enforcement’s jurisdiction. If a matter is recommended for investigation, it is given a priority and an indication of when the referral will receive investigative attention.
If an offence or contravention has been identified, a number of factors are considered, including the seriousness, criminality and associated harm of the offence, in conjunction with the Prosecution Policy of the Commonwealth.
When determining whether an official caution is appropriate, in addition to the above, the following issues are considered:
- previous official cautions from AFSA Enforcement relating to similar conduct
- impact of the offence (whether the detrimental or potential detrimental impact is minor or trivial in nature)
- adverse findings in courts or tribunals which traverse or relate to the alleged offender’s alleged conduct (i.e. pattern of behaviour that needs to be addressed)
- deterrence effect (either to the general public or the alleged offender)
- Regulation & Enforcement’s strategic priorities.
An investigation is a process of seeking information relevant to an alleged, apparent or potential breach of the law, involving possible judicial proceedings. It is a search for truth, in the interests of justice and in accordance with the law.
Investigations are conducted in accordance with internal policy and procedures and the Australian Government Investigations Standards 2011.
At any time during an investigation, the direction, approach or scope may change. Some typical examples where a change might occur include:
- evidence indicates the alleged offender has not committed the alleged offence or contravention
- evidence indicates offences in addition to what was referred
- mitigating factors such as mental health and language barriers which reduce the likelihood of a successful prosecution (and referral to CDPP)
- Enforcement’s resources and priorities have changed.
In addition to the tools available under the PPS Act and Bankruptcy Act, we work collaboratively with and share information where appropriate with other regulatory bodies and law enforcement agencies, such as the Australian Securities and Investments Commission, Australian Taxation Office, and the Australian Federal Police, to detect, disrupt and respond to conduct that impacts the integrity of the personal insolvency and PPS systems. We work with these agencies to achieve common objectives such as disrupting untrustworthy advisors.
 Professor John Braithwaite is a distinguished professor at the Australian National University. He is a criminologist who is the recipient of a number of international awards including lifetime contributions to criminology. http://johnbraithwaite.com/
 Professor Malcolm Sparrow is Professor of the Practice of Public Management at the John F. Kennedy School of Government, Harvard University. He is Faculty Chair of the School's Executive Program, "Strategic Management of Regulatory & Enforcement Agencies." https://sites.hks.harvard.edu/fs/msparrow/Biography%20&%20CV--main.html