Banking royal commission: We don’t ban enough dodgy advisers, says ASIC

The corporate watchdog has acknowledged it doesn’t ban enough dodgy planners from the finance industry.

The corporate watchdog has admitted it does not ban enough dodgy financial planners from the scandal-ridden industry.

Australian Securities and Investments Commission senior executive Louise Macauley, who is responsible for overseeing discipline of financial advisers, told the banking royal commission the regulator was doing as much as it could given its resources.

Penalties available to ASIC were also not adequate, she said.

Last week, amid public outcry over revelations aired in the commission, the government announced it would accept most of the recommendations of a review of ASIC’s powers and penalties that found they should be beefed up.

Giving evidence this morning, Ms Macaulay also admitted ASIC took too long — about two years — to ban dodgy advisers, had never attempted to fine advisers for their misconduct and had only ever taken away one firm’s license for breaching its obligation to report breaches to ASIC or breaching its general obligation to provide advice honestly, efficiently and fairly.

Over the past fortnight, the commission been examining financial planning conduct including the CBA charging fees for services that were never delivered, AMP doing the same and then misleading ASIC about it 20 times, a financial planner who referred his clients to a property advice company he secretly owned and one who stole hundreds of thousands of dollars from his clients.

June 26, 2014

Royal Commission timeline

The Senate economics committee calls for a royal commission following a lengthy inquiry into ASIC’s performance that focused on financial planning scandals at the CBA.

April 21, 2016

Royal Commission timeline

In an attempt to stave off continuing calls for a royal commission, the Australian Bankers Association announces former senior public servant Ian McPhee will oversee an overhaul of industry standards and practices.

November 30, 2017

Royal Commission timeline

After years of denying a royal commission is needed, the banks write to Prime Minister Malcolm Turnbull asking for one. He obliges.

February 12, 2018

Royal Commission timeline

Commissioner Kenneth Hayne formally opens the inquiry and sets the tone by laying into the big banks for failing to provide all the information he wanted in time.

March 13, 2018

Royal Commission timeline

The commission’s first full public hearings hear about consumer credit issues including a home loan fraud ring among NAB bankers in Western Sydney and out-of-control mortgage brokers at CBA subsidiary Aussie Home Loans.

April 16, 2018

Royal Commission timeline

Second round of hearings kicks off with a focus on one of the industry’s most scandal-prone sectors, financial planning.

It has taken only one criminal action against a licensee over the past decade, the commission heard.

Ms Macaulay told the commission investigations of adviser misconduct were resource intensive and often heavily contested by the planner targeted.

She agreed with commissioner Kenneth Hayne when he said, based on his experience as a judge applying the criminal law, that “there would be cases where the poverty of the advice would be self evident”.

“They’re the jaw-drop tests — the advice given simply couldn’t have been thought through,” Mr Hayne said.

“Does it remain a resource intensive process even in those cases?”

Ms Macaulay responded that “we find even in the jaw dropping cases, commissioner, defences are put on, material is put on that was not in the file … to explain why the advice was good advice.”

Mr Hayne said he was anxious to understand whether he should understand this as “a blanket problem or as a problem where there is a range of possible cases”.

“Can I just leap ahead about five steps to indicate what’s troubling me — it’s the notion of the regulator taking steps overtly to demonstrate that bad conduct will be called out and dealt with,” he said.

“Again, to hark back to the radically different field of discourse of the criminal law, it’s the notion of public denunciation.”

“Does that sort of idea, a public message, play a part,” he asked.

“It doesn’t at the moment, there are constraints about what we can publicly say about bannings,” Ms Macaulay said.

She said the process of investigating breaches and holding a hearing before a delegate to decide whether to ban the adviser was private — as was the actual decision made by the delegate.

However, ASIC always put out a press release about delegate decisions with a “brief explanation” of the misconduct involved, she said.

“Those constraints apply as a result of procedural fairness,” she said.

The only finance advice shop to have its license yanked by ASIC is Morrison Carr, which was revoked in August 2012 after becoming concerned the company’s principal, Dennis Cardakaris, was “not of good fame and character given evidence he provided false information to its insurer and took steps to avoid client claims”.

“In terms of seeking to remove the license we have found that is a difficult process,” Ms Macaulay said.

“I think in a couple of other occasions we have succeeded in having short suspensions imposed.”

Banking Royal Commission

What it means for the banks

Opposed by the banks right up until the moment they asked for it in November, the commission presents both obvious dangers and hidden opportunities to the sector.

Their already-battered public reputations have taken further hits and commissioner Kenneth Hayne has mulled the prospect of tighter regulation.

Some of the worst areas exposed by the commission so far - particularly the commissions paid to car dealers and mortgage brokers - are areas where some banks would like to see a crackdown, but lack the guts to take action that would put them in danger of losing market share.

New regulations cutting mortgage broker commissions, for example, would allow the banks to compete on a level playing field while crushing an industry they have allowed to steal away half of all home loan sales.