Andy Schmulow argues that the controvesy surrounding ASIC and its handling of the Commonwealth Bank have seriously damaged the financial planning industry and left few people deserving of any real credit.
The scandal engulfing the Commonwealth Bank (CBA) and the Australian Securities and Investments Commission (ASIC) does no one any good - least of all financial planners who work hard to serve their customers, and who scrupulously put their customers’ best interests first.
The facts become more tawdry with every passing day. ASIC has failed demonstrably in its remit, and has let down the Australian public badly.
First, ASIC failed to act upon the voluminous information provided to it by whistle-blowers, who placed themselves and their careers at risk. Second, ASIC failed the victims of the CBA financial planning division, who were desperate - precisely the people that ASIC was created to protect. Third, ASIC allowed itself to be misled by CBA as to whether there was a problem at all.
For a Commission charged with investigating malfeasance, to have placed such faith in a bank, where there was prima facie evidence of criminality, is both depressing and pathetic. Under questioning, an ASIC deputy commissioner conceded he was concerned that legal advice to victims would be prohibitively expensive for the CBA! Not, mind you, concerned with the costs to consumers of CBA fraud.
This line of reasoning is a palpable disgrace. Nowhere in ASIC’s remit are they responsible for CBA’s balance sheet. ASIC’s priorities are simply back-to front. For ASIC to claim that it is hamstrung by government funding cuts is nonsense. Compare the work done by the ACCC, which subsists under the same strictures as ASIC, and you will quickly become aware of the difference between the two. But for ASIC to have then misled Parliament is simply unforgivable. [ASIC chairman] Greg Medcraft’s position must now be regarded as untenable, and he should resign. Failing which, he should be sacked. Nothing less will restore confidence in the Commission.
I recommend Alan Fels as his replacement. Further, if funding is so critical, then an incentive compatible system should be considered. I propose ASIC be allowed to keep a portion of whatever fines or damages they levy, as a practical solution both to their funding shortfalls, and as an incentive for them to get on and do their job.
Second, I turn to our government. The Senate Report is comprehensive, balanced and fair. All except for LNP Senator [David] Bushby’s minority report, which he compiled despite his absence on the most important day of testimony: those of the victims and the whistle-blower. Furthermore, it comprises a mere 10 per cent of the Report. Yet within mere hours of the Report’s release, Minister for Finance, Senator [Mathias] Cormann, had digested a Report running to almost 600 pages, and decided Senator Bushby’s minority report was convincing.
Co-incidentally this is the same position adopted by CBA. This smacks of collusion. Mathias Cormann owes the public an apology, as does Senator Bushby. Cormann should then adopt the recommendations of the Report, and stop covering for criminal elements in the CBA.
Third, there is the evident rot in corporate governance at the CBA. Apart from also having misled Parliament, it is of note that CBA’s compliance department identified irregularities in the financial advisory division, reported those, and were overruled by their superiors. This was a catastrophic failure in corporate governance. Add to this the fraud committed in CBA’s home-loans department, and a pattern begins to emerge; a pattern of a bank going rogue.
This is unacceptable for our biggest financial institution. Thus far, apart from those individuals who were directly responsible for criminal conduct, no heads have rolled at CBA. CBA’s Directors, responsible for Compliance and Risk during this period, have a case to answer, as does the then Chairman and CEO. And by answer I don’t mean to shareholders. I mean to taxpayers who underwrote CBA’s liabilities during the GFC.
Ian Narev, the current CEO, has been deafening in his silence. Where is his mea culpa? Where are the details of who in the bank’s executive management have been required to take responsibility? Where are the details of the changes to compliance, risk, and corporate governance, to ensure this never happens again? Where is his apology to the retirees left destitute, and the home-owners forced from their homes by a bank that acted like an aggressive bully? Where is the independently managed compensation scheme that will compensate retirees and home-owners, not just for their financial losses, with interest, but for their emotional and psychological distress? Where is the offer from CBA to compensate ASIC and the Senate for the costs of running this investigation? And why has ASIC not brought criminal charges against each and every person who knowingly provided forged documents in foreclosure proceedings? Instead the CBA has issued a perfunctory press release, essentially still denying wrongdoing, and referencing primarily the minority report.
Even BP, eviscerated for their manhandling of the Deepwater Horizon spill, did a better job than this. When CBA, ASIC and the Finance Ministry is bested by a petrochemical company, you begin to get the full extent of how bad this really is.
Dr Andy Schmulow is founder of The Institute for Financial Regulatory Research, and a Visiting Fellow in the Oliver Schreiner School of Law, Witwatersrand University, Johannesburg.