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Embarrassing ASIC admissions show danger of FOFA repeal

The government is still hoping to push through its repeal of Labor’s Future of Financial Advice reforms, but ASIC’s admissions to Senate estimates aren’t making it easy.

Financial planning remains a “target-rich environment” for the financial regulator, and the regulator is now more sceptical and less trusting of the industry, but it will have to scale back its surveillance and target its regulatory efforts more carefully due to budget cuts, officials of the Australian Securities and Investments Commission have told an estimates hearing this morning.

ASIC also declined to assure consumers they would always get appropriate financial planning advice from the Commonwealth Bank’s wealth management arms, and admitted that “the level of trust and confidence” in the bank was “misplaced by us”.

The commission’s appearance as part of its normal estimates obligations turned into a de facto hearing of the Senate’s inquiry into ASIC’s performance, which was extended last week after the committee learnt both ASIC and the Commonwealth Bank had failed to give it the full story on the ASIC-approved compensation scheme for victims of financial planners working for Commonwealth Financial Planning. The revelation led ASIC to slap licence conditions on CFP (which are still being developed) and tell the hearing it was “disappointed” that the Commonwealth “was not sufficiently upfront with ASIC”.

We should have controlled the process more tightly,” chairman Greg Medcraft admitted this morning.

The admission is a repeat of ASIC’s consistent line about the CFP debacle that it had failed act quickly enough or effectively enough to prevent CFP planners from losing millions for investors between 2007 and 2010, despite repeated warnings, but that it had “learnt” from the experience. The learning process, it appears, has continued right up until just weeks ago.

Asked by inquiry chairman and Labor Senator Mark Bishop whether ASIC could now guarantee that consumers would get appropriate financial advice from CFP advisers, ASIC officials would only say that CFP had “appropriate and adequate procedures to monitor advice” and incentives to “push staff in right direction rather than wrong direction”, but “that doesn’t mean people won’t get poor advice from time to time”.

ASIC also told the hearing that the government’s budget cuts of $120 million and over 200 staff over four years would mean its “proactive surveillance will substantially reduce across the sectors we regulate, and in some cases stop” and “limit our risk-based approach to focus on those entities or activities that have the greatest market impact”. Much of what ASIC knew about what it today called “industry-wide large-scale problem of very poor advice” due to conflicted remuneration came from its own surveillance of planners, including “shadow shopping”, where real consumers are used to find out what financial planners are offering.

The inquiry into ASIC is a significant problem for the government, which is eager to push on with its repeal of Labor’s Future of Financial Advice reforms. The repeal process, already paused once in the face of opposition from a wide range of groups, including financial planners, will be difficult to resume while the immense damage inflicted by CFP continues to demonstrate the basic problem of conflicted remuneration, which the repeal of FOFA will restore as long as it can be hidden under other guises.

In effect, ASIC, which by its own admission hasn’t been able to regulate financial planning properly up until a few weeks ago, and which says it simply doesn’t trust the industry and still sees it as riddled with problems, has said it will have to do significantly less regulation than its current efforts — and do so at the exact moment the Coalition wants to restore conflicted remuneration, something even the professional end of the financial planning sector opposes. The government couldn’t have picked a worse time to slash the financial regulator’s budget.

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  • 1
    CML
    Posted Wednesday, 4 June 2014 at 5:06 pm | Permalink

    So, Toady and his motley crew are going to repeal these laws in order to allow their mates in the banks, who are mostly crooks, to carry on ripping off the ordinary folk?
    Then, just to make sure said banks/crooks can do what they like, Toady et al have nobbled the regulator?
    Sounds about right! The mind boggles!! Who elected these pillars of society again? Shame on all of you.

  • 2
    Bento
    Posted Wednesday, 4 June 2014 at 6:36 pm | Permalink

    The government couldn’t have picked a worse time to slash the financial regulator’s budget”

    Sorry Bernard. That is absolute rot.

    ASIC is known both inside and outside the industry as the Toothless Tiger. All who operate at the very large, and very deep, dodgy end of the financial services game, have almost no fear of the regulator as it is well and truly captured, and possibly filled with, the pigs at the trough.

    ASIC, on the very clear evidence of their inability to take any of these crooks away, seems to be operating merely to protect those who it is supposed to supervise. Giving them more money is not the answer.

    We have laws against theft, dishonesty, and unconscionable conduct, yet they obviously do little to deter the con artists making a mint from the savings of others.

    Maybe it’s as simple as banning commissions and uniform no BS disclosure rules? It would probably send half of the insiders packing from the industry and good riddance.

  • 3
    klewso
    Posted Thursday, 5 June 2014 at 12:46 am | Permalink

    Think of the money this government saves doing this - then think about, after the sharks have had their fill, how’s the aged pension going to cope?

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