ASIC, APRA to join banks in the royal commission dock

The nation’s embattled financial regulators will face additional scrutiny by the royal commission in coming weeks.

ASIC chairman James Shipton.

The nation’s embattled financial regulators will face additional scrutiny in coming weeks, when the chairs of ASIC and APRA appear in the royal commission witness box along with the chief executives of the major banks.

It’s understood that Australian Securities & Investments Commission chairman James Shipton and his Australian Prudential Regulation Authority counterpart, Wayne Byres, will be grilled as part of the final round of public hearings on policy issues.

This follows commissioner Kenneth Hayne’s searing interim report, in which the financial services industry was castigated for its poor conduct record and the regulators were targeted for repeatedly taking the soft option instead of court action.

Both ASIC and APRA declined to comment on the likely appearance of their chairmen before the royal commission.

The 7th round of public hearings begins on November 19, with a week of witness examinations in Sydney followed by a further week in Melbourne.

CEOs of the Sydney-based major banks, including Matt Comyn at Commonwealth Bank and Westpac’s Brian Hartzer, are likely to be appear in the first week.

Andrew Thorburn of National Australia Bank and Shayne Elliott of ANZ will have their turn in Melbourne. On Friday, submissions closed in response to the interim report, with submissions in relation to the sixth round of hearings on insurance closing the previous day.

Since the release of the interim report last month, Mr Shipton and Mr Byres have acknowledged their agencies’ weaknesses in a series of public speeches and appearances before parliamentary committees.

The prudential regulator revealed last week it had launched an interim review of its enforcement practices, including the use of court-based sanctions, by its new deputy, John Lonsdale.

Mr Lonsdale told parliament that the review would bring more individual accountability, more accountability at the entity level, and more general deterrence.

ASIC, for its part, had already appointed Daniel Crennan as deputy chairman responsible for the regulator’s enforcement policies, including pursuit of criminal and civil penalties.

Mr Crennan has foreshadowed a much tougher regulatory approach, saying earlier this month that he expected to send 32 criminal briefs to the Commonwealth Director of Public Prosecutions this year, rising to 42 next year and a further 47 in 2020.

The interim report was savage on the regulators, saying that misconduct either went unpunished or the consequences failed to reflect the gravity of what had occurred.

“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct,” Mr Hayne said.

“The prudential regulator, APRA, never went to court.”

According to Mr Hayne, the record showed that misconduct generally led to an apology from the entity, a drawn-out remediation program, and protracted negotiation with ASIC over the wording of a press release.

An infringement notice or enforceable undertaking usually followed, acknowledging no more than ASIC’s reasonable “concerns” about the entity’s conduct.

While enforceable undertakings might require a community benefit payment, the amount was “far less” than ASIC could have asked a court to impose.

Mr Shipton told the Senate last Wednesday that ASIC was not just a standard conduct regulator.

“Our role in this country is especially heightened because of the absence of market-cleansing mechanisms through competition,” he said.

“I want ASIC to fill the vacuum left by the absence of these market forces.

“Leaning into this problem, with rigorous and frequent use of enforcement and other regulatory tools, is one way of filling this vacuum.”

Appearing before estimates last week, Mr Byres noted the royal commission’s criticism that APRA had not used court-based sanctions, with prevention, rectification and sanction the agency’s traditional priorities.

“Our enforcement philosophy, our governance structures for enforcement decisions, and our resourcing for enforcement activity can be improved,” the APRA chief said. “This will take account of not only the lessons from the royal commission, but also the need for new processes and structures to be developed for the BEAR (bank executive accountability regime).”

Mr Byres said APRA had already flagged in its submissions to the royal commission the potential for greater use of enforcement powers.