The need for a strong financial system justifies ASIC’s ‘softly softly’ approach

The Australian Securities and Investments Commission has justified its unwillingness to try to prosecute corporate criminals by insisting it must focus on the “efficiency and strength” of the financial system as well as its “fairness and integrity”.

Appearing at Senate estimates last night, new chair James Shipton and veteran commissioners like Peter Kell were questioned by Greens senator Peter Whish-Wilson about why the community perceived that ordinary criminals go to jail while corporate criminals get off lightly. According to ASIC chair James Shipton,

Our aim when we’re exercising discretion is ultimately to get to a point whereby Australians have confidence in the integrity, efficiency, strength and fairness of the financial system. And when we’re presented with misconduct we’re seeing very clearly in the royal commission we are exercising professional judgment, regulatory judgment in relation to the particular cases and the particular circumstances with the ultimate goal of that efficient, fair and strong financial system.

That is, fairness is only one of three goals for the corporate watchdog. The “tough cop on the beat” enforces laws with an eye on maintaining the strength and efficiency of industry, as much as deterring and punishing wrongdoing.

This perhaps accounts for why ASIC continues, inexplicably, to defend enforceable undertakings despite clear evidence that they do little or nothing to prevent misconduct. When asked by National senator John Williams what impact a 2006 undertaking had on AMP’s subsequent misconduct. “They can be very effective tool,” Kell replied, but admitted “it’s obviously been extremely disappointing to see the conduct of AMP in recent times … it’s difficult to imagine an EU from 12 years ago could have prevented some of those things.”

Earlier, in his opening statement, Shipton seemed to acknowledge that ASIC’s “current supervisory approach” wasn’t sufficient. It consisted, Shipton said, of “risk-based surveillance, or reviews, aimed at a particular firm, and thematic reviews aimed at a sector or subsector”.

While these approaches can be very effective, they can be less intrusive and are generally based on sampling. These techniques will continue to have an important role to play. Nevertheless, over the coming years, we will seek to improve our work by adopting new supervisory approaches for Australia’s largest financial institutions and important sectors. This will involve more intensive, day-to-day supervision, with better co-operation between our fellow regulators, especially with APRA. This approach will be more intrusive, enduring and, with onsite visits, more physical.

Remember that ASIC has known for years that its co-regulatory approach and industry surveillance was badly lacking, especially in the finance industry, described as a “target-rich environment” by ASIC back in 2014, when a Senate committee forensically dissected its inadequacies. That Shipton is only now flagging that “over the coming years” a more “intrusive” approach will be adopted augurs poorly for a significant improvement in the proactivity of ASIC. And its willingness to view fairness for consumers as just one item on a regulatory checklist doesn’t leave much hope that the fabled “tough cop on the beat” will appear any time soon.