ARE ASIC & APRA REALLY THAT BAD?

There’s an awful lot of 20-20 hindsight in the attacks on the two major corporate regulators ASIC and APRA for not more aggressively taking court action – and especially criminal court action – over the years against the ‘big end of town’ in the wake of the Banking Royal Commission.

Further, it is not just the usual 20-20 hindsight – how it’s always easy to identify after the event how something should have been done differently – but a decidedly blinkered version of it.

In his interim report, Commissioner Kenneth Hayne slammed the two regulators for their lack of court action and their preference for ‘deals’.

“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court,” he said.

There’s the same specific problem with this as with the RC overall. And it risks a similar consequence version of ‘be careful what you wish for’ counter-productive outcome.

It is important to re-state that this is not a generalised RC into banking, superannuation and financial services, but one into misconduct in and by them and only into misconduct.

If you made the mistake of turning up with a ‘good news story’ in any of those these areas, you would have been greeted with: sorry, wrong RC, not interested.

The important point I’m making is that exactly the same applied to the two regulators, ASIC and APRA.

All the RC – and the rest of us – heard about were the bad outcomes, the failures and the embarrassments, where people got burned and the ASIC/APRA approach didn’t work.

We did not hear about the cases where it did work. So you got – I would argue – a totally unbalanced perspective of the ASIC/ APRA technique of, for want of a better term, negotiating and dealing rather than opting to take the court litigation route.

Just for hypothetical purposes, if the ASIC/ APRA approach worked in say nine cases for every one it failed in, that might be considered a reasonable trade-off. Obviously, if it was the reverse, that most decidedly would not.

So which was it; and how significant were the ones they won as against the ones they lost? The answer is that we haven’t got a clue; and the ‘we’ is not the ‘royal we’ but the generic version.

Could someone tell us about the ASIC/APRA success stories? Sorry, not interested.

Well, to my mind, you can’t make a reasoned judgment on the appropriateness of the ASIC/APRA approach unless you have a detailed knowledge, appreciation and understanding of their complete universes of regulatory action.

This also goes to a further critical point: why, especially ASIC had long since taken the approach that it was better to ‘negotiate a deal’. That it opted for outcomes like infringement notices and penalties and enforceable undertakings than going to court.

I invite anybody to examine the tortured process that prevails with most high-profile ‘normal’ civil and especially criminal trials – where even though the issues and facts are relatively straightforward, can drag on for years and often end unsatisfactorily.

Then ask yourself why you would think that a complex white collar crime should prove a breeze in contrast?

Then actually inform yourself about some specific examples, where litigation in this regulatory area has gone on not just for years but indeed decades. Although not specifically in a regulation context, there are financial disputes still unsettled from the 1980s.

More specifically, in the 1990s ASIC did more aggressively take the route recommended by Commissioner Hayne; and what did it get it? A lot of egg on collective face, tens of millions of dollars into the pockets of lawyers and precious little effective regulatory outcomes.

Just maybe, the course chosen by ASIC actually delivered better effective outcomes on balance – bad as they were – than if it had opted to only take the aggressive litigation route.

So just as it is not only unfair but ultimately likely to prove counter-productive to judge banks and propose permanent ‘solutions’ on the basis that the only thing they do is rip off customers; the same applies to finding a regulatory future in the assumption that their past methods have only failed.

This is not to deny many and even quite egregious examples of failure identified in the RC. Or to make the more general point that there were clearly cases where the regulator should have taken the public litigation route even if it ended in specific failure.

It is most definitely to make the point we want effective outcomes.

On the one hand we need regulation that works more effectively and does so as close as possible to real time. But we also need banks and other financial institutions that can also work and receive the right incentives to work for their customers. No one would benefit if we emerged from all this with banks etc in a state of perpetual war with ASIC and APRA.