Wounded watchdog vows fightback back after ASIC savaged in probe

Banks can expect more criminal cases brought by the corporate regulator after a sustained attack on its poor enforcement record.

Australian Securities & Investments Commission chairman James Shipton leaves the royal commission. Picture: AAP

The nation’s big banks and wealth managers are on notice to expect a big step-up in legal actions, including criminal cases brought by the corporate regulator, after the watchdog fought off a sustained attack on its poor enforcement record.

The Hayne royal commission launched a broadside at the workings of the Australian Securities & Investments Commission, which saw chairman James Shipton admitting several practices were “mistakes” and the regulator had an “over-reliance” on infringement notices and enforceable undertakings.

A new proactive stance on initiating legal action was promised by Mr Shipton as the regulator’s processes and stance on negotiation were torn to shreds.

He conceded while it was a delicate investigation, ASIC was revisiting a case against life insurer and funds group ClearView Wealth with a view to potentially starting criminal proceedings.

Mr Shipton also made shocking admissions about ASIC allowing Commonwealth Bank to help draft a media release and about the regulator’s engagement with National Australia Bank on a potential case settlement and enforceable undertaking.

“We will be more adventurous, as it were, in pushing points of law. We will be taking more, let’s call it risks,” Mr Shipton said. “I firmly believe there is public interest in using court-based admonishment.”

ASIC may, however, be headed for a standoff with ClearView under Mr Shipton’s new enforcement stance. ClearView closed down a call centre last year and committed to pay $1.5 million in compensation, after telling ASIC it may have breached anti-hawking laws more than 300,000 times.

“We are weeks away from completing our Direct Remediation Program, as agreed with ASIC, and we continue to consider this matter closed,” ClearView’s chief Simon Swanson said in an emailed statement.

“We fully co-operated with ASIC throughout their investigation and we came to an agreement in September 2017 to remediate.”

In the final day of hearings in Sydney, senior counsel assisting Rowena Orr QC was unrelenting in her questioning of ASIC’s cordial dealings with financial services companies. She contrasted it with the behaviour of parking inspectors who normally don’t ask car owners whether they agree to a ticket.

“The parking inspector doesn’t seek an indication from the person he’s giving a parking fine to as to whether they will accept and pay it. Why don’t you just do that?”

Mr Shipton replied: “If there is an unwillingness to accept an infringement notice we would go straight to court.”

The commission saw various damning emails, including one where ASIC staff flagged that CommInsure was concerned about the perception that a community benefit payment would indicate that CBA was paying off the regulator.

Another email from ASIC Commissioner Cathie Armour to NAB’s then chief risk officer David Gall also came under heavy questioning for her engagement on a potential settlement regarding inadequacies in its foreign exchange unit.

Ms Orr was strident in continuing to ask Mr Shipton whether the email was “problematic beyond a lack of professionalism?”

He responded “no” then went on to add: “As I understand … we were prepared and willing to continue with the investigation.”

Ms Orr didn’t let up on her probing, to which Mr Shipton admitted: “My understanding is that the issue was … plateauing and there wasn’t a high degree of confidence as regards to what else would be found,” he said.

ASIC also came under fire from Ms Orr for not taking NAB to task on its non-adherence to the terms of an enforceable undertaking. Mr Shipton said in that matter there was “no certainty” of a legal breach of the enforceable undertaking, but when pushed he admitted ASIC had only taken action twice in the past decade for an enforceable undertaking breach.

Mr Shipton was in the witness box on the final day of Sydney hearings before the royal commission heads to Melbourne on Monday. That will mark the final week of the policy round ahead of Commissioner Kenneth Hayne handing down a final report by February 1.

NAB chief executive Andrew Thorburn and his chairman Ken Henry will kick off week two, followed by executives from AMP and ANZ, and the chairmen of Bendigo and Adelaide Bank and the Australian Prudential Regulation Authority.

Mr Shipton’s time in the stand included him agreeing to work more closely with APRA on the new banking executive accountability regime, and also apply it to staff at ASIC. He canvassed several ideas for better measuring ASIC’s future performance, but didn’t agree with the Financial System Inquiry’s call for a regulatory assessment board.

Mr Shipton — whose previous roles have included working at the Hong Kong securities regulator and at Goldman Sachs — took the top job at ASIC in February.

ASIC was chastised in Commissioner Hayne’s interim report for not taking a harsher legal approach to its dealings with banks and other financial institutions.

On Friday, Mr Shipton was also forced to admit that ASIC allowed CBA to be involved in the drafting of a press release, which had been “a mistake”.

“Please do not conflate the case study that you’ve just referred to with current practice. Current practice is very different,” he said.

Mr Shipton has said he is changing the focus at ASIC to ramp up enforcement and that a new policy will be made public in December.

He also noted that while ASIC was pivoting away from community benefit payments, enforceable undertakings and infringement notices, they still had a place as regulatory tools.