ASIC seduced by big end of town

http://www.abc.net.au/pm/content/2014/s4034059.htm
ASIC seduced by big end of town

Ian Verrender reported this story on Thursday, June 26, 2014 18:14:00
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MARK COLVIN: Ian Verrender is the ABC's business editor. He has been following this story very closely.

Ian Verrender joins me now.

So we've heard Pat McGrath's report. Is this a tougher Senate report than you expected?

IAN VERRENDER: Absolutely.

It's one of the toughest reports I think I've ever seen in my life. It's an absolutely damning indictment on both the Commonwealth Bank and the corporate regulator.

MARK COLVIN: And why is it so much tougher?

IAN VERRENDER: It, well, to start with they call for a royal commission. They seem to have absolutely no confidence in ASIC's ability to regulate the industry. It's a damning indictment on the Commonwealth Bank and the way it's overseen its financial planners. Not only were they aware of the financial planners' actions, they were rewarding them and - not just keeping them employed - but rewarding them for their actions, which clearly contravened the law.

MARK COLVIN: How could the regulator have been, what's the word, sucked in, in such a way?

IAN VERRENDER: Yeah, seduced, I think is probably a better way. I mean, here are some of the descriptions that this report describes the regulator: "timid", "hesitate regulator", "too slow to act", "too ready to accept uncritically the assurances of a big institution". They were just completely subsumed by the big end of town, and this has come out in other submissions to this inquiry as well.

I've spoken to a former ASIC employee, a lawyer by the name of James Wheeldon, who gave a submission to this inquiry, who worked for ASIC for a brief period of time and was absolutely appalled that the financial services industry were actually making recommendations. They had somebody who'd been seconded into ASIC and who was making recommendations on behalf of his former employer to the regulator, which were then being put through without any form of oversight whatsoever.

MARK COLVIN: Sounds like a fifth column.

IAN VERRENDER: It's just extraordinary what's been going on here, and, to be honest though, I did not this to be as tough as it is. And bear in mind that just one week ago, we had the Government watering down the financial planning regulations.

MARK COLVIN: I was going to ask about that. In light of that, what is the Government likely to do now?

IAN VERRENDER: Well, you know, they're in a very odd position because on the one hand they're saying that financial planning regulations, the laws that were imposed by the previous government, were too strict, imposed too much red tape, and now, one week later, you have this report that comes out that recommends a royal commission into Australia's biggest financial institution, the Commonwealth Bank, says that the corporate regulator doesn't do its job.

There's a serious conflict here in what goes on. I'd be very surprised, I guess, if the Government does set up a royal commission.

MARK COLVIN: Because they're in the middle of, what they call, a bonfire of red tape. How are they going to react to recommendations for more regulation rather than less?

IAN VERRENDER: Yeah. Look, the crux of this report says that, firstly, ASIC has to do its job. Now, you know, if you had a regulator out there that was open to receiving complaints from the public from whistleblowers, then perhaps this whole situation wouldn't have blown up.

You would have had a regulator that would have stormed into the Commonwealth Bank several years ago, in 2006 through to 2009 when this was all going on, and saying, 'What are you doing? Show us all your records. We're going to go through here.'

This whole situation has been brought about because the regulator simply has not done its job and if you think...

MARK COLVIN: So, hang on, you're saying that they had an adviser inside ASIC from the financial services industry, but they were resistant or closed off to complaints from the public and from whistleblowers?

IAN VERRENDER: Absolutely. They just haven't… and this is not just the Commonwealth Bank. I mean, my previous life as a newspaper columnist, I continually came across cases where you had, I had people calling me up with documents that they'd taken to ASIC and nothing had ever been done.

And if you think back to the financial crisis, you had a series of major corporate collapses there after 2008, and not one person was ever really prosecuted. No one ever went to jail and, you know, not all collapses are a result of corruption, but some of them, a lot of them are just incompetence.

But you had liquidators and receivers having public hearings and criticising the performance of certain executives, imploring ASIC to take action and saying, 'This man has contravened section-whatever-it-is of the Corporations Act. You need to act on this.' Nothing ever happened.

MARK COLVIN: And, what about this budget cut that they've had to take? Well, presumably, in view of what you've already said, there's no way that that can make the situation better.

IAN VERRENDER: ASIC tends to try and excuse its behaviour because of insufficient resources. I don't think resourcing is actually the issue. The issue is a complete unwillingness to do its job.

Now, one of the recommendations or a whole series of recommendations, and there were 61 of them, in this report, is about ASIC doing less mundane work and putting that out to self-regulation and industry, and concentrating its resources into enforcing the law, which is really what it is supposed to be: a legally enforceable organisation.

MARK COLVIN: The ABC's business editor, Ian Verrender.