Tasmanian Liberal Senator, David Bushby, who is chairing the Senate Committee reviewing the Australian Securities and Investments Commission (ASIC), made a very good point when he said that nothing in the Future of Financial Advice (FOFA) changes will prevent a repeat of the collapse of Storm Financial.
Given that it has been widely acknowledged that Storm Financial ticked all the regulatory boxes and that its collapse was based more on flawed strategy than poor compliance, Bushby is absolutely right.
He is also right when he suggests that the FOFA changes will not prevent a repeat of the Trio/Astarra collapse – something which was owed to blatant criminality.
The Government and the industry funds made much of the collapse of Storm Financial as an exemplar of the failings of the financial planning community and providing justification for the FOFA changes.
In reality, however, it was not. If anything, it provided proof of the passive manner in which ASIC opted to interpret its regulatory powers.
It was that passivity which undoubtedly prompted Bushby to tell a Risk Management Association event last week that the regulator’s greatest successes “appear to have occurred after money has been lost”.
“To avoid losses occasioned by these sort of failures, we need to consider the role of regulation in addressing issues before the event in combating product and sales excesses, as opposed to mopping up after the event,” he said.
“Again, regulation itself isn’t necessarily the problem – it is ensuring that the regulation applied is appropriate and workable, delivering benefits that outweigh the costs.”
Again, Bushby is right. Some years ago former ASIC chairman Tony D’Aloisio described the regulator as being the policeman who cleaned up the mess after an accident.
However, the recent experience of both Storm Financial and Trio/Astarra suggests that while this may have served to reduce ASIC’s workload, it certainly did not reduce the cost to Australian taxpayers or the investment losses encountered by victims.
Litigation around the collapse of Storm Financial, most of it initiated by ASIC, has already cost taxpayers many millions of dollars. Litigation and compensation associated with Trio/Astarra has cost taxpayers and the financial services industry hundreds of millions of dollars.
So, on the basis of any cost/benefit analysis, it is arguable that if ASIC had adopted a more proactive approach by taking the role of a policeman seeking to prevent an accident before it occurred, the outcome for taxpayers and the financial services industry would have been a great deal better.
There are, of course, cogent arguments which can be mounted against a financial services regulator proactively intervening in the commercial activities of a financial services company, but there exists a growing body of evidence that suggests our regulators have been altogether too passive and too ready to ignore whistle-blowers and warning signs.
