ASIC chair Greg Medcraft has defended the performance of the agency. Photo: Jim RiceThe Australian Securities and Investments Commission has defended its record as the country’s main corporate watchdog, saying Australia doesn’t have big enough penalties to deter corporate misconduct.
ASIC chairman Greg Medcraft told a Senate estimates hearing this morning that the regulator was upholding its mandate and called for tougher government policy to help it conduct its job better. ASIC is facing staunch criticism for its role in investigating a number of cases.
The Senate inquiry into its performance follows a number of articles in Fairfax Media that revealed serious misconduct and a cover-up by Commonwealth Bank’s financial planning arm and the failure of ASIC to act promptly.
”It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process,” Mr Medcraft said. ”If this is so, then rational players in the market will routinely take that risk.”
”If the thinking of law-breakers is a tussle between fear versus greed, then we need penalties that amplify the fear and smother the greed.”
”We need penalties that create a fear that overcomes any desire to take risks and break the law.”
Dealing with whistleblowers
Mr Medcraft also said ASIC was attempting improve its dealings with whistleblowers that approach the regulator with information.
This includes establishing specific whistleblower staff and bolstering training around whistleblower protections and handling of whistleblower complaints.
He said the watchdog had a strong record on enforcement and was proactive in identifying market problems. He said Australia needed stricter penalties to improve its enforcement record.
”ASIC recognises a number of submissions were from people who have incurred significant monetary loss and suffered serious financial hardship.
”We appreciate the difficult circumstances these people face and the trauma that it can bring – and we thank them for their contribution to the inquiry.
”Individual losses are distressing. However, the settings established by Parliament for our financial system are such that no financial regulator can prevent all losses from occurring.
ASIC’s performance on the issue of whistleblowers is also coming under scrutiny by the Senate economics committee inquiry. The inquiry was launched in the wake of series of BusinessDay articles that exposed allegations of forgery, fraud and a cover-up by former CBA financial planners including Don Nguyen and Ricky Gillespie.
Hundreds of clients are believed to have lost hundreds of millions of dollars as a result of the misconduct. Commonwealth Bank has so far paid out $50 million in compensation.
ASIC has previously acknowledged that its dealings with a group of whistleblowers who contacted the regulator with concerns about CBA’s financial planning operation in October 2008 were “not adequate”.
BusinessDay has revealed that ASIC took 16 months to act on the information provided by the whistleblowers.
‘Front page test’
Following ASIC investigation into the actions of two David Jones directors, Mr Medcraft also called on companies to look beyond the law and at the “front-page test” when allowing their directors to trade shares,
“[Companies] do need to go beyond the law and you need to be careful about perception,” he said.
“Any company needs to make sure that the market has confidence in it.”
The inquiry began with the chairman of the Senate Standing Committees on Economics, Mark Bishop, questioning Mr Medcraft and his commissioners about ASIC’s investigation into the purchase of shares by two David Jones directors just days before Myer approached its rival about a $3 billion scrip merger.
Senators Mark Bishop and John Williams questioned the commissioners over the timing of the share purchases by the directors, which were made three days before a better-than-expected quarterly sales update.
But the ASIC commissioners, including Mr Medcraft, said they did not deem the information held by the directors to have been material, meaning that it could have affected the share price. They said the material, on its own, was not deemed material by ASIC, especially given that the like-for-like sales were 0.3 per cent lower than in the previous corresponding period.
ASIC revealed that Harold Schapiro, an experienced stockbroker, was the market expert they had engaged to assist them with the investigation into David Jones and allegations of insider trading and the improper use of confidential information.
Mr Medcraft said that while ASIC had issued a “no further action letter”, it was not a tick of approval and the corporate regulator held the right to open the case again.
He added that Myer’s offer of a nil premium scrip merger was “just a try-on … frankly”.