ASIC gets more teeth as Chester joins the ranks
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.
Karen Chester will replace Peter Dell as ASIC’s deputy commissioner