Cosy days are over ASIC boss James Shipton

James Shipton had escaped royal commission scrutiny to date because he is only new in the job. That has ended.

Macquaire chief Nicholas Moore. Illustration: Sturt Krygs

Until yesterday James Shipton has had a relatively charmed run as the chief corporate plod because any issues were basically not his doing.

As he attempted to explain his ideas to the royal commission, the Teflon coating surrounding the new ASIC boss was shred at an alarming rate, underlined by one interjection from commissioner Kenneth Hayne describing his view as “a very odd conclusion”.

Hayne had a point because Shipton was trying his best to avoid calling his staff actions failures, in view of the tens of thousands of complaints they had to handle with an enforcement team that numbers less than one third of the ACT police force.

Shipton, of course, has been one of Hayne’s biggest cheerleaders, for the obvious reason that Hayne’s recommendations will highlight the need for more substantive enforcement action.

He noted yesterday he had been “highly informed and influenced by the royal commission”.

At the same time he tried to make clear he wasn’t taking action just because the commission’s interim report said he should.

As Shipton has also noted, his staff have served as a useful research tool for the commission, in the role of a sort of instructing solicitor handing over all the files that it has failed to act on.

With the benefit of being the new kid on the block, Shipton gets to use the increased powers and money to show the way ahead.

Well, maybe, because Hayne is yet to lay down his prescription as to what will be the best way to construct the regulatory armour and who knows whether ASIC will be left untouched.

The issue that got Shipton into some difficulty was the infamous NAB introducer loans, used by the bank to pay folk like real estate agents who took new clients to the bank’s home loan division.

Some of these new clients were given dodgy loans and NAB had self-reported the problem two years ago, and again later as the evidence of potential problems grew even larger.

The loans were the stars of earlier work before the commission and will no doubt be part of the interrogation of NAB boss Andrew “Batteryman” Thorburn next week, along with his Fiji holidays.

After the appearance before the commission, ASIC had another meeting about the introducer loans and what it should do about them.

According to the note of the meeting, enforcement boss Cathie Armour suggested issuing an enforceable undertakingwith a community order against the bank — the idea being that would show everyone ASIC was on the job.

But this was not the sort of action that met with the “tough cop on the street” image Shipton had been selling.

It was also something he confided he didn’t agree with.

To make matters worse, he tried to explain around the issue, confiding that the email’s quote “was not an official record of the meeting … it was a record”.

Shipton had stepped into the mud earlier in the exchange by suggesting that the fact NAB had issued breach reports was a sign the bank was being helpful, which ASIC could maybe take into account in considering what action should be taken.

This, too, was not the “tough cop on the beat” and counsel assisting Rowena Orr QC wondered why handing in breach reports that were required by law could be considered as a positive point in the bank’s favour.

After all, it was a legal obligation.

Shipton danced all around this one, maintaining that being helpful was a relevant issue.

The introducer loans, it seems, had been self-reported by the bank two years ago and, based on ASIC’s actions, were only considered heinous when they became a star issue at the commission.

Orr also questioned just how often ASIC had given the big banks advance notice of potential enforcement action and just why it though this was necessary. Once again, the commission’s value in placing a spotlight on the lack of regulatory oversight has proved invaluable.

Shipton did stress several times throughout yesterday’s appearance that he wanted more timely action.

This, it seems, includes deputy Daniel Crennan’s review of enforcement, which is now aimed for completion by the middle of next month, to give Hayne’s team time to include it for consideration in their final report.

It won’t surprise many to learn that ASIC past, present and future didn’t exactly shine in yesterday’s hearings.

Nothing to fear here

Nicholas Moore need not have feared his appearance before the banking royal commission yesterday, as he gave a tutorial on how to run a financial services company rather than endure a grilling.

The key to Macquarie’s success centres on longevity, which creates a partnership between staff and the firm.

Cross the line and you will be shown the door, but do the right thing and you, too, have the chance to earn $19.7 million a year, just like Nicholas did last year.

He also owns 3.1 million or so Macquarie shares, worth about $352m, so the pay system has worked for him — as it has for Macquarie shareholders, based on an outstanding record.

Moore confided that the Macquarie pool was based on profit, not bonuses on revenue as applies elsewhere. This means you got paid on outcomes, not output, and it works better.

Asked by counsel assisting Michael Hodge QC if the pay was worked out on “intuitive synthesis”, commissioner Kenneth Hayne had to interject to note that that term was used to apply to criminal sentences. Chuckles all around, but basically Hodge’s term was right.

The interrogation started with an enforceable undertaking in 2012, with no mention of the recent concerns raised about taxes in Germany.

Moore, with forensic detail, explained the result of the 2012 snafu, which was basically bringing the full force of the Macquarie risk management system over the broking unit. This meant heads were chopped, internal audits were brought in for regular checks, central office risk controls were imposed and the third and most effective line of defence was staff accountability.

In stark contrast to the mainstream banks, Macquarie imposes strict accountability on staff.

If you don’t do your job well, then there are consequences.

Macquarie isn’t the only house that aims to retain its executives for the long haul, with UBS another keeper.

It works because people trust the system, so the variable pay formula works over time and everyone trusts they will be looked after.

Controlling outcomes

The Myer defence team was chuffed that Solly Lew finally made clear “we have no interest in making a takeover bid”.

As this column has made clear, the last thing Solly wants to do is assume the roughly $2 billion or so in lease obligations on Myer’s books. Far better to get board control. That way he can ensure the Lew interests are looked after for all shareholders to benefit.

The system is supposed to work in a way that says you get control after you pay a control premium … details, details.