Soft deals with banks and inaction after tip-offs — brand ASIC needs a change
- by Admin
- May 26, 2024
It’s the stuff of nightmares: a Panama-based online Ponzi scheme expands its operations into Australia using a small group of Australian promoters and social media to reel in tens of thousands of Australians with the promise of a 1 per cent daily return on their investments.
In less than two years it ends badly. Investors lose their money but the kingpins and promoters get away with more than $100 million.
Alarmingly, the Australians who openly promoted the scheme have moved on to other schemes, says a submission to a parliamentary inquiry into the corporate regulator ASIC and its effectiveness as an enforcement agency.
The inquiry began in October 2022 and next month it will hand down its findings.
It is hard to know whether the final report and recommendations will be a political hot potato or a political fizzer. It depends on whether Labor accepts the report or attaches a dissenting one. The Coalition will also have to decide whether it will take a reform of ASIC to the next election.
But the inquiry’s chair, Liberal senator Andrew Bragg, has made strong noises indicating that he wants significant reform at ASIC, possibly even to split it up.
The inquiry attracted almost 200 submissions. While some of them argue ASIC has done a good job, most are less complimentary — some of them withering.
Former chair’s testimony outlined structural failure to provide support
Issues with ASIC stretch back decades. It was a key reason why a royal commission into the financial services industry was called in late 2017, which found among other things, it had been doing soft deals with the banks and even allowed them to preview ASIC press releases and rewrite them.
Along with raising the usual issues about the regulator’s effectiveness, this parliamentary inquiry examined its culture after former ASIC chairman James Shipton spoke up with a personal account of how ASIC had failed him and culminated in his feeling such despair he contemplated taking his own life.
“I was the chair of ASIC, a law enforcement agency that offered no protection. The system failed me and I need to prevent it from failing others in the future,” he told the inquiry last August.
Shipton was chair of ASIC in 2018 and in October 2020 he voluntarily stepped aside when the federal auditor-general questioned expenses received for an overseas relocation for Shipton to take the job, which included paying KPMG for tax advice. He was later cleared of any wrongdoing in an independent report, and left ASIC in 2021.
His testimony outlined “unacceptable conduct” from a senior ASIC colleague as well as the failure of the regulator to keep him safe during an advertising campaign by billionaire Clive Palmer in November 2020, who had been charged with offences by ASIC during his time.
“From November 2020, I was subjected to six months of intimidatory advertising attacking my character, competence and integrity … They cut me to my core … That was when I wanted to end my life,” he told the inquiry.
He said ASIC, then led by an acting chair, offered no protection or support. “Not one email. Not one concerned phone call. No protective measures. Nothing.”
Shipton used his testimony to call for “structural reform”. He described the governance arrangements of ASIC as “convoluted” and “Swiss cheese” arrangements, saying it doesn’t provide clarity.
Internal survey suggests culture of accountability is lacking
This hoary issue of ASIC’s culture re-emerged earlier this month when ASIC released its 2023 survey on culture, based on the perceptions of 1,056 respondents, representing a 61 per cent response rate.
The report showed that 10 out of 12 outcomes were below desirable levels, including motivation, satisfaction, role clarity and organisational-level quality.
Organisational-level quality, at only 2 per cent, was the lowest of all the marks measured.
While the survey revealed strengths in task facilitation and goal acceptance, the regulator scored poorly in areas such as customer service focus, employee involvement, articulation of mission, goal clarity and upward and downward communication.
This suggests significant cultural issues that need to be addressed. Most staff who join regulators are motivated by a strong commitment to public service. They could earn a lot more in the private sector, which is why they need to be properly cultivated, motivated and engaged.
A recent ad posted by ASIC is a reminder of the pay. The position, for a lawyer to work in enforcement and compliance on a 12- month contract, lists a salary ranging from $87,259 to $97,804 (and 15.4 per cent super), depending on the experience. “A future with ASIC means that your work will contribute to ASIC’s vision for a fair, strong and efficient financial system for all Australians,” the ad says.
Shipton describes the motivation to work for regulators as Public Sector Motivation, a term commonly used by academics. In a working paper titled The Regulatory State: Designed to Fail, he argues that regulators such as ASIC don’t have sufficient accountability.
He also argues that there is too little understanding of what he describes as “the unique cultural and motivational human-capital challenges” within regulators; specifically, how the concepts of public service motivation apply to regulatory bodies.
“Leading a regulatory agency is very different to managing other public and private sector organisations. It requires the understanding of the unique cultural and motivational characteristics of regulators; something that is, unfortunately, underdeveloped.”
In a statement, ASIC chair Joe Longo said culture was a primary focus for him, the commission and executive leadership. He said the survey results highlighted that there were great aspects to ASIC’s culture “such as a strong team dynamic, effective co-operation and a deep connection to our vision for a fair, strong and efficient financial system for all Australians, but that there are areas we can and will improve”.
He said ASIC’s core values were accountability, professionalism and teamwork and noted “we are all working together at ASIC to make it the best place it can be”.
“While culture is built over many years, there is room for improvement in every organisation and ASIC is no different,” he said.
“As ASIC chair it is my job to ensure ASIC is set up to meet the challenges and opportunities that rapidly evolving national and global markets present. I have been clear that my aim is to set up ASIC to be a modern, ambitious and confident regulator. On that point I am unapologetic.
“The findings of the banking and financial services royal commission and the 2022 review of ASIC by the Financial Regulator Assessment Authority highlighted the need for ASIC to reflect on how it operates.”
Shipton’s paper also highlights a lack of oversight. “Whilst nominally many Australian regulators are answerable to parliamentary committees, this oversight mechanism is largely (if not entirely) ineffective,” he says.
He says regulators usually suffer from chronic underfunding and deficient legislative regimes; “they are the orphans of government.”
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Too little, too late
For victims of crime, like the investors of CashFX, the real world experience is ASIC failed to protect them.
“By the time ASIC’s warning was issued in October 2021, the scheme was already on the verge of collapse, and investors were not receiving their payments,” the author of the submission says, noting that the British regulator had issued a warning almost two years before ASIC.
“In instances where a substantial fraud is unfolding within Australia and the perpetrators are manifestly identifiable, it is incumbent upon ASIC to take decisive action.”
ASIC declined to comment on whether it was looking into the Australian promotors of CashFX, who are now spruiking other schemes.
In a statement, it said as part of an all-government approach to fighting scams, it was working with a third-party provider to knock out investment scam websites. It said it had 500 new entries on the investor alert list since November 2023.
Lawyer Mark Allen penned a submission to the latest parliamentary inquiry about his dealings with ASIC and its failure to act on a series of tip-offs from his client, an insider at a company called Nuix, which listed the biggest float of 2020 then destroyed billions of dollars in investor value.
Allen wrote to ASIC on behalf of his client ahead of the float to warn it about the prospectus and the company’s ability to achieve its forecasts.
Despite the letters and warnings, ASIC gave the green light to the prospectus, which allowed Nuix to list on the ASX. Weeks later, Nuix issued a series of downgrades, followed by the termination of its CFO and the resignation of its CEO Rod Vawdrey.
Allen said it took ASIC eight months to contact his client, by which time, the damage had been done.
“In respect of the Nuix matter ASIC did not perform its role adequately,” he said.
“It would have been far better for the investors in Nuix if ASIC intervened when it was given the opportunity to do so. Further, having not done so, it should have taken a more aggressive position when deciding whether, after the event, it should have taken action in respect of the forecasts in the prospectus and Nuix’s CFO.”
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ASIC is widely viewed as needing to be reformed. The Albanese government refreshed the Reserve Bank and the Productivity Commission, but on ASIC it has been silent.
Indeed it is still to replace former Treasurer Josh Frydenberg’s pandemic-era Statement of Expectations, a document that outlines the government’s expectations of the regulator. This is despite the government’s own guidelines suggesting a Statement of Expectations should be done every two years or if there is a ministerial change.
The reality is ASIC has a big brief and limited resources. A cultural problem of staff lacking motivation, satisfaction and customer service focus needs to be taken seriously, particularly given the long-held perception that it is a timid regulator too slow to act on tip-offs.
It’s why the parliamentary report, which will call for serious reform to create a confident and ambitious regulator, will be required reading.
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