James Shipton
James Shipton should be the last chair of the Australian Securities and Investment Commission (ASIC), a regulator unfit for purpose, led by a man who simply doesn’t seem to get it.
Last week’s extraordinary speech by Shipton to a superannuation conference was equal parts Pollyanna-ish about ASIC’s achievements and “its international reputation as a world class regulator” (he actually described it that way), and managerialist bromides.
More alarmingly, Shipton professed himself “surprised” about the willingness of financial institutions to “turn a blind eye” to the conflicts of interest that have been at the heart of the vertical integration business model, and many of the major scandals of recent years. Apparently, Shipton didn’t pay the slightest attention to scandals like Commonwealth Financial Planning during his years overseas, and no one bothered briefing him on what one of his now-colleagues described as the “target rich” environment of financial planning, when he arrived at ASIC. Rarely has a major regulator so obviously simply not got what the community now expects of it.
Perhaps that’s why he clings to the co-regulatory model so strongly. Yet again, he devoted a speech to explaining how it was up to the industry to fix its problems, to restore trust, to change its culture, while the regulator would merely “stand ready” (a favourite phrase of Shipton’s, it seems) to intervene if they didn’t. Perhaps that’s why he thinks enforceable undertakings are an excellent tool for dealing with massive misconduct.
But it was a tad difficult parsing the logic of Shipton’s speech, given on the one hand he was claiming to be shocked — shocked! — that major financial institutions were screwing their customers so egregiously; on the other, he was reeling off what he considered a list of ASIC’s achievements. “Since 2011, more than 800 people have been banned from providing financial services or credit,” he boasted. Count ’em — 800 over seven years. Yippee. Judging by the royal commission hearings, there was another 8000 happy to take their places.
If you want to see how a real regulator handles spivs and shonks, take a look at the ACCC. The ACCC went after Japanese motor parts company Yazaki for price fixing with another Japanese company. Last year, it won a $9.5 million fine, but decided that wasn’t big enough, so it appealed it, and this week won the biggest ever cartel fine: $46 million.
It’s not a patch on the US response, which was to fine Yazaki over $630 million and jail some executives, but we know the Americans take corporate regulation far more seriously than we do. The ACCC is the best we’ve got.
Last week, it took on the New South Wales government, voicing competition concerns about toll road giant Transurban being allowed to buy an interest in the WestConnex road project in Sydney, the single largest infrastructure project in the country. Transurban already dominates Sydney’s toll roads, with seven of the nine concessions in the state. We will know the ACCC’s decision by July 9 — another contrast with the dilatory ASIC, which is so slow penalties relating to Storm Financial were still being handed out in March this year, nearly 10 years on; it was still chasing penalties against the AWB spivs (remember them? You know, from the Howard years?) last year, more than a decade on.
The ACCC example is apropos, because if it wasn’t for the Howard government’s Wallis inquiry, it would be the ACCC that would be going after the crooks in the financial planning industry and the banks. Ian Harper, author of the Abbott government’s competition review and a member of the Wallis committee, a month ago ‘fessed up that the inquiry had got it wrong in deciding that a specialist body should handle consumer finance issues, not the ACCC. He also thinks they went too easy on the regulatory model. “We placed too much faith in the efficient market hypothesis … With the benefit of hindsight and what’s been coming out at the royal commission, the weaknesses of the specialist approach we took to regulation are also evident.”
Consumer finance regulation should be handed to the ACCC. ASIC can go back to being the Australian Securities Commission and focus on corporate regulation, where it has only partly, not completely, disgraced itself. And as for Shipton, he can always go back to the “finance profession” he proudly claims to be a member of.
Correction: The article previously referred to Toyota being fined following ACCC action. In fact it was the Yazaki Corporation, and the text has been updated to reflect this.
Fair enough criticism, though he states he has only been in the job 3 months.
If no criminal and civil penalties are commenced in the next 3 months throw the prick out.
He needs to have his priorities reinforced for him, his beloved financial service sector is full of scammers and thieves… his job is to eliminate them and enforce bank/ financial services compliance to the regulations and law
Bernard, Glenn, I think your analysis has been superficial here.
Actually to be blunt, I don’t see what analysis you’ve used: you didn’t supply any reasoning it all, and seem to be knee-jerking.
‘ASIC is wrong by design’ is a conjecture. It’s not hard to test, and the onus is on you to test it before flying off the handle toward possible solution. If ASIC is wrong by design, then by definition, the principle instrument for agency design is government legislation. Since you believe we have an example of a well-designed agency in ACCC, you need only show how how the legislation underpinning ASIC is weaker than that for ACCC, and explain why it’s inadequate for its current task. That diagnosis would offer two choices: amend the legislation, or shift responsibility to another agency through Machinery of Government as you suggested. A diligent analysis could corroborate your recommendation by showing that historically ASIC, has always been weak regardless of the government it has served, how it has been funded, or who staffed it.
You have presented no such evidence.
And regardless of whether we can find a problem with legislation, then there are four other possible reasons to consider:
1. It’s poorly funded (I believe that to be true);
2. It’s poorly staffed (I’m willing to believe that true);
3. It’s poorly-equipped for case investigation (modern legal cases require first-rate electronic record-keeping and multidisciplinary collaboration; ASIC is not among the federal agencies known for that capacity) ; or
5. It’s not located in a place suited to its work (much of ASIC is located in Traralgon, in the Latrobe Valley — an economic asset to the area, but miles from key places you’d want to visit to investigate suspected corporate malfeasance.)
Any of these could offer alternatives that might refute your conjecture. You’ve tested and eliminated none of them.
Finally, you haven’t tested whether ACCC would be a suitable home for any of ASIC’s responsibilities, or even stipulated the criteria by which you’d test that. Your magic arm-waving is worthy of some junior minister new to a portfolio, and the sort of thing you might criticise yourselves if a junior minister had kneejerked with as little evidence as you’ve collected.
And sadly, most of the information you need as evidence is publicly available. You shouldn’t need readers to tell you to read and digest it before publishing unsubsantiated and potentially ignorant opinion. Your professional pride and journalistic ethics should have prompted you to do it first.
All topics in politics have their own history. What ASIC is purported to regulate wasn’t considered as an issue until circa the latish 80s. Indeed, until about time “white collar crime” was not considered a big deal; indeed white-collar crime was deemed the perfect
crime. Perspectives in this regard changed when in the last days of April 1982 the director of a company known as ‘Computicket’, that barely had a life of six months, was convicted of fraudulent activity that occasioned the collapse of the company. The conviction did require an interval of almost five years to secure. The prosecutation did have to prove “intention to defraud”. Mere incompetence, however gross, could not be
considered as fraud. To this extend the “assumption” from the “big end of town” has been : “is an institution such as ASIC necessary (for professional people)”?
For those irritated by the remarks of Shipton, viz., to “stand ready” it is open to the media to enquire just what the phrase “stand ready” is intended to imply or what actions, by ASIC, would be deemed to be sufficiently “corrective”.
Let’s assume, for the moment, that we live in perfect world : would prosecutions necessary follow against the directors and the CEOs of the large finance houses that had been culpable in extracting fees from estates of the deceased or providing negligent or self-serving financial advice? These questions need to be addressed prior to messing about with either abolishing ASIC or constructing another such body in its place. I also tend to agree with the “hygiene-like” observations of Ruv being plausible but only a strict enquiry could adjudicate upon the matter.
As an aside the foreseeable class actions will likely take care of themselves (with or without) an ASIC-like body in existence.
From what I understand, Kyle, much of ASIC’s function is dedicated to maintaining business registers and licensing, which is why it can operate as easily from the boondocks of Traralgon as anywhere.
ASIC also has an investigations arm, but I understand that its principal infrastructure is based on maintaining registries, and perhaps your comment about the change in corporate regulation in the 1980s pertains. While I haven’t worked directly with ASIC, in my experience all regulatory and policing agencies are caught in a cleft stick of ‘damned if you do and damned if you don’t’: if you don’t investigate and prosecute something bad before it gets egregious, you’re criticised. Yet investigate and prosecute but fail to convict and you’re criticised too. Thus, the meticulous assembly of legal matters is critical, and requires modern and dedicated information infrastructure. If you can’t assemble, search and collate the necessary materials or have no assurance of data quality then you might be better off politically swashing the buckler, pulling fierce faces and muttering ‘Coregulation’. From background industry knowledge, I’m not confident that ASIC yet has the modern infrastructure it needs to chase the vagaries of dodgy directors, Phoenixing and other corporate malfeasance — which may link to both funding and corporate skills development.
Perhaps ACCC does, which could make a MoG-move sensible. Or perhaps ACCC doesn’t have the infrustructure or skills it needs to do ASIC’s job — which would make a MoG-move just swapping Band-Aids.
Potentially, there’s an assiette of interesting and related conversations to be had here. It’s okay if Bernard and Glenn haven’t the knowledge to progress them, but they should have the professional integrity to know it, and ask questions instead of posing answers unqualified by supplied evidence.
Glad to see phoenixing get a guernsey. But ASIC isn’t the least bit interested in this four billion dollar annual blight on the economy. Phoenix company directors – a more odious species than any banker we’ve so far seen paraded before the RC – won’t ever need to be bothered even having to think about penalties, let alone negotiating them. They’re so far beneath ASIC’s radar they’re never even noticed. And the liquidators who coach them in how to wind up their bankrupt companies and dump their creditors on Friday afternoons before resuming business as usual on Monday mornings under brand new Australian Company Numbers (willingly supplied to them for a fee by ASIC) understand that very well. This most odious of corporate malfeasances is worthy of a Royal Commission all of its own.
Don wrote: ASIC isn’t the least bit interested in this four billion dollar annual blight on the economy
Hi Don. I’m glad you recognised it.
I mentioned phoenixing specifically because it has been publicly-stated that ASIC and the ATO will be tackling it.
However, it requires new policy (passed as legislation in 2017), new business systems (yet to be developed, so far as I know), and in all likelihood, better data-sharing and data reform between Australian Company Numbers maintained by ASIC and Australian Business Register maintained by the ATO.
Moreover, though I haven’t seen ASIC or the ATO state it, this is the kind of work where social network analysis could help reveal cliques of dodgy directors and liquidators worthy of deregistration: that is, people not simply behaving recklessly, but serially exploiting insolvency to avoid consumer, investor and tax debt.
It could also benefit from joining up the kind of data that (for example) the ATO already keeps about business bank accounts as parts of its tax compliance and automation systems.
But to use such analyses you need to establish software, skills and methods that may not already exist; you need new funding to sustain it, and the ability to carefully trial how it works in Australia’s business environment before using it routinely for prosecutions, chasing tax-debt and deregistrations.
The risk of overcommitting to early prosecution, conviction and recovery targets for the sake of budgetary or public good ‘announcables’ is precisely the same risk we have seen in (for example) Robodebt or the ATO’s alleged persecution of small business.
I’d be willing to be persuaded otherwise, but I’m of the view that this is not work the ACCC is ready to do. The ACCC doesn’t maintain these sorts of registries; doesn’t inter-operate with the ATO in this way; almost certainly doesn’t have the knowledge of business behaviour or registry data that ASIC and the ATO have; and probably shouldn’t have access to business bank data.
So whatever work needs to be done to strengthen Australia’s securities and investment regulation, I think it’s inseparable from business registration and tax compliance. You could make a case for stronger legislation, closer interaction between ASIC and the ATO, better training, refreshed systems, new blood, colocation, and more investment in either or both, but it’s hard to see a close fit with the ACCC when the latter is all about pricing and corporate ownership.
A little more for anyone interested: a significant chunk of ASIC’s funding comes in a manner similar to that of other licensing agencies like the Therapeutic Goods Administration or IP Australia: they work on a user-pays, cost-recovery basis. If you want to be licensed, you pay a fee designed to help cover the administrative and infrastructural costs of licensing you.
That’s fine: it’s a good way to ensure efficient expedition of ‘Business As Usual’ licensing, but can also expose an agency to strategic capability risk as its economic and policy environment changes.
Cost-recovery is typically subsistence funding. There’s seldom spare budget to renew business systems, and nothing like the kind of money needed to build new strategic capability (such as the kind you might need to track and prosecute subtle and changing forms of corporate malfeasance.) Moreover, you can’t go to the entities you regulate and demand a hand-out designed specifically to build investigation systems: they’ll scream that the ‘good guys’ are subsidising prosecution of the ‘bad guys’, and it’ll be in all the newspapers next day.
Such money, if needed, must come from the government in the form of New Policy Proposals, submitted as part of the Portfolio Budget Submissions, and put in contention with the submissions of other agencies: such contention is very tight, and can be politically sensitive.
So if your agency happens to be one that the government of the day is ‘squeezing’ — whether for budgetary, political or ideological reasons — then you may be in a position of being unable to do your job yet (possibly) unwilling to criticise the government for not funding you to do it (and thus admitting to industry that you’re more powerless than you want them to believe.)
I don’t know for sure that this is true in ASIC’s case, but I’ve seen other regulatory agencies put into such double-binds: and we know ASIC has lost funding; that its chiefs have been increasingly tentative; that it is currently on a fee-for-service model; and that the knowledge-driven job of corporate investigation is very different to the process-driven job of license administration.
At the very least, there’s more to be investigated and considered here.
Bernie/Glenn,
I’m applauding. Great article. I seriously do not understand the apologists and sycophants for ASIC (and the Banks). They obviously just can’t see their wrongs. Serious change and very strong repercussions are now required. Rip the band aid off so some semblance of healing can begin.
It’s past time ASIC was ASUP’d and replaced by something with vision, teeth and on a longer chain.