By Lucinda Beaman
The corporate regulator appears to have entered a period of reflection, with its chairman telling a parliamentary hearing that the collapse of planning group Storm Financial had prompted a series of questions over the Australian Securities and Investments Commission’s (ASIC’s) response to the matter.
In its statement to the Senate Standing Committee on Economics yesterday, ASIC posed the question: should it have prohibited Storm’s aggressive leverage model?
“Or to put it another way, is ASIC now acting after the horse has bolted?”
ASIC said while it had been concerned with instances of aggressive leverage, and had issued general warnings to retail investors, “it does not have the power simply to act to prevent these models”.
ASIC said its powers are “framed around a presumption of compliance by licensees” with a law that requires a reasonable basis for tailored advice.
“ASIC would need to have been able to establish systemic (not isolated) breaches of the law or regulatory failures before it could have altered, suspended or cancelled Storm’s AFSL [Australian Financial Services Licence],” the statement said.
Furthermore, ASIC said the bull market “masked any potential shortcomings in an aggressively leveraged advisory model”.
“Consider the difficulty of ASIC trying to close down an advisory model in 2006 or 2007 which was producing high returns for its investors.”
And, because margin loans are not currently regulated under the Corporations Act, ASIC said its ability to deal with mortgage and loan issues “is limited”.
The statement goes on to question whether enough was done to warn Storm’s clients, with the regulator asking itself, “Could we have done more?”.
As a result, ASIC is reviewing its contacts with Storm and complaints made about the group.
ASIC chairman Tony D’Aloisio said at the hearing that Storm Financial initially came to the regulator’s attention during routine surveillance of Queensland planning firms prior to 2006. He also admitted that ASIC had received complaints about Storm Financial as early as 2006.
But it was not until several complaints were made in October last year that the regulator began work which led to the launch of an official investigation on December 12, 2008.
The regulator said “neither the earlier surveillance, nor more recent complaints, provided any ‘smoking gun’ for ASIC”.
“Whether, with the benefit of hindsight, they should have is clearly a matter we are examining,” ASIC told the Committee.
