Muzzling the watchdog?: Asic chief defends shift to ‘promoting economic recovery’
By any standard Joe Longo has a job on his hands.
The new boss at the Australian Securities and Investments Commission has only been in the role since April and his opponents are already claiming the corporate watchdog has become a toothless one.
There are accusations that the federal government is set on forgetting the lessons from the excruciating banking royal commission and deliberately neutering Asic’s ability to hold corporate Australia to account.
In an interview with Guardian Australia, Longo, a lawyer who spent much of his career – 17 years – at the troubled German leviathan Deutsche Bank, says he is not one to be muzzled and appears determined to prove detractors wrong.
But the usual background mutterings among politicians and consumer advocates about Asic turned to open alarm last week after three words were deleted from its corporate plan.
The words: “why not litigate”.
The phrase comes from the financial services royal commission, led by commissioner Kenneth Hayne. The commission heard tale after tale of misconduct where Asic got bogged down in endless back-and-forths with banks’ armies of lawyers.
Hayne in his final report in 2019 said one way Asic could machete through the legal jungle was to stop negotiating and instead let a judge do the work of figuring out if anyone had broken the law. “Why not litigate?” The report said.
To help it ask that question, Asic then hired QC Daniel Crennan as a commissioner. Armed with a fistful of referrals from the royal commission, a team got to work producing courtready briefs for Asic senior brass to consider.
As Asic lodged case after case with the courts, it looked like a new philosophy had taken root inside the regulator – one that might make those looking for a quick buck think twice before, say, charging dead people fees for financial advice.
But then came last week, the deletion of the words.
Longo has since then been out and about, spruiking a calming message to media outlets including Guardian Australia: the absence of the phrase doesn’t mean Asic will stop litigating.
He has sometimes been accompanied by Sarah Court, a new Asic commissioner who has moved across from the Australian Competition and Consumer Commission, where she was regarded as a tough regulator and a straight shooter.
Court isn’t on this particular Microsoft Teams call, but is clearly on Longo’s mind when it comes to litigation.
“We’re both very experienced in this area,” he says.
“We’re sort of saying, well this mantra isn’t going to make any difference to anything as far as I’m concerned, we are going to continue to litigate and possibly litigate even more than we had previously – I don’t know, we’ll have to see how the cases play out.”
Labor’s spokesperson on financial services, Stephen Jones, reckons differently.
“It seems the government is winding us back to the days of caveat emptor and assuming that they will get a different result from the last time,” he tells Guardian Australia.
“You can set the date for another banking royal commission.”
But in truth it is not just “why not litigate” that has gone from the new corporate plan.
Promises – or at least aspirations – that have been deleted include to “mitigate consumer harm”, “address consumer harm in an environment of elevated debt levels and hardship, with a focus on predatory lending” and “reduce misconduct by company directors and professional service providers”.
Now, Asic’s first priority is “promoting economic recovery”, which is to be done “through better and more efficient regulation, facilitating innovation, and targeting regulatory and enforcement action to areas of greatest harm”.
Longo says this isn’t a step back from enforcement.
“From my perspective, I went through the corporate plan with great care,” he says.
“And I personally don’t see any stepping back from or, you know, soft pedalling or whatever words people like to use on the question of enforcement.”
He does, however, point out that in its corporate plan and another document called a statement of intent, Asic is responding to the desires expressed by the treasurer, Josh Frydenberg, in a statement of expectations. And those expectations have changed considerably.
In 2018, then treasurer Scott Morrison wanted Asic to “reduce the likelihood that consumers will suffer losses as a result of misconduct by corporations and financial services licensees” and use its “full regulatory toolkit and to direct a substantial proportion of its resources to surveillance and enforcement”.
But now, Frydenberg says Asic should “identify and reduce misconduct risk through well-targeted and proportionate supervision, surveillance and enforcement activities” and “minimise the costs and burdens of regulatory requirements for regulated entities and consumers”.
Longo says: “The statement of expectations has the current treasurer’s and current government’s stamp on it.”
“You know we’re in the middle of a pandemic, and it’s pretty clear they’re worried about the economy, and there’s an expectation of us that we’ll do all we can to promote good economic outcomes for everyone.
“I think that’s an entirely understandable sort of exhortation, but I don’t think it’s intended by this document, or indeed by the government, that that comes at the expense of taking action against wrongdoers.”
He points out that the new corporate plan specifically targets a multitude of online scams Asic says have sprung up during the pandemic.
Longo came to Asic after a period of intense turmoil at the regulator, which has barely had a quiet moment for the past six years. It has been buffeted by wave after wave of the banking scandals that led to it being exposed by the royal commission as unable to effectively curb big finance and its army of lawyers.
The banks have lobbied the government hard to soften the tougher regulatory environment produced by the royal commission, and they appear to have enjoyed much success.
Last year, Frydenberg moved to abolish responsible lending laws that are designed to protect Australians from borrowing more than they can afford.
By November 2020, Frydenberg was in a state of war with Asic, determined to curb the regulator’s powers. He’s since done so, cutting rules designed to keep the market informed and launching an assault on proxy advisers.
Crennan resigned amid a political storm over Asic paying his rent, and chair James Shipton also stepped down over payments the regulator made to cover his tax advice. Both men were cleared of misconduct after an inquiry.
While Longo spent 2002 to 2019 at Deutsche Bank, including stints as general counsel for Asia and Europe, he does have an Asic background: between 1996 and 2001, he was national head of enforcement for the regulator.
Before that, he was effectively a corporate defence lawyer in Perth.
“I went from being defence to prosecution, if that’s the way it’s put,” he says.
“I did that for six years and then got the opportunity to work inhouse for a bank in Germany, a leading global financial institution.”
He says he had nothing to do with Deutsche Bank’s agreement in January to pay US $130m to US authorities and admit it bribed Saudi and Abu Dhabi officials between 2009 and 2016 – something of which he was not aware.
Nor has he had any involvement in an ongoing investigation by German authorities into Deutsche Bank and other financial institutions over allegations of facilitation of tax fraud in what was known as “cum-ex trading”.
“You’ve been focusing on the wrongdoing, but there’s a lot of things Deutsche Bank did extremely well, such as payment systems,” he says.
He thinks the experience will make him a better regulator.
“I am very proud of my experience at DB, I was chair of the reputational risk committee, I did a lot of work there that I think was in the interests of Deutsche bank, its shareholders and the market,” he says.
Longo is keen to talk about the future, and the tension between a government that wants Asic to butt out of making policy and consumer advocates who want an active regulator.
“This policy issue is really interesting because the people, properly, including the staff of Asic and consumers and the Australian people, they want an independent regulator,” he says.
“They want someone who’s looking out for them, and who’s trying to do the right thing, administering the law to good effect.”
Against this, the regulator is required by the law to administer its patch in accordance with government policy.
It is tricky territory for an agency
that has law enforcement powers that can ultimately send people to jail.
“As things stand, I feel pretty optimistic about our independence,” Longo says.
“I’m optimistic and energised about our approach to enforcement.”