Senate Estimates: Court action ‘urgent’ against large financial companies, says James Shipton

James Shipton warns the regulator has an “urgent imperative” to launch court action against large financial companies.

ASIC Chairman James Shipton. Picture: Britta Campion

Corporate watchdog chair James Shipton has warned the regulator has an “urgent imperative” to launch court enforcement against large financial companies as it looks to bare its teeth after a drubbing at the royal commission.

Appearing before a Senate Estimates committee tonight, the head of the Australian Securities & Investments Commission said a defining lesson of Kenneth Hayne’s banking royal commission was that any organisation – financial or government – needed to understand its culture and what it was projecting itself to be.

“Corporate Australia should know that ASIC has the very clear will to take wrongdoers to court,” Mr Shipton said. “As the Royal Commission found, that is what Australians expect of their regulator. And that is what ASIC will deliver,” he said.

ASIC has tasked 50 staff members with trawling through around 100 referrals, breach reports, and case studies for potential enforcement action, including seven financial advisers who will likely be referred to the Commonwealth Director of Public Prosecutions.

Mr Shipton said the royal commission showed that ASIC “should never be reticent or reluctant” to use court-based outcomes to enforce the law. “Without enforcement….all our other tools lack the credibility to be backed up.”

ASIC this week flagged criminal prosecutions against senior bank executives from almost 40 investigations into alleged breaches stemming from the royal commission and other cases it was reviewing to see if a breach of the law was punishable.

“The root cause of the problem, where the challenge emanated from, is in the financial sector itself,” Mr Shipton said. “The important work of the royal commission is now over. We, like other agencies like APRA, are left on the field.”

He said ASIC staff were up to the challenge and wanted to bring about “a better, fairer, more efficient financial system”.

Deputy ASIC chair Dan Crennan, QC, who has taken charge of launching legal cases against rogue financial companies, told Senators ASIC was looking to litigate against companies quicker, after the regulator had copped flak for acting too slowly in some cases.

While the government is reviewing expanding the remit of the Federal Court to ensure corporate crimes after punishable on a national scale, Mr Crennan said going through with the proposal would be a “useful tool” for ASIC.

Senior executives from ASIC and the Australian Prudential Regulation Authority are currently meeting with Josh Frydenberg as the government considers increasing funding for the financial regulators. APRA will appear before Senate Estimates on Thursday.

Mr Shipton has complained that regulators in Hong Kong, where he used to work, were three times better funded for a financial sector half as large.

ASIC said there were 11 royal commission recommendations that expand its remit even further.

Since October last year, ASIC has embedded employees in major institutions who have already conducted more than 100 onsite interviews of staff “at all levels”, the findings of which have been presented to company chief executives, business leaders and the boards of the institutions.

While ASIC’s embedded officers program has copped criticism over the potential for regulatory staff to become “captured”, the “frank disclosure” of findings to senior management of companies will leave the groups open to enforcement action if they fail to take action to stop or report misconduct.

Mr Shipton also highlighted his decision to leave the financial industry after lamenting the lack of professionalisation in the industry while working for Goldman Sachs in Asia.

When asked by Greens Senator Peter Whish-Wilson as to whether Mr Shipton, who formerly worked for the investment bank in Hong Kong, if he had any involvement in the 1MDB Malaysian sovereign wealth fund scandal, the ASIC boss said he had no oversight of business, strategy development, or regulatory compliance. Mr Shipton was working for Goldman on implementing post-financial crisis financial system reforms.

Mr Shipton said he had encouraged all his ASIC staff to read the book “Billion Dollar Whale”, which focused on the “reprehensible” looting of the Malaysian welath fund and how Goldman Sachs worked on a number of bond issuances on behalf of the fund, because regulators needed to understand “a long list of sordid stories that have been published” about the financial sector.

“You are right to say that I left the financial services sector at that particular point in time. The reason….. was because I believed that finance sector had generally lost its way. I believed it was not serving the community and people as it should be. I said to myself: ‘you have to do something about that’. There was not enough professionalism, it had lost its way and I needed to do something about that,” Mr Shipton said.

“I see my job to limit the future publication of those books. Not because of censure, but because we don’t want those stories to happen,” Mr Shipton said, who also worked as a financial regulator in Hong Kong.

“These stories actually motivate me to be a regulator and I hope inspire others to contribute to finance by serving in a great institution like ASIC,” Mr Shipton said.