The Productivity Commission was doing so well, basking in the reflected glory of its recent report into superannuation, but now there’s talk of whether putting ASIC inspectors inside our big banks is a good idea.
The notion came from Treasurer Scott Morrison’s embrace of the report. He said in August that he liked the idea of putting a “principal integrity officer” into each of the big five financial institutions, in the same way that chief pilots operate in airlines.
That proposal made up part of an announcement detailing $70.1 million worth of extra firepower for regulator ASIC, including $8 million over two years to put in those supervisors.
As Financial Services Minister Kelly O’Dwyer put it in a press release, ASIC will be “embedding dedicated staff within these institutions to monitor governance and compliance actions”.
The idea has some logic, given the cornucopia of dodginess that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been unearthing, but its effectiveness will depend on whom, and how many, they put in place.
How often have we heard the request that regulators should have more Eliot Ness ‘Untouchable’-type investigators?
There simply aren’t enough grizzled, fearless types to go around but, more relevantly, anyone who gets put into a bank in that role is going to be massively outnumbered, grizzled or not. You’d need half a dozen per insto, at least.
It’s an instructive exercise to stand outside any of the big banks’ headquarters a bit after 5pm as staff stream out, and work out what effect a smaller number of inspectors could manage.
As former HIH royal commissioner Neville Owen said a couple of weeks ago in addressing the Financial Services Council’s annual summit in Melbourne, all assessment of corporate behaviour in large organisations sooner or later comes down to culture.
It’s good to see ASIC getting financially reinforced, particularly given that the commission’s war chest was cut by $26 million in this year’s Federal Budget.
Most of the proposals are sensible, particularly the biggest one, which is $26.2 million of extra funding for litigation.
I had to sit through the notorious ASIC v Rich case over the collapse of OneTel, which was thrown out after four years by Justice Bob Austin in 2009. He found a raft of reasons why ASIC had failed to prove its case but part of it was because the regulator had taken a shortcut in using the same independent expert in two different circumstances, thus creating a conflict.
The episode must have blunted the regulator’s appetite for courtroom wrestling. It had a preference for avoiding court actions wherever possible after that. Many well-resourced litigants must have allowed themselves a smile when they realised ASIC might be even a bit gun shy about initiating proceedings.
The other proposed uses of the $70.1 million all sound pretty sensible, too: spending $6.8 million to create a corporate governance taskforce for proactive and targeted reviews of failings in large listed companies, for instance.
Then, to quote the minister, there will be $6.6 million “to implement the government’s reforms to whistleblower protection laws, so ASIC can better receive, assess, triage and address whistleblower disclosures about misconduct”.
It’s a worry when a government passes a law and then gives the regulator the resources to enforce it, rather than doing it all at the same time, but it’s progress of a sort. Whistleblowing will remain a perilous exercise until proved otherwise.
There’s also money to promote Australia as a world leader in regulatory technology, something we have been in the past, due to innovations in sharemarket surveillance.
The throwaway line at the end was that some of the remaining $16.5 million would be spent “ensuring compliance by licensees and financial advisers with the Future of Financial Advice laws”.
In that instance, I sense a stable door going clunk, but the measure should at least make it easier to keep the next horse where it’s meant to be.
Overall, then, these measures are a step in the right direction but you’d want to see some real clout in the “principal integrity officer” scheme as proposed.