In its interim report, released on Friday, 28 September, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has criticised the Australian Securities and Investments Commission (ASIC) over its enforcement of misconduct from financial services entities.
Commissioner Kenneth Hayne stated: “When banks have disclosed, or ASIC has otherwise learnt of, misconduct, ASIC has almost always sought to negotiate what will be done in response.”
The commissioner acknowledged ASIC’s use of its banning powers, but criticised the regulator’s limited use of court action against embroiled entities.
“Rarely has ASIC gone to court to have the defaulting party penalised. The criminal prosecutions that have been brought have all been directed at individuals. Civil penalty proceedings have seldom been brought,” Commissioner Hayne said.
Commissioner Hayne accused ASIC of too often entering into negotiations with accused parties, which go on to settle an issue through the payment of a financial penalty without having to make an admission of guilt.
“ASIC has issued infringement notices. But by paying the infringement notice the entity makes no admission. It is not taken to have engaged in the relevant contravention,” Commissioner Hayne continued.
“Yet, ASIC and the Commonwealth are prevented from starting a civil or criminal proceeding in relation to the contravention that caused ASIC to issue the infringement notice.”
In response to the commission’s report, ASIC chair James Shipton acknowledged the commission’s concerns.
“ASIC notes the report’s serious and important observations of ASIC’s role as a regulator,” Mr Shipton said.
“ASIC will carefully consider these observations, as well as the broader findings in the report, and will respond fully in its submission by 26 October 2018.
“ASIC will continue to assist the royal commission and to work with the government, the Parliament and other regulators to build a stronger legislative, enforcement and regulatory framework with tougher penalties.”
Prior to the release of the interim report, Treasurer Josh Frydenberg was also critical of financial services regulators, including ASIC, claiming that they “have a case to answer”.
“[The] regulators do have a case to answer because in many cases they were aware of this conduct,” the Treasurer said.
“I am asking the questions as to why they didn’t stamp it out and why they didn’t hold those responsible accountable.”
Meanwhile the report was less damning of its findings into SME lending, suggesting only minimal changes are needed in the sector and acknowledging the introduction of a new banking code of conduct.