The Royal Commission inquiry into financial misconduct has already revealed several bad practices from many of Australia’s major mortgage lenders and insurance providers, but the interim report from Commissioner Kenneth Hayne also decried the Australian Securities and Investments Commission’s (ASIC’s) response to the issue.
Although ASIC was supposed to deal with many of the inquiry’s allegations, the Commission’s report criticized the way that it reacted to the crisis, which had the potential to cause Australia serious economic problems.
With financial misconduct being so widespread, ASIC has had to spread its focus in various directions to effectively put a stamp on the problem. Much information was unclear until the inquiry found the underlying causes of the matter, and many in Australia were unaware of just how serious the issue was.
The trouble, according to the Royal Commission, is that ASIC turned a blind eye for too long and allowed complacency and malpractice to blossom into a larger crisis that became harder to solve.
Hayne also slammed ASIC for the way that it went about trying to fix problems related to the inquiry, saying that it acted too friendly with many of the lenders. He commented: “When banks have disclosed, or ASIC has otherwise learnt of, misconduct, ASIC has almost always sought to negotiate what will be done in response.”
The Commissioner criticized ASIC for not acting immediately to resolve certain issues and not making the most of the powers that it had at its disposal, which would have negated the need for the fallout to have spread this far.
Noting that ASIC never took the option of threatening to take non-compliant lenders to court, the Royal Commission said that this lack of action led to parties within the lending sector thinking that they did not have anything to worry about and that malpractice could continue.
ASIC also targeted individuals rather than the offending entity as a whole, making one person responsible for an unethical company culture. Hayne said that “civil penalty proceedings have seldom been brought” against defaulting organizations.
He lamented ASIC’s strategy of opting for negotiations first, adding that this practice often resulted in some form of financial penalty being paid out but never admissions of guilt from any parties for the problems that they caused.
Hayne said that the infringement notices served by ASIC were not appropriate, as they allowed for cases where the entity paid an infringement notice without proclaiming any guilt, thereby carrying on as part of the lending structure.
ASIC Chairperson James Shipton issued a response, saying that the body will “note the report’s serious and important observations of ASIC’s role as a regulator.” Meanwhile, Treasurer Josh Frydenberg has railed against the way that regulators have handled the financial services fallout, claiming that they “have a case to answer for” and that they were “aware of this conduct.”
As the fallout continues, the Royal Commission has still not finished its inquiry. Its interim report has taken stock of proceedings, but its full recommendations of necessary actions have yet to be released.