ASIC drafted 17 briefings on Macquarie Group in 10 months: Freedom of Information

The corporate regulator had a long list of issues to raise with Macquarie boss Shemara Wikramanayake and bristled at its ‘legalistic engagement’.

Macquarie chief executive Shemara Wikramanayake.

The corporate regulator recoiled at Macquarie’s “legalistic engagement” in a meeting with the bank’s boss, Shemara Wikramanayake, to discuss the scandals happening inside the investment bank that led to four enforcement actions in a year.

The Australian Securities and Investments Commission prepared 17 briefings related to Macquarie over the 10 months to May this year, documents released under Freedom of Information show.

They hint at growingconcern at The Australian Securities & Investments Commission over Macquarie, which was the target of regulatory interventions for misreporting up to 1.5 billion short sale trades and allegedly manipulating the electricity market.

ASIC chair Joe Longo described his concern with Macquarie’s engagement with the regulator and repeated risk failures last month as “a kind of hubris”.

One briefing paper, provided to 14 different ASIC staff, outlines the topics canvassed by the regulator when it met with Ms Wikramanayake on September 19 last year. That was six days before ASIC fined it $5m for suspicious electricity trades.

The paper shows ASIC took issue with Macquarie’s overly “legalistic engagement” after wrapping up an investigation into the financial giant’s failures that allowed 50 breaches of market integrity rules by allowing clients to place their orders within minutes of the market close.

ASIC reminded Macquarie two of its most senior executives “have individual obligations as accountable persons”, a nod to the Financial Accountability Regime, which enables the regulator to target executive pay.

The millionaires’ factory paid Ms Wikramanayake $24m over the last financial year, and $25.2m the year before.

Macquarie CEO Shemara Wikramanayake was paid $24m.

ASIC also flagged its interest in Macquarie’s growing involvement in private and unlisted markets. The regulator sought to remind the bank “it should come as no surprise that we will be looking at one of the largest transactions involving Australian firms”.

In particular, ASIC highlighted “regulatory inconsistencies”, being interested in whether companies were engaging in “regulatory arbitrage between public and private markets due to inconsistent obligations”.

Macquarie’s role in the $480m Shield Master Fund collapse also appears in ASIC briefs.

Macquarie offered access to Shield through its Wealth Wrap superannuation platform.

“We are taking these matters very seriously, particularly having regard to Macquarie’s significant position in the Australian financial system and its potential impact on consumers and markets,” ASIC said.

Only a handful of the documents ASIC prepared on Macquarie were accessible by The Australian.

ASIC chair Joe Longo and commissioner Simone Constant. Picture: Paul Jeffers

ASIC senior lawyer Haydar Tuncer said many disclosed law enforcement methods and procedures and 14 of the 17 documents demonstrate “how ASIC determines whether or not it will pursue possible regulatory action”.

“Disclosure would forewarn the regulated population of ASIC’s considerations and give insight into the aspects of the way in which ASIC goes about its task of regulatory compliance,” he said.

“Release of this information would enable persons to tailor their activities to evade scrutiny,

thus circumventing the established legislative structure for regulation of market misconduct

matters.”

Mr Haydar noted three documents “comprise confidential information that an authority of a foreign government – a foreign regulator – has shared with ASIC on a confidential basis”.

“Disclosure of such information would have a direct impact on ASIC’s international memberships and reputation and ultimately our ability to obtain confidential information to support our enforcement, supervision and regulatory activities,” he said.

While the foreign regulator is not disclosed, ASIC’s other briefing notes refer to probes by the United States Securities and Exchange Commission and the United Kingdom’s Financial Conduct Authority.

In one instance, Macquarie overvalued 4900 large illiquid collateralised mortgage obligations, after the SEC found the bank attempted to minimise losses by arranging cross-trades rather than selling the securities into the market.

“We consider this matter to raise serious concerns about Macquarie’s risk culture and their

management of conflicts of interest,” ASIC noted. “Particularly problematic is the cross-trading aspect shows Macquarie preferencing the interests of institutional investors over retail mutual funds.”

“We are engaging with Macquarie on how they are ensuring that similar conduct would not occur within their Australian business.”

A further three documents contained materials over which the Australian Prudential Regulation Authority’s secrecy provisions apply.

Originally published as ASIC drafted 17 briefings on Macquarie Group in 10 months: Freedom of Information