Just how weak the Australian Securities and Investments Commission is — and the new corporate crime penalties Scott Morrison was boasting of last week — has been demonstrated by US regulators in the latest Wells Fargo fine.
On Friday night, the giant US bank copped a US$1 billion penalty. The fine was levied for selling people car insurance they didn’t need and charging fees on mortgages that were not taken up (sound familiar?). It’ll be split between the Office of the Comptroller of the Currency, the main US bank regulator, and the Consumer Financial Protection Bureau. The fine is the largest ever imposed by the CFPB (and its first under the Trump administration).
Scott Morrison’s new fines, unveiled to great fanfare, selective media drops and Get Tough rhetoric on Friday, stop at just over $200 million. A pittance.
Wells Fargo’s $1 billion was on top of last year’s US$185 million fine for creating fake accounts. Regulators also forced the bank to replace directors on its board and froze its balance sheet at end of 2017 levels for an indefinite period of time.
ASIC has yet to force out a chairman, CEO or board member of a major Australian company, even in a sector like finance where ASIC itself has readily admitted there are major problems. Financial planning was a “target rich environment” for the regulator, one executive said back in 2014, and they’d known that since the turn of the century.
But ASIC simply let the banks and financial planners break the same rules over and over again. In some notorious cases, such as Commonwealth Financial Planning, it actually took multiple major breaches before ASIC would even impose an enforceable undertaking on a major corporation. As for actual litigation — pfffft. You kidding?
Only public shame and investor anger has forced anyone out here.
There’s a good test you can apply to financial regulation in Australia. When was the last time you heard anyone complain about ASIC being too heavyhanded? Most business people are whingers by nature — they see regulation as a painful impediment to making money, and regulators as useless interfering bureaucrats. But the big banks and AMP have never jacked up about ASIC. That’s because they haven’t needed to — ASIC had no interest in regulating them — and even if it ever developed a spine, the penalties provided by parliament for it to inflict on corporations were woefully inadequate. And they still are.
We hear a lot from the Business Council, and the government, and peak industry lobby groups, about the need to create a welcoming environment for investors (usually by tax cuts and slashing wages and conditions). What signal does it send to investors when the rule of law is consistently trampled on by the biggest corporations in the country? What is welcoming about an investment environment where the corporate regulator refuses to take on big corporations even when they routinely and systematically break the law?
The problem goes much wider than dodgy financial planners and the bank executives who encouraged them.
The issue goes back to the 2001 financial services reform act that established ASIC.
AISC has to work with all parties including its role representing consumer interest to establish and interpret regulations and needs everyone in the tent to do this successfully. At the same time it has to enforce the regulations so serious conflict of purpose.
Other jurisdictions have a separate enforcement body full of prosecutors who just do enforce and prosecute and have no need to keep every one on side. A solution is to leave ASIC to do what its does moderately well and transfer enforcement somewhere else. Maybe the AFP has a role here with a white collar division that could investigate and prosecute breaches of regulations across financial services, tax, wage fraud etc etc.
Down the track as all is revealed, hopefully the commissioner will invite the titans of the australian business community who chair the boards of these financial institutions to take the chair in front of the commission and walk them through the regulatory and possibly criminal failures of the companies they oversee and ask the relevant questions about their culpability in all of this. Whether to them it was just the business model and everyone knew.
Thanks BK and GD.
I’m starting to wonder if ASIC exists only to pretend that regulation happens.
ASIC is a tame, blind poodle. Exactly the sort of regulator Australian business wants, and one riven with conflict of interest when it has a formal programme of secondment from the very businesses it is meant to regulate.
It needs balls of steel and great big nasty fangs. And the supposed “Great Big New Fines On Everything” need to be uncapped. Then we can listen to big business squeal. The loudest squeal of all will be when a former CEO drops his cake of soap in the showers in Long Bay, and that squeal will probably be the one that changes Australian business culture for the better.
… or there really was a Wonderland, Alice?