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ASIC’s problems start at the top

A Senate committee has savaged the Australian Securities and Investments Commission and demanded a judicial inquiry into the Commonwealth Bank — but it’s unlikely to happen.

Don’t hold your breath waiting for a judicial inquiry or royal commission into the financial planning industry and the big banks that profit from dodgy planners any time soon.

The case for some form of independent inquiry with coercive powers to examine what went on in the Commonwealth Bank’s financial planning arm, and the Australian Securities and Investments Commission’s response to it as the casualties of planners working for CBA mounted, was laid out by the majority report of the Senate inquiry into ASIC’s performance yesterday — a report from which only Liberal Senator David Bushby dissented, creating a split with his Nationals colleague, Senator John Williams, who instigated the inquiry.

The committee argues that it was misled by both CBA and ASIC (ASIC, in turn, had been misled by CBA); that the current process established by ASIC does not have an expert to represent the interests of CBA victims; that there are likely to be many currently unidentified people who have not been compensated properly by CBA; and that there are allegations CBA has reconstructed the files of those ripped off by planners in a way that would minimise compensation.

As far as the committee is concerned, it simply doesn’t have faith in ASIC to get the current compensation process right. “ASIC has shown that it is reluctant to actively pursue misconduct … rather, it appears to accept the information and assurances the CBA provides without question,” the committee said, damningly. It believes an independent process with coercive powers that can uncover so-far unrevealed rip-offs and force CBA to surrender information is needed.

The government isn’t interested; Finance Minister Mathias Cormann has already dismissed the idea. Nothing could demonstrate the government’s priorities better: having a partisan witch-hunt on the insulation scheme — and going after trade unions on the basis of a few officials ripping members off to the tune of hundreds of thousands of dollars — is OK; an inquiry into how one of Australia’s largest businesses has inflicted tens of millions and possibly hundreds of millions of dollars in damages on vulnerable investors, however, is beyond the pale. Particularly when it’s a business the government is bending over backwards to help by gutting regulations put in place to protect consumers from self-interested planners and the banks that pay them.

The committee makes 60 other recommendations covering a variety of areas: strengthening corporate law and associated penalties, improving the environment for corporate whistleblowers, calling for an independent investigation into the claims raised by James Wheeldon, moving ASIC to a self-funded model — but most of the recommendations focus on how ASIC does its job and the way it uses its powers.

There’s considerable focus on enforceable undertakings — on ASIC using them more aggressively, on being more transparent about them, on having independent monitoring of compliance with them. Enforceable undertakings are a popular tool with regulators: it saves them having to prosecute a company that has broken the law or breached an industry regulation, and they’re more flexible than prosecutions in engendering cultural change within companies. But the problem lies in the “enforceable” bit, because they’re not quite as enforceable as the name suggests.

Having a partisan witch-hunt on the insulation scheme is OK; an inquiry into how one of Australia’s largest businesses has inflicted possibly hundreds of millions of dollars in damages on vulnerable investors, however, is beyond the pale.”

If a company that has given an undertaking breaches that undertaking, the regulator can’t move to prosecute the company for the breach — it needs to obtain a court order to compel the undertaker to comply with the undertaking first. Only then can a regulator prosecute a breach if it continues. And as the behaviour of ASIC has shown — believe it or not, ASIC used to be used as a model for other regulators in the use of enforceable undertakings — enforcement is unlikely to be effective if the regulator isn’t aware that an undertaking is being breached. Worse, the committee notes that ASIC seems obsessed with the burden that an undertaking would place on a company that had breached the law.

Moreover, ASIC is the classic example of a regulator too reliant on enforceable undertakings, preferring to use them rather than take on well-resourced companies in court — especially when the Commonwealth Director of Public Prosecutions seems to take forever to actually commence prosecutions. As to whether ASIC has a cultural aversion to taking on “the top end of town” (a claim that ASIC bizarrely challenged by claiming it was also accused of being unwilling to take on small business), the committee concluded:

There appears to be either a disinclination to initiate court proceedings, or a penchant within ASIC for negotiating settlements and enforceable undertakings. The end result is that there is little evidence to suggest that large entities fear the threat of litigation brought by ASIC.”

The problems around ASIC’s enforceable undertakings are, coincidentally for a tool so lauded for its ability to achieve cultural change, cultural ones. It’s a rare regulator that doesn’t have sufficient powers to do its job properly, provided its staff are well motivated and led aggressively. Unfortunately, the likes of Allan Fels and Graeme Samuel, who were willing to endure the contumely of the business community (in Samuel’s case, often his erstwhile business friends) in leading the ACCC, are more the exceptions than the rule among Australian regulators. Under chairmen Tony D’Aloisio and Greg Medcraft, ASIC has endured persistent criticism of its regulatory failings — it’s barely two years since ASIC, along with APRA, was criticised by another parliamentary inquiry for its inadequate response to the Trio Capital collapse. Regulators are influenced strongly by their leaders, who determine the culture and the priorities of the organisation they lead, and that applies as much to poor performers like ASIC as to more successful bodies.

As for the government, it remains determined to press ahead with exacerbating the systemic problems of the big bank-controlled financial planning sector by gutting consumer protections, even after one of its own backbenchers has determined that the sector has such profound problems an independent judicial inquiry is needed to start sorting out the mess. Just how much more evidence does the government need that its gutting of FOFA is downright dangerous?

A final thing: this inquiry wouldn’t have happened without the fantastic journalism of Adele Ferguson and her Fairfax colleagues. Whatever good flows from it, they deserve a share of the credit.

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  • 1
    Interrobanging On
    Posted Friday, 27 June 2014 at 1:15 pm | Permalink

    No surprise Cormann doesn’t want a judicial inquiry - the naked corporate cronyism extends to the big banks.

    This story obliquely refers to the attempt to remove the ‘act in the client’s interest’ requirement by Sinodinos (sinbinned) and Cormann, but many reports don’t, incredibly. The shamelessness in the timing is astounding, albeit typical for Abbott’s sorry mob.

    Another thought arising as a Senate committee reports on something of substance. How is that going to work with the lightweights,loons and Palmer glove puppets in the new Senate. Another side to that joke.

  • 2
    klewso
    Posted Friday, 27 June 2014 at 1:22 pm | Permalink

    How much is that watchdog in the window …”?
    If they bite some company, that company will go lobbying to the government (they helped sponsor) to pull them off?

    It’s all self-regulation, facilitation and window-dressing.

  • 3
    klewso
    Posted Friday, 27 June 2014 at 1:30 pm | Permalink

    ASIC are little more than unstable boys - shutting doors after horses bolt.

  • 4
    klewso
    Posted Friday, 27 June 2014 at 1:34 pm | Permalink

    Why wouldn’t this big-end-of-town government be looking after the banks - they’ve got tax-payers to clean up after them?

  • 5
    David Russell
    Posted Friday, 27 June 2014 at 1:40 pm | Permalink

    It is scandalous that Matthias Cormann and colleagues will not consider a more powerful investigation into this rort. We have been fed a diet of crap for decades about the four pillars being the staunch underpinning of our reasonably admirable economy only to learn - albeit as many suspected - they are tarred with toxicity rather than being purer than the driven snow. I voted for this government and this makes me ashamed.

  • 6
    Bill Hilliger
    Posted Friday, 27 June 2014 at 1:44 pm | Permalink

    Want a royal commission into the CBA dodgy practices? Well this is the way to bring it into effect …there is a need to link someone from the Labor Party or a union official with the dodgy practices and cha-boomba, there is the royal commission you’ve always wanted.

  • 7
    JohnB
    Posted Friday, 27 June 2014 at 1:45 pm | Permalink

    Ok, so now the Senate’s report is available and the commentary has commenced.

    But what will the future bring?

    As I see it, either ASIC and others (eg DPP?) are supported, encouraged and occasionally shamed into decisive action, or “business as usual” will continue.

    Given the tendency of articles such as this to navel-gaze and to stop short of actually rallying the troops and demanding action, I’m certain that all we will get from this expensive and extensive Senate Enquiry will be a bit of public comment followed by BAU.

    It isn’t Cormann’s fault or the PM’s if our journalists operate on a 24 hour cycle and fail to follow up the big issues and instead content themselves with writing stuff about the endless stream of insignificant nonsense that passes as news these days. By this I mean stories about the missdeeds of silly sportsfolk who never had more than half a brain in the first place, about red carpets and the trollops walking on them, about royalty and about personality.

    So, it is not only ASIC’s fault, or the CBA’s, that their actions are not in line with the public’s reasonable expectations. How do we fix the press?

  • 8
    Yclept
    Posted Friday, 27 June 2014 at 3:29 pm | Permalink

    How do we fix the press?”
    Perhaps the public execution of Lord Vader… er, I mean Lord Murdoch for crimes against humanity would be a good start.

  • 9
    stephen Matthews
    Posted Friday, 27 June 2014 at 3:36 pm | Permalink

    ASIC was too busy -in September 2008- in prosecuting through 3 superior courts a mindless case about what constitutes a business of advising other persons about securities to have time to address the likes of Don Nguyen at CBA financial planning .
    They got their much cherished contempt finding against me but now find that in the court of public opinion they are the contemptible ones .

  • 10
    dazza
    Posted Friday, 27 June 2014 at 3:49 pm | Permalink

    Public executions should start with the bankers for all the fraudulent activities they get away with. In the mean time, bankers puppets like jolly Joe and mathias ‘it’s all labors fault’ Cormann, keep drinking the kool-aid.
    http://www.youtube.com/watch?v=XWHCMaPb-J8

  • 11
    bushby jane
    Posted Friday, 27 June 2014 at 4:00 pm | Permalink

    Well done David Russell for fessing up to voting for our dreadful govt-most people aren’t. Hopefully we will last another 2 years to get rid of them.
    ASIC is going after that other ‘small fry’ for mucking around with Whitehaven Coal share price, only the easy ones apparently.
    BTW, David Bushby is no relation thank goodness.

  • 12
    leon knight
    Posted Friday, 27 June 2014 at 4:49 pm | Permalink

    Why can’t Labor and the Greens team up with Xenophon (and maybe some other smart independent senators)to make a major issue of this to take to the next election - looks like a vote winner to me, if justice (and cash) for lots of Mum and Dad investors can be extracted from the big banks and the other big boys Abbott and Co like to protect.
    ASIC & DPP with plenty of staff and real big teeth could turn a handsome profit from these white collar criminals, maybe even lock a few of them up to make the others a little more circumspect about taking on a proper government

  • 13
    The Pav
    Posted Friday, 27 June 2014 at 4:50 pm | Permalink

    The Banks were bailed out by the taxpayer so you would have thought that they would have acknowledged this by having a high standard of ethical conduct but what did the CBA do?

    After being bailed out they returned the favour by bailing up its clients.

    Cormann says there is no need for a Royal Commission as there is an enquiry already under way…That wouldn’t be the one being done by the former CBA CEO David Murray.

    Makes perfect sense because we just know that we can rely on a pure and unbisaed report from Murray can’t we?

  • 14
    AR
    Posted Friday, 27 June 2014 at 5:56 pm | Permalink

    Would it help is ASIC were self funding, as per Proceeds of Crime Act? Succeed in prosecution or piss off.

  • 15
    JohnB
    Posted Friday, 27 June 2014 at 6:21 pm | Permalink

    AR, I think that the article says that ASIC does what ASIC does and that prosecutions are the business of the DPP.

    Further, that part of the problem is that the DPP takes years before acting (which may include deciding not to continue).

    What’s your next suggestion?

  • 16
    AR
    Posted Friday, 27 June 2014 at 6:26 pm | Permalink

    As stated above, make ASIC a recognised prosecuting entity . Or abolish it and stop wasting oxygen…and paper.

  • 17
    JohnB
    Posted Friday, 27 June 2014 at 7:15 pm | Permalink

    While we are at it, let’s make ASIC judge, jury and executioner. and do away with the DPP altogether.

    That should improve the efficiency.

    Maybe, just maybe, there is a reason for there being a DPP. Could it be, in part, to ensure that prosecutions are only undertaken if there is a chance of success? And that this entails dispassionate review?

    Contemplate for a moment what the words Director, Public and Prosecution imply.

    Where I am getting to is suggestions that (a) the DPP’s office is understaffed, or (b) that the DPP’s office is failing to do its job within a reasonable timeframe.

    I suggest that the primary reasons for the office is to ensure that our public servants (a) do not go off to court without a reasonable case and good chance of success, (b) ensure that public money spent on prosecutions is prioritised as effectively as possible and (c) that a skilled, experienced team of professionals manages the government’s prosecution cases.

    But, hey! If the analysts and accountants in ASIC think that prosecution is the way to go, let’s not bother with anything like a DPP.

  • 18
    Ben heslop
    Posted Friday, 27 June 2014 at 10:02 pm | Permalink

    The only silver lining is all these rich pensioners vote Liberal so there’s justice.

  • 19
    klewso
    Posted Friday, 27 June 2014 at 10:34 pm | Permalink

    Profits trump ethics.

  • 20
    old greybeard
    Posted Saturday, 28 June 2014 at 8:50 am | Permalink

    Even more absurd in all this is Cormann’a blathering about the inquiry into the financial system which will be headed by….the former head of the CBA!!!!

  • 21
    klewso
    Posted Saturday, 28 June 2014 at 8:57 am | Permalink

    It’s one thing to use tax-payer dollars to embarrass Labor - it’s an entirely different matter when it comes to using such “scant and precious” resources to embarrass major sponsors (Murray et al?) - or yourself and the party (Iraq)?

  • 22
    Bento
    Posted Saturday, 28 June 2014 at 8:58 am | Permalink

    Two years ago, I blew the whistle to ASIC regarding a dozen fraudulent life insurance applications, I told the CEO of the AFSL, the CEO of the insurance company, and no one did anything. Nothing!
    I pestered ASIC for 3 months until they opened a case. They investigated and were not able to disclose their findings (meaning they did nothing) as they are not required to under law!
    The head of the company even tried to have an AVO taken out on me to stop asking questions. The court threw it out thankfully, seeing it for what it was.
    To this day, after over two years, nothing has happened, large commissions were paid to all involved without disclosure, and the clients have life insurances that are probably not going to be paid out due to the shoddy lack of disclosure in the applications.
    I have shown these cases to many insiders who all agree it is obvious fraud and misconduct, and ASIC and those on the commission gravy train, right up to CEO level do nothing.
    There will be more to come. Only when many more lives are ruined.
    Maintain the rage!

  • 23
    JMNO
    Posted Monday, 30 June 2014 at 9:23 am | Permalink

    The top management of ASIC needs to go and be replaced by people who are prepared to perform ASIC’s regulatory role properly and to provide good direction and support to their staff. John Williams has come up with a number of ideas worth considering to resource and beef up ASIC.

  • 24
    Broony Saint
    Posted Monday, 30 June 2014 at 3:57 pm | Permalink

    One of the problems of being self funded retiree. Hence the need and growth of gov’t pensioners.

  • 25
    bluepoppy
    Posted Monday, 30 June 2014 at 9:28 pm | Permalink

    Too many political donations at risk if oversight ramped up. To top off the article, the plan to privatise the ASIC register another aspect of the corporate cronyism that influences government policy and which does not serve democracy. It is bad enough that one already has to pay for an extract for information that should be in the public domain.

  • 26
    Dogs breakfast
    Posted Monday, 30 June 2014 at 10:40 pm | Permalink

    This government is bought, lock stock and barrel, by the banks and other big corporates.

    Not sure that the Labor Party are much better though.

    I wonder if there are any democracies left where the government represents the interests of the people.

    Just saying.

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