ASIC boss hits out at resistance to new tough stance, vows to ‘test the boundaries’ of law

ASIC chairman James Shipton says criticism of its tough new stance “suggests there are still things to hide”.

Australian Securities and Investments Commission chairman James Shipton.

Criticism of the corporate watchdog’s tough new stance on dragging financial companies to court “suggests there are still things to hide”, says the regulator’s chairman James Shipton, who has declared he will be “testing the boundaries” of the law and may lose cases against rogue companies to clarify the law and deter misconduct.

Mr Shipton, who joined the Australian Securities and Investments Commission last year, said it was only 50 days since Kenneth Hayne handed down his final report for the banking royal commission.

“We will be testing the law,” Mr Shipton said. “We are seeking clarity around what the law is and what the law means.”

Mr Shipton said by “actively being courageous and actively pursuing clarification in the law” there would be a very strong net benefit for the whole financial sector.

“Sometimes there will be a headline that says ASIC failed,” he said, noting that bringing on test cases that were risky would usher in “greater clarity, greater consistency, and greater certainty” of the law.

“Knowledge of the boundaries of the law is important,” he said.

Mr Shipton also hit out at resistance among financial companies to admitting wrongdoing.

“There are still pockets of legal resistance. There are still technical arguments being put to us. We want fairness — what is the right thing to do — to be the primary consideration,” Mr Shipton said.

The Morrison government has announced a new criminal division of the Federal Court will be established to try cases exclusively against banking executives and institutional misconduct as part of a $600 million funding boost to regulators in response to recommendations of the banking royal commission.

In a move to expedite prosecutions currently brought in state jurisdictions, the government also plans to expand the reach of the Federal Court from hearing civil cases to include criminal prosecutions of the corporate sector.

ASIC has tasked 50 staff members with trawling through around 100 referrals, breach reports, and case studies for potential enforcement action, including seven financial advisers who will likely be referred to the Commonwealth Director of Public Prosecutions.

ASIC this week flagged criminal prosecutions against senior bank executives from almost 40 investigations into alleged breaches stemming from the royal commission and other cases it was reviewing to see if a breach of the law was punishable.

But there has been pushback by the sector and the financial press on ASIC’s “why not litigate” approach, which Mr Shipton said “concerns me”.

“We are already reading criticisms of our approach to litigation,” he said.

“Despite the Royal Commission there is resistance to a meaningful mindset change,” Mr Shipton said.

“There is a fundamental misunderstanding of our broader fairness mandate and our statutory mandate to enforce the law,” he said. “It suggests we would use our powers inappropriately, irresponsibly and without foundation to, it has been suggested, unfairly target particular names.”

“Most importantly, it suggests there are still things to hide. These sentiments ultimately and unfortunately perpetuate an unhelpful culture of resistance and reluctance.”

Mr Shipton said ASIC’s “why not litigate” approach to enforcement was a different concept to a “litigate first” or a “litigate everything” strategy.

“The aim of this stance is to deter future misconduct and address the community expectation that wrongdoing be punished and denounced through the courts. This means that once ASIC is satisfied that breaches of the law are more likely than not and it is evident from the facts of the case that the pursuit of the matter would be in the public interest, then we will actively ask ourselves: why not litigate this matter?” Mr Shipton said.

“In ASIC’s view a primary purpose of penalties in relation to the misconduct we regulate is of deterrence, at the individual and broader level — deterrence against breaking the law. Again, let me be clear — our approach to the use of enforcement is that if we find evidence that the law has been broken we will investigate it,” he said.

ASIC head of enforcement, Daniel Crennan QC, called on companies to admit guilt rather than drag out legal cases when they knew they were in the wrong.

“They shouldn’t engage in brinkmanship and gamesmanship,” Mr Crennan said. “A better course would be to co-operate with us as fully as they can,” he said.

“There are ways of getting out of litigation including making admissions and moving on.”