• ASIC chair James Shipton was questioned about the perception that the regulator had a “cosy” relationship with the banks.
• Shipton told the financial services royal commission that he believed ASIC needed to pursue more criminal sanctions.
• And that the regulator would no longer allow financial institutions to negotiate the terms of a public announcements about wrongdoing.

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The perception of a “cosy” relationship between the banks and the corporate regulator ASIC has been a key focus of the financial services royal commission.

Evidence has been given that the regulator allowed banks to check and make changes to announcements about ASIC investigations of wrongdoing by the financial institutions.

And rather than take court action against misconduct, with potentially high dollar value penalties, ASIC has preferred to negotiated settlement.

ASIC chair James Shipton, who has only been in the job since February, faced a series of questions in the royal commission about the regulator’s close relationships, and sometimes apparent light touch, with the banks.

A theme of Shipton’s evidence has been his agreement that the regulator has made mistakes and that he has been making changes at ASIC to ensure greater oversight and tracking of the banks. He used the word “mistake” 25 times today before lunch.

Shipton says he has regular meetings with major bank CEOS and sometimes attends board meetings. Yesterday he told the commission that his meetings with senior bank board directors had been less candid than he had hoped.

Today Shipton agreed it had been common for ASIC commissioners to discuss enforcement proposals directly with senior bank executives banks during an investigation.

Rowena Orr, the senior counsel assisting the royal commission, raised a case study in which ASIC accepted a community benefit payment without an enforceable undertaking from CommInsure, the insurance arm of the Commonwealth Bank critcised for refusing payouts based on outdated medical definitions.

The bank had in December last year agreed to pay $300,000 towards a consumer advice service after admitting to advertising that misled customers about the circumstances in which a policyholder would be entitled to cover if they suffered a heart attack.

ASIC and CommInsure had discussions about draft wording for an infringement notice, the royal commission heard.

Shipton was asked why ASIC needed an indication from the bank as to whether the bank would accept the wording and then pay up.

Orr: “The parking inspector doesn’t seek an indication from the person he’s giving a parking fine to as to whether they will accept and pay it. He just does it.”

Shipton said the matter would go straight to court if the bank rejected an infringement notice.

“In other words, (we are) trying to be as efficient as possible … with our limited resources,” he told the hearing.

“I don’t want this to give the impression — and I fear it might be — that somehow we are sort of negotiating in a cosy fashion these enforceable undertakings.”

Since July 2011, ASIC has issued 1,222 media releases as a result of formal investigations conducted by ASIC’s enforcement team.

The usual protocol is that a media release is issued when ASIC reaches a negotiated resolution with a financial services entity.

Orr: “What is the purpose of that?”

Shipton: “The purpose, in part, is deterrence, denunciation, and indication as to the matter at hand, and our reaction to it.”

Orr asked whether ASIC is sending a message that financial entities can negotiate with ASIC.

Shipton: “That’s not the message that we want to send.”

Now ASIC only discussed with the banks the content of a media release for factual accuracy.

Shipton said he had given clear instructions during his my nine months at ASIC that the terms of a media release were not negotiable.

“We will check the factual accuracy,” he said. “Nothing more than that.”

Shipton was also challenged about how ASIC dealt with the NAB and the introducer fraud case where people from outside the bank were paid for introducing loan customers to the bank.

ASIC had been considering a community benefit payment over staff getting cash kickbacks to write loans with fake documentation.

Shipton said this was a case where “more robust public denunciation” should have been applied.

“It’s a very good example of why we need to and we are improving our guidance and processes around our enforcement decision-making,” he said.

“I think a public denunciation has tremendous deterrent effect because it impacts upon the reputation of the institution, and that is something that we should have done in a more robust fashion.”

The royal commission also touched on the case of ClearView cold calling 303,000 times to sell life insurance.

ASIC early on decided not to pursue a criminal case but to focus on stopping the high pressure sales tactics.

“It was a mistake not to pursue a action of this seriousness in relation to a financial institution,” Shipton told the hearing today.

“That is yesterday’s mindset. That is not the mindset that exists today of the ASIC of today.”

Shipton believes there needs to be a very strong change in ASIC’s approach.

“We have a program of change and program of reform that I fundamentally believe in,” he says.

He agreed with Orr that ASIC should pursue criminal action against larger financial institutions more frequently than it has.

“We have made mistakes,” he said.

In his view, ASIC should have pursued criminal sanctions in many cases.

“We need to do it more often,” he said.

Shipton, explaining the program to embed ASIC staff into the major banks, said the regulator’s role was not to be a compliance department or a strategic guidance firm.

“What we will be doing is making observations in relation to what we believe are deficiencies or areas for improvement,” he says.

“Our role is to give frank, honest, blunt and very important feedback as to where we see potential deficiencies, where we see room for improvement, and where we see that the leadership system structure and importantly culture of financial institutions can improve.”

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