This week, hearings at the banking royal commission should illustrate the silliness of the idea from the Australian Securities and Investments Commission (ASIC) and Treasurer Scott Morrison that positioning ASIC officials inside the big banks can somehow guarantee integrity and discourage misconduct.
NAB has been exposed this week for charging dead people fees (which the Commonwealth Bank also did), charging fees when no service was provided (which the CBA and AMP both also did) and then taking months to decide that they couldn’t devise an excuse for keeping the money and slowly returning it to its victims. That’s before you get to the fact that NAB and its subsidiary knew that its MLC retail fund was underperforming because of its investment weightings, but preferred that weighting because it returned higher profits to the bank.
That coincided with not-so-new ASIC chair James Shipton announcing plans to embed teams of up to 20 agents for weeks at a time to sit with bank staff and trail the CEO, executives and directors to identify misconduct before it arises, backed by $70.1 million in additional government funding. Shipton has denied the regulator would be “spying” on the banks, but “getting in there and being part of the community, which they are regulating”.
Problem is, they won’t be “part of the community”; they’ll be outsiders, identified as such, within vast corporations. These will be public servants sent to wander the corridors looking for malfeasance, asked to look over the shoulders of, say, new AMP director and former Treasury head John Fraser, or NAB chairman and another former Treasury head, Ken Henry, or David Murray at AMP. Can you really imagine full and open discussion in the presence of agents from ASIC of problems with clients/customers, suppliers, interest rate deals, funds managers decisions, administrators rulings and all the many other small issues that arise in complex companies every day?
What about outside the building? Will ASIC’s agents be members of the various clubs that senior executives, CEOs and board members belong to — like The Australian in Sydney or the Athanaeum in Melbourne? That’s where banking luminaries exchange thoughts about life at the coalface of financial services — and dealing with ASIC. As Adam Smith noted:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice.
But most of all, what if an ASIC official actually — against all probability — discovered evidence of misconduct? What will ASIC actually do? Let’s look at how ASIC handled one of the more egregious examples of NAB misconduct this week: charging superannuation account holders fees for financial advice they never received. Or, as royal commissioner Ken Hayne accurately characterised it, “taking money to which there was no entitlement” — something that “raised a question of the criminal law”.
What did ASIC do about taking money to which there was no entitlement? Did it prosecute people? Did it treat bankers the same way a kid from Parramatta who broke in and robbed a house would be treated? Of course not. ASIC and NAB proceeded to negotiate the appropriate consequence — whether it would an enforceable undertaking or a licence condition. NAB, unsurprisingly, didn’t want the royal commission to release its efforts to negotiate its penalties with ASIC.
Until ASIC completely changes its attitude to enforcement and starts trying to jail people for stealing money, it can send an entire army into the banks and it won’t make a difference. Of course, that won’t happen. The next best thing is for the ACCC to be given the role of protecting consumer interests in financial services. The ACCC isn’t perfect, but under successive chairs it has been prepared to drag businesses into court, push for big fines and make itself deeply unpopular with the business community. The Greens called this week for the ACCC to be handed the consumer protection role in finance. Former ACCC head Allan Fels agrees with them. The Greens and Fels are absolutely right.