Time for ASIC to end the chest-beating

17 June 2019

In the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Australian Securities and Investments Commission (ASIC) has been talking tough with the message being of an approach based on “why not litigate”.

Looked at cynically, the regulator could be viewed as over-reacting to the harsh criticism directed at it as a result of the Royal Commission which pointed to a number of instances where ASIC, in the past, was seen to have adopted a facilitative approach in dealing with the transgressions of financial services firms rather than having reached into the full armoury of its legal options.

That point was further driven home by the comments of the Commissioner, Kenneth Hayne, who reinforced that the starting point for the regulator ought to have been that the law should be obeyed and enforced and that “adequate deterrence of misconduct depends upon visible denunciation and punishment”.

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Little wonder, then, that when ASIC chair, James Shipton, consulted with his senior executives about how the regulator should be seen to be dealing with the Royal Commission’s criticisms they determined upon the “why not litigate” messaging with ASIC’s relatively new deputy chair and Queen’s Counsel, Daniel Crennan, later suggesting that there was likely to be substantially less use made of enforceable undertakings (EUs).

It is in these circumstances that ASIC needs to be careful that it is not actually undermining one of its core legislative objectives as spelled out in the Australian Securities and Investments Commission Act 2001: “In performing its functions and exercising its powers, ASIC must strive to: maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy”.

Arguably, by adopting a largely adversarial legal approach, ASIC is in danger of increasing costs and, by definition, putting at risk commercial certainty.

What is more, ASIC’s senior executives should not be too quick to relegate the use of EUs in circumstances where the failures identified by the Royal Commission could be substantially attributed to poor administration and oversight rather than the actual utility of EUs.

And, as the Law Council of Australia earlier this month pointed out, it is not helpful or appropriate for a regulator such as ASIC which, like the Australian Taxation Office (ATO), has model litigant status to, on the one hand, adopt a “why not litigate” approach but on the other hand have a senior executive and lawyer questioning the manner in which complex issues are handled by the courts.

Over coming months ASIC is expected to announce actions against individuals directly related to matters raised during the Royal Commission and, in a number of instances, the consequent court proceedings are likely to be long and complex.

It is in this context that the Law Council was quite right to note that “threats to parties for exercising their legal rights have no place in our justice system, especially from a regulator entrusted with the important role of promoting the rule of law”.

It is time for ASIC to cease its post-Royal Commission rhetoric and get on with the job of regulating. 

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First step should be getting their own house in order and ensuring consistency and a more even formal approach to all their affairs. There have been instances where people have been banned for life or for long durations for potentially minor issues (over-insuring clients, if that even is possible or using templated advice but with no discernable major detriment or client complaints lodged), and other groups get away with no issue, such as industry planners whose advice has not ben properly investigated as well as banking managerial staff, failed product providers etc.

ASIC for all its empty chest beating appears to be the school yard bully boasting how powerful it is when beating up small AFSL or individuals with little resources, but run away when faced with bigger opposition.

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