ASIC gets more teeth as Ch­ester joins the ranks

The Weekend Australian - - BUSINESS - MICHAEL RODDAN

The trans­for­ma­tion of the cor­po­rate reg­u­la­tor from tooth­less tiger to fear­less watch­dog is ac­cel­er­at­ing, with the gov­ern­ment ap­point­ing Karen Ch­ester, the ar­chi­tect of the 2015 Aus­tralian Se­cu­ri­ties & In­vest­ments Com­mis­sion ca­pa­bil­ity re­view, as its new deputy chair.

Ms Ch­ester, the cur­rent deputy chair of the Pro­duc­tiv­ity Com­mis­sion, will make the tran­si­tion from be­ing an ex­ter­nal critic of the reg­u­la­tor’s lack of court-based en­force­ment to a strong in­ter­nal pro­po­nent of tougher ac­tion against rogue fi­nan­cial out­fits.

Re­plac­ing out­go­ing deputy Pe­ter Kell, who has re­signed af­ter seven years with ASIC, Ms Ch­ester will flesh out the reg­u­la­tor’s fo­cus on proper com­pe­ti­tion in the fi­nan­cial sec­tor, en­sur­ing reg­u­la­tion is fit for pur­pose and bet­ter out­comes for con­sumers.

It’s a fur­ther strength­en­ing of the ranks of the ASIC, which has been pum­melled at the Hayne royal com­mis­sion and crit­i­cised by politi­cians and con­sumer groups for fail­ing to tackle wrong­do­ing in the bank­ing and fi­nan­cial ser­vices sec­tors, de­spite be­ing aware of sys­temic mis­con­duct stretch­ing back years.

Ear­lier this year, for­mer Hong Kong se­cu­ri­ties reg­u­la­tor James Shipton re­placed for­mer ASIC chair Greg Med­craft and pledged the watch­dog will take tougher ap­proach with in­tran­si­gent fi­nan­cial com­pa­nies.

Daniel Cren­nan, QC, has also been ap­pointed the reg­u­la­tor’s chief lit­i­gant, to be as­sisted by for­mer New Zealand cor­po­rate cop Sean Hughes.

The ap­point­ments se­cure a near-com­plete re­fur­nish­ing of ASIC’s top ranks and come as the gov­ern­ment topped up the regu- la­tor’s cof­fers with an ex­tra $70 mil­lion to in­fil­trate the ma­jor banks, su­per­an­nu­a­tion funds and in­sur­ers, and launch le­gal cases where breaches of the law are found.

Ms Ch­ester, a for­mer Trea­sury econ­o­mist, part­ner at Mercer and chief ex­ec­u­tive of Deloitte Ac­cess Eco­nomics, was tasked with the thor­ough re­view of ASIC in 2015 in the wake of David Mur­ray’s Fi­nan­cial Sys­tem In­quiry. In the cur­rent Pro­duc­tiv­ity Com­mis­sion in­quiry into the $2.7 tril­lion su­per­an­nu­a­tion sec­tor, steered by Ms Ch­ester, ASIC and its sis­ter agency the Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity were lam­basted for fail­ing to en­sure funds acted in mem­bers’ best in­ter­ests and for fail­ing to take board di­rec­tors to court when they scup­pered fund merg­ers that would have been ben­e­fi­cial to savers.

The fi­nal re­port for the su­per­an­nu­a­tion in­quiry will be handed to Trea­surer Josh Fry­den­berg in com­ing days — and will be sent straight from Trea­sury to the solic­i­tors at Ken­neth Hayne’s royal com­mis­sion be­fore Christ­mas. The gov­ern­ment is ex­pected to build its re­sponse to the rec­om­men­da­tions and to the fi­nal bank­ing in­quiry re­port, due in early Fe­bru­ary.

The ap­point­ment of Ms Ch­ester fol­lows regime change at the Pro­duc­tiv­ity Com­mis­sion, where Michael Bren­nan, for­mer Trea­sury econ­o­mist and staffer for for- mer fi­nance min­is­ter Nick Minchin, re­placed Pe­ter Har­ris as the chair of the in­de­pen­dent gov­ern­ment pol­icy ad­viser.

While the ca­pa­bil­ity re­view of ASIC found the reg­u­la­tor was “risk averse” in launch­ing le­gal cases and that it pre­ferred suits that had a “higher prob­a­bil­ity of suc­cess” rather than “se­lect­ing cases that have strong mer­its but also al­low ASIC to test the ve­rac­ity of the law”, bet­ter en­force­ment will not be the only as­pect of the reg­u­la­tor’s work to be over­hauled by the new deputy chair.

Si­phon­ing bet­ter data out of the largest fi­nan­cial firms and us­ing hi-tech an­a­lyt­ics to di­ag­nose tell­tale signs of prob­lem­atic com­pa­nies, which could pre-empt cor­po­rate im­plo­sions, may be tested. More reg­u­lar re­views of in­dus­tries, such as su­per­an­nu­a­tion, could also be ex­pected.

In a speech de­liv­ered last month for Deloitte Ac­cess Eco­nomics 30th an­niver­sary, Ms Ch­ester said pub­lic pol­icy had a role to play in shoring up stan­dards across the fi­nan­cial sec­tor.

“To­day we find our­selves in a world where do­ing the right thing no longer seems the de­fault busi­ness model for many,” Ms Ch­ester said. “Where royal com­mis­sions re­veal con­duct be­yond un­be­com­ing, where good peo­ple seem to con­fuse firm loy­alty with do­ing the right thing. For it is only when the firm’s lead­ers do the right thing should such loy­alty be owed — a lit­tle un­der­stood but fun­da­men­tal dis­tinc­tion,” she said.

“Much of the fi­nan­cial ser­vices royal com­mis­sion’s ev­i­dence can also be ex­plained by re­cent pub­lic pol­icy playlists be­ing more one of the in­cre­men­tal. And not re­shap­ing pol­icy ar­chi­tec­ture that no longer serves us. For in the ab­sence of ef­fec­tive com­pe­ti­tion, fos­tered and nur­tured by good pub­lic pol­icy and con­fi­dent reg­u­la­tors, firms not do­ing the right thing will go unchecked. With con­sumers ul­ti­mately pay­ing the price, and of­ten re­gres­sively so. And a trust lost by busi­ness the in­evitable col­lat­eral.”

Ap­pear­ing at the royal com­mis­sion, Mr Shipton said in­ad­e­quate fund­ing had left ASIC “heav­ily” ham­strung in “every as­pect” of its work. Ms Ch­ester’s re­view found only 15 per cent of ex­ter­nal stake­hold­ers be­lieved the reg­u­la­tor was ad­e­quately funded.

KYM SMITH

Karen Ch­ester will re­place Pe­ter Dell as ASIC’s deputy com­mis­sioner

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