The 2013-14 Inquiry into the performance of ASIC, and the CBA.



"In my last blog titled ‘The Upshot of the Review of the Four Major Banks (the Coleman Report)’ I briefly touched on the criticisms of the Australian Securities and Investments Commission (ASIC) over recent years, and the suggestion that it has been referred to as a ‘toothless tiger’. I am embarking on a research project that carefully examines ASIC’s powers, processes and conduct, and you will be able to read more about that here as I progress.

For now, let’s consider the 2013-2014 Inquiry into the performance of ASIC undertaken by the Economics References Committee (quite apart from the review into the four major banks that I discussed in my last blog). This discussion seems particularly pertinent, noting the very recent scandal surrounding the CBA.

In June 2013, the Economics References Committee was tasked with conducting an inquiry into the performance of ASIC, with particular reference to:

  • ASIC's enabling legislation, and whether there are any barriers preventing ASIC from fulfilling its legislative responsibilities and obligations;

  • the accountability framework to which ASIC is subject, and whether this needs to be strengthened;

  • the workings of ASIC's collaboration, and working relationships, with other regulators and law enforcement bodies;

  • ASIC's complaints management policies and practices;

  • the protections afforded by ASIC to corporate and private whistleblowers.

The committee’s final report was issued in June 2014 and a copy of that report can be found here. (The material from this blog has been obtained from this report). The government issued a response in October 2014 and the media release can be found here. The committee made 61 recommendations, with a large number being directly addresses to ASIC. You can read the government’s response to each recommendation in the media release.

In its inquiry, the committee examined 2 specific case studies to assist it to assess ASIC’s performance. One related to consumer credit issues. The other involved misconduct over a 4 year period by financial advisers and other staff at Commonwealth Financial Planning Ltd (CFPL), which is a part of the Commonwealth Bank of Australia Group (CBA).

The CBA case study revealed that CFPL advisers had deliberately neglected their duties and placed their personal interests far above the interests of their clients. The assets of clients with conservative risk positions, such as retirees, were allocated into high-risk products without their knowledge to the financial benefit of the adviser, who received significant bonuses and recognition within CFPL as a 'high performer'. There was forgery and dishonest concealment of material facts. Clients lost substantial amounts of their savings when the global financial crisis hit and the crisis was used to explain away the poor performance of portfolios. Meanwhile, it was alleged that within CFPL there was a management conspiracy that resulted in one of the most serious offenders being promoted.

The committee formed the view that the CBA, for some time, deliberately played down the seriousness and extent of problems in CFPL to avoid ASIC's scrutiny, contain adverse publicity and minimise compensation payments. In effect, the CBA managed, for some considerable time, to keep the committee, ASIC and its clients in the dark.

What this case study showed was ASIC being a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of the CBA that there were no

grounds for ASIC's concerns or intervention (I pause here to reflect on the term often heard, being that of a ‘toothless tiger’). ASIC has conceded that its trust in the CBA was misplaced.

One of the recommendations made by the committee was that a Royal Commission into the CBA be established. The government chose not to accept this recommendation.

As we have seen in recent weeks, another major scandal has arisen involving the CBA. This scandal relates to allegations of money laundering on more than 50,000 occasions, involving the failure of the CBA to report more than 50,000 deposits over a certain amount in its network of Intelligent Deposit Machines, and a failure to monitor 778,370 accounts known as ‘affected accounts’ between 2012 – 2016.

Now, an inquiry by APRA into CBA’s governance, culture and accountability has been announced, and Treasurer Scott Morrison has tied this to the proposed functionality and impact of the Banking Executive Accountability Regime (BEAR), which I touched on in my blog ‘What is Happening in our Banking Sector’ posted on 5 August. The treasurer’s position seems to be that this this inquiry will deliver a better result than that of a Royal Commission. The newly announced Inquiry is intended to be completed by the end of the year.



Tracey Mylecharane - Solicitor

Tracey Mylecharane has more than 12 years’ experience in legal practice and has developed considerable knowledge of business and commercial law issues. She has acted for small and medium businesses across several industries and has been able to assist clients with a vast range of issues from start-up structures and systems, supplier and third-party contracts, to partnership break-ups and dispute resolution (both in and out of court).