Watchdog ASIC faces systems overhaul after expense row

The corporate regulator has acknowledged it may be forced to overhaul its internal systems after it failed to detect nearly $260,000 in anomalies with expenses.

Australian Securities and Investments Commission chairman, James Shipton. Hollie Adams/The Australian

The corporate regulator has acknowledged it may be forced to overhaul its internal systems after it failed to detect nearly $260,000 in anomalies with expenses for both the chairman James Shipton and deputy chair Daniel Crennan before it was raised by an external audit.

Mr Shipton sensationally stepped aside on Friday after a probe was launched into expenses incurred in his move from the US two years ago.

Acting ASIC chair Karen Chester said the regulator would wait for findings of the Treasury review to find out if “anything further” was required in terms of ­improving governance arrangements at the corporate regulator.

Ms Chester pointed to inadequacies in ASIC’s systems that allowed the expenses problems to arise.

“It did take the Auditor-General to raise concerns in last year’s audit of our financial statements,” Ms Chester told a house parliamentary committee on Friday.

“Before that time I’m not aware of anything coming up through internal audit or with the audit committee.”

The overhaul means ASIC is facing a period of unprecedented turmoil in its top ranks with the Australian Securities & Investments Commission chair James Shipton stepping aside on Friday.

The chairman of the regulatory watchdog stunned a federal parliamentary committee by revealing he would immediately vacate his post while an independent Treasury review is undertaken into $118,000 paid to KPMG for tax advice and a further $69,000 in fringe benefits tax.

The review into Mr Shipton’s benefits will extend to the end of the year, diminishing the regulator’s voice at a crucial time as corporate Australia attempts to deal with the coronavirus crisis and stresses across the financial system.

Mr Shipton said he would co-operate with the inquiry and “I look forward to my continued service to the Australian community”.

“What matters is that I act with integrity and honour. That means I need to act in the best interests of ASIC and its vital purpose to build a fair, honest and efficient financial system for all Australians,” Mr Shipton said.

The upheaval comes at a time when complex enforcement and compliance actions loom, with a wave of small business collapses expected as the recession bites in vulnerable sectors.

The top end of town has pushed back against the regulator’s ­aggressive “litigate-first” approach, which has been subject to criticism as it has won few major scalps and only minor penalties from courts. At the same time it has come under criticism in parts of Canberra for its landmark responsible lending case against Westpac, which it lost, but was widely seen last year as putting a clamp on bank lending.

Australian Securities and Investments Commission chairman, James Shipton. Hollie Adams/The Australian

However, the regulator has recently taken court actions against property funds house Mayfair 101 and a unit of investment house Evans Dixon, in a sign of a tougher attitude, although both are defending the actions.

Directors of large companies are also navigating unprecedented changes to insolvency rules, which have allowed them to stay afloat, but complex regulatory issues are likely to come to a head next year.

Mr Shipton voluntarily paid back the $118,000 in KPMG costs but the high-profile review and public manner in which it emerged could hit ASIC’s ability to press home on the importance of proper corporate governance.

Although he stepped aside for the review, Mr Shipton defended his personal position, telling the parliamentary committee that had been expressing a willingness to repay the amount in question for “quite some time”.

“I only took this position to serve the Australian community and to work to improve the corporate and financial system that should also serve it. If I in any way impede that purpose, the right thing for me to do is to step aside until such time that I can,” Mr Shipton said.

But even his temporary departure will spur questions about the regulator‘s top-heavy structure, which had already attracted criticism about deputy commissioners holding conflicting mandates, prompting the departures of some senior staff.

The regulator was further rocked by the case of deputy chair Daniel Crennan, who may have been wrongly paid nearly $70,000 in rental costs when he relocated from Melbourne to Sydney, with ASIC admitting it had taken too long to pick up the problem. Mr Crennan has paid back the costs and will remain in his post.

The dramatic revelations about the pair left deputy chair Karen Chester, an economist who was hired from the Productivity Commission, filling the most senior post as interim head of ASIC.

Ms Chester is known as an effective decision-maker who is well across the regulator’s activities and viewed as well versed in the operations of the federal bureaucracy and the private sector.

Ms Chester commenced as an ASIC deputy chair in January 2019 after being a commissioner at the Productivity Commission since 2013 and deputy chair since May 2016.

She was previously a partner at Mercer and global head of infrastructure and CEO of Access Economics. Prior to shifting to the private sector, Ms Chester had senior economic policy roles in the Australian Treasury and the Department of Prime Minister and Cabinet.

Ms Chester flagged a change to ASIC procedures in testimony to the House of Representatives Standing Committee on Economics.