APRA and ASIC failing on deterrence says RC

Neither the Australian Prudential Regulation Authority (APRA) nor the Australian Securities and Investments Commission (ASIC) have an approach to the regulation of superannuation entities sufficient to achieve specific or general deterrence.

That is the bottom line assessment of counsel assisting the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Michael Hodge QC, who used his closing submissions to suggest that some significant change may be required with respect to the regulators.

“The evidence suggests that APRA is reluctant to commence court proceeding and to take public enforcement action,” Hodge’s submission said, noting that the regulator’s approach to dealing with the intransigence of IOOF could not be considered to be effective in achieving deterrence or generating the development of insight on the part of IOOF.

He also referenced ASIC’s approach to dealing with National Australia Bank, ANZ and the Commonwealth Bank and said ASIC’s approach raised questions as to whether it had struggled to date to act as an effective conduct regulator.

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Referring directly to ASIC’s handling of the Commonwealth Bank, Westpac and ANZ, Hodge questioned why the regulator had not sought to bring proceedings against the three companies, instead of initiating proceedings against one, Westpac, to test the law while obtaining enforceable undertakings from the other two.

“A significant problem with not commencing court proceedings is that no pecuniary penalty or other relief is obtained which would achieve specific and general deterrence,” Hodge said. “Moreover, it might be thought that the practice of ASIC of accepting enforceable undertakings is more likely to encourage conduct that courts contraventions of statute.”

He argued that this was because the entity giving an enforceable undertaking was “not required to disgorge the profits of its conduct, may not even be required to remediate customers for loss they have suffered as a consequence of the contravening conduct, does not incur a pecuniary penalty that would be calculated to deter any future contraventions and does not attract the condemnation of the Court and the attendant negative publicity”.

“In relation to CBA, it might be thought that if the largest company in Australia, by market capitalisation, is negotiating with ASIC on the premise that it could seek to persuade ASIC to issue a media release rather than insisting upon an enforceable undertaking, after ASIC has provided a document outlining the contraventions that ASIC believed CBA had engaged in, that suggests the collapse of ASIC’s regulatory authority,” Hodge said.

“In relation to ANZ, it might be thought that if ASIC has drafted a document in support an originating process required to commence a Federal Court proceeding, said in unequivocal terms to ANZ that it will commence that proceeding on a particular date and invited admissions, and then refrained from commencing a proceeding after a polite email asking for the opportunity to discuss was received from the general counsel of ANZ, that reinforces an absence of regulatory authority.” he said. “It may also send a message to the regulated population that ASIC lacks authority.”