ASIC Chair Greg Medcraft
The government’s story on a bank royal commission simply doesn’t add up — and not merely in a financial sense.
As Crikey explained yesterday, the Coalition pursued a policy of crippling the Australian Securities and Investments Commission — now supposedly the tough cop on the corporate beat — by slashing its funding and staff. Now there is talk of ASIC being given extra resources — something the government curiously hadn’t mentioned before Labor proposed a royal commission. You can bet the sole reason why Treasurer Scott Morrison is talking about reversing the ongoing cuts to ASIC — and they will continue over forward estimates, every year, reducing ASIC’s staffing and resources in years to come — is because it’s now politically unpalatable to do nothing.
The test will be, however, whether ASIC’s funding is restored to the levels bequeathed by Labor, or it gets a token few million to generate the appearance of additional regulatory firepower. If you’re having a punt on budget outcomes, put a few bob on the latter option.
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But the problem is that ASIC was already dysfunctional before the government’s cuts kicked in. This is a “regulator” that was described by a Senate committee report by Labor, the Nationals, the Greens and independents in 2014 as “a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC’s concerns or intervention” and one that “has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers”.
This is the regulator, remember, that was so sloppy that when the Commonwealth Bank itself advised ASIC that it had breached an enforceable undertaking it had given the regulator, ASIC staff simply lost the letter and never bothered to follow up. That was after repeated warnings by whistleblowers about the Commonwealth Bank’s wealth management arm defrauding customers, forging signatures and otherwise ripping them off. And remember, that was in an industry where ASIC said it already had “long-standing, publicly-expressed concerns”.
God knows what cowboys in other financial industries got away with.
The government’s response to that inquiry report was beyond feeble. Not merely did it reject the recommendation of a royal commission, it ignored recommendations to increase penalties for breaches by financial services licensees, ignored recommendations for a major overhaul of protection for corporate whistleblowers — where Australia performs comparatively poorly internationally — and rejected a recommendation that ASIC’s special enforcement account — its litigation war chest — be increased. The government agreed fully with just eight of 61 recommendations, mostly trivia that ASIC could do without additional resources. At that time, the government’s focus was on reducing regulation on the financial planning sector by gutting the future of financial advice (FOFA) legislation at the behest of the big banks.
Now the government says ASIC has greater powers than a royal commission and is enough to scare the big banks into line. The long experience of ripped-off customers, ignored whistleblowers and even banking staff who tried to do the right thing says that simply isn’t the case. Instead of going to ASIC, they have had to go to the media. The only “cop on the beat” when it comes to the banks is Adele Ferguson at Fairfax and her colleagues, who have exposed scandal after scandal after scandal by the big banks, while ASIC has either done nothing when it did know about them, or been blithely unaware of them. Far from somehow showing why a royal commission isn’t needed, ASIC’s performance demonstrates the urgent need for one.
The Coalition is now trapped between community anger about the banks — exacerbated by ongoing revelations of multinational tax avoidance, another area where the government is reluctant to do anything — and the congenital unwillingness of the Liberal Party to take corruption and lawbreaking by the business community seriously. This is the party that not merely tried to gut FOFA but bent over backwards to hide business donations to its NSW branch; insists trade unions are the biggest threat to the economy while businesses fail to pay hundreds of millions of dollars in wages; and wasted tens of millions on a trade union royal commission that has so far produced little more than a series of dropped charges against CFMEU officials. And most of all it’s the party that gutted an already incompetent corporate regulator and is only talking about reversing it now that it has a political problem around widespread corporate malfeasance.
The Liberals might yet discover that when it comes to a tough cop on the beat, its voters who wield the biggest truncheons.