tag:theconversation.com,2011:/uk/topics/asic-1441/articlesASIC – The Conversation2023-11-07T19:35:03Ztag:theconversation.com,2011:article/2140632023-11-07T19:35:03Z2023-11-07T19:35:03ZMaking money green: Australia takes its first steps towards a net zero finance strategy<p>Just north of Jamestown in South Australia, 70 kilometres east of the Spencer Gulf and next to a wind farm of nearly 100 turbines, stands the world’s <a href="https://www.cefc.com.au/where-we-invest/case-studies/sa-big-battery-a-game-changer/">first big battery</a>. </p>
<p>Built in partnership with <a href="https://www.tesla.com/videos/powerpack-hornsdale">Tesla</a> and financed and operated by <a href="https://www.energy-storage.news/upgrade-at-tesla-battery-project-demonstrates-feasibility-of-once-in-a-century-energy-transformation-for-australia/">Neoen</a>, a French multinational renewable energy developer, the <a href="https://en.wikipedia.org/wiki/Hornsdale_Power_Reserve">Hornsdale Power Reserve</a> and other big battery projects could stimulate a homegrown battery industry, contributing many <a href="https://fbicrc.com.au/wp-content/uploads/2023/03/Charging-Ahead_Final-Report_Full-17-March-2023-1.pdf">billions of dollars and thousands of jobs</a> to the Australian economy. But for that industry to rise, it will need money.</p>
<p>Australia aspires not only to transition its economy to net zero emissions, but to become a green energy superpower. That means building a host of solar and wind farms, batteries, electric vehicle charging stations, upgrades to the grid and to all kinds of buildings, as well as investments in new technology. </p>
<p>These investments and big infrastructure projects don’t come cheap. Getting to net zero emissions by 2050 requires investment in renewable energy of A$754 billion in power generation alone, according to <a href="https://www.uts.edu.au/sites/default/files/2022-06/Supercharging%20transition%202021%20Update%20-%20Oct%2022%20update.docx.pdf">research</a> by the <a href="https://www.uts.edu.au/isf">UTS Institute for Sustainable Futures</a> and funded by Future Super.</p>
<p><iframe id="tc-infographic-973" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/973/534c98def812dd41ac56cc750916e2922539729b/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The size of the green finance challenge</h2>
<p>By 2030, the world will have to invest <a href="https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-a-decade-of-data/">an estimated US$4.3 trillion</a> a year – roughly <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?most_recent_value_desc=true">the GDP of Japan</a>, the world’s third-largest economy – in climate finance. These financial flows need to grow by 21% a year, on average. Without this enormous increase, the economic transition will not happen in time to avoid the worst impacts of climate change. </p>
<p>The scale of financing means that superannuation funds and other big institutional investors <a href="https://www.theaustralian.com.au/business/financial-services/super-funds-voice-concerns-over-reaching-2030-green-targets/news-story/43aed4b3d27a80c1f8cc349390acc4a8">must be involved</a>. They need to know where their money is going, and whether investments are genuine or a case of “greenwashing”. They need certainty that companies in which they invest have solid plans to reduce their climate risk, and the ability to ask the companies questions when they don’t.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-new-dawn-becoming-a-green-superpower-with-a-big-role-in-cutting-global-emissions-216373">Australia's new dawn: becoming a green superpower with a big role in cutting global emissions</a>
</strong>
</em>
</p>
<hr>
<p>But current financial regulation is not set up to support such best practice. To give just one example, default superannuation funds lack the <a href="https://www.apra.gov.au/sites/default/files/2022-12/Methodology%20paper%20-%20MySuper%20Heatmap.pdf">benchmarks</a> – measures of performance assessed by the Australian Prudential Regulation Authority – they need to invest in start-up businesses that are developing clean energy technologies. </p>
<p>Successive Australian governments have been slow to grasp this reality, and we are now playing catch-up with many other countries. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1620656846263689216"}"></div></p>
<h2>Australia releases its strategy</h2>
<p>The <a href="https://treasury.gov.au/consultation/c2023-456756#:%7E:text=The%20strategy's%20policy%20priorities%20are,Australian%20Government%20leadership%20and%20engagement.">Australian government’s Sustainable Finance Strategy</a>, <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/new-steps-albanese-governments-sustainable-finance">released by Treasurer Jim Chalmers</a> last Thursday, lays solid foundations for this recovery. Yet more needs to be done if Australia is to achieve the strategy’s stated ambition to be a global sustainability finance leader.</p>
<p>The strategy is arranged around <a href="https://treasury.gov.au/consultation/c2023-456756#:%7E:text=The%20strategy's%20policy%20priorities%20are,Australian%20Government%20leadership%20and%20engagement.">three core pillars</a>. The first focuses on creating access to information that is credible, accurate and of practical value. It seeks to ensure markets operate efficiently and money flows to where it is most needed.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/beyond-juukan-gorge-how-first-nations-people-are-taking-charge-of-clean-energy-projects-on-their-land-213864">Beyond Juukan Gorge: how First Nations people are taking charge of clean energy projects on their land</a>
</strong>
</em>
</p>
<hr>
<p>From July 1 2024, large Australian companies and financial institutions will have to <a href="https://www.climateworkscentre.org/news/mandatory-climate-related-financial-disclosures-for-australian-companies-explained/#:%7E:text=Under%20Treasury's%20proposal%2C%20companies%20will,requiring%20substantial%20forward%2Dlooking%20information.">disclose information</a> about the impacts of climate on their business, the risks climate change poses to their operations, and how they plan to decarbonise. </p>
<p>The disclosure requirements will be based on <a href="https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s2-climate-related-disclosures/#:%7E:text=IFRS%20S2%20requires%20an%20entity,related%20risks%20and%20opportunities%20that">internationally accepted standards</a>, to ensure Australian and overseas investors can compare data across companies and countries. </p>
<p>The government is also supporting the development of an <a href="https://www.asfi.org.au/taxonomy">Australian sustainable finance taxonomy</a> – a set of criteria that enables investors to evaluate whether and to what extent an investment supports sustainability goals. </p>
<p>A taxonomy spells out which investments result in real decarbonisation, and reduces the likelihood of false claims about the sustainability of projects and investments. A government agency will manage the taxonomy, which will start as a voluntary code but may eventually become mandatory. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-beat-rollout-rage-the-environment-versus-climate-battle-dividing-regional-australia-213863">How to beat 'rollout rage': the environment-versus-climate battle dividing regional Australia</a>
</strong>
</em>
</p>
<hr>
<p>Large companies will also be required to disclose their net zero transition plan, if they have one. With companies representing <a href="https://acsi.org.au/wp-content/uploads/2023/08/Promises-Pathways-Performance-Climate-reporting-in-the-ASX200-August-2023.pdf">80% of the market capitalisation</a> of ASX 200 companies pledging to achieve net zero emissions, the government wants to ensure their plans are credible. It wants the corporate regulator, the <a href="https://asic.gov.au/">Australian Securities and Investment Commission</a> (ASIC), to set out its expectations of the plans – a welcome step.</p>
<p>The second pillar focuses on building the capabilities of Australia’s financial system regulators to manage risk and to clamp down on greenwashing – the practice of making misleading or deceptive claims about the environmental benefits of activities or assets. </p>
<h2>Fighting greenwashing</h2>
<p>ASIC Deputy Chair Karen Chester believes the economic cost and loss of investor confidence caused by greenwashing “<a href="https://asic.gov.au/about-asic/news-centre/speeches/climate-change-urgency-integrity-ambition/">cannot be overstated</a>”. Her organisation has set out guidelines to help financial institutions identify it. This year ASIC launched its <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/">first three legal actions</a>, including one against the local arm of US investment giant <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-196mr-asic-commences-greenwashing-case-against-vanguard-investments-australia/">Vanguard</a>, and another against <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-215mr-asic-commences-greenwashing-case-against-active-super/">Active Super</a>, which allegedly falsely claimed it had eliminated investments, such as coal mining, that posed too great a risk to the environment and the community. </p>
<p>The third pillar concerns government leadership and engagement. Such a large and rapid increase in the scale of private sector finance requires growth in a range of financial assets, including shares, bonds and other kinds of debt. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-australia-urgently-needs-a-climate-plan-and-a-net-zero-national-cabinet-committee-to-implement-it-213866">Why Australia urgently needs a climate plan and a Net Zero National Cabinet Committee to implement it</a>
</strong>
</em>
</p>
<hr>
<p>The government is supporting the development of a <a href="https://www.rba.gov.au/publications/bulletin/2023/sep/green-and-sustainable-finance-in-australia.html">green bond market</a> by issuing <a href="https://www.moneymanagement.com.au/features/all-eyes-australias-inaugural-sovereign-green-bonds">Australia’s first green sovereign bond</a> in June. These bonds are designed to establish standards for lending and borrowing for all green finance; they will also help the government to fund projects such as electric vehicle charging infrastructure. </p>
<p>Finally, the strategy recognises the importance of <a href="https://www.adb.org/what-we-do/funds/australian-climate-finance-partnership">collaboration across the Asia-Pacific</a>. If Australia achieves its goal of becoming a regional sustainable finance hub it would not only benefit our national interest but help Pacific Island nations to raise the finance to decarbonise. </p>
<h2>What’s missing from the strategy?</h2>
<p>The strategy does not focus on <a href="https://www.uts.edu.au/sites/default/files/2022-10/Advancing%20climate%20skills%20in%20the%20Australian%20financial%20system%20FINAL_0.pdf">green finance skills</a> and competencies. Yet these capabilities, ranging from a basic understanding of what business activities are unsustainable to specialist expertise in the use of scenario analysis to assess climate risk, are essential to the net zero transition. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-original-and-still-the-best-why-its-time-to-renew-australias-renewable-energy-policy-213879">The original and still the best: why it's time to renew Australia's renewable energy policy</a>
</strong>
</em>
</p>
<hr>
<p>LinkedIn’s recent <a href="https://economicgraph.linkedin.com/research/global-green-skills-report">Green Skills Report</a> shows that, globally, the finance sector is lagging behind other sectors in building green skills. And Australia ranks only 30th in a list of countries on its share of talent for green finance.</p>
<p>Australia’s financial system must urgently transform itself to meet the climate challenge. If the financing of the transition were a bicycle race, Australia has now caught up to the global peloton. The next step is to take the lead.</p><img src="https://counter.theconversation.com/content/214063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alison Atherton is a member of the Australian Sustainable Finance Institute's Capability Reference Group</span></em></p><p class="fine-print"><em><span>Gordon Noble does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If big money is going to invest in clean energy and technology, the rules have to be clear. Australia’s launch of a green finance strategy last week was a good start but there is further to go.Alison Atherton, Program Lead, Business, Economy and Governance at the Institute for Sustainable Futures., University of Technology SydneyGordon Noble, Research Director, Institute for Sustainable Futures, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2025072023-04-02T20:03:59Z2023-04-02T20:03:59ZCapitalising on climate anxiety: what you need to know about ‘climate-washing’<figure><img src="https://images.theconversation.com/files/518342/original/file-20230330-24-znn3xy.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4591%2C2897&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hands-painting-blue-green-pollution-chimney-2044199009">Shutterstock</a></span></figcaption></figure><p>People are increasingly making choices about which products to buy and which service providers to use on climate change grounds. With concerns about climate change <a href="https://australiainstitute.org.au/report/climate-of-the-nation-2022/">now affecting most</a> Australians, businesses that promote climate-aligned practices and make emissions-reduction promises have a competitive advantage over those that don’t.</p>
<p>But sometimes these claims fail to live up to reality. Climate-related greenwashing, or “climate-washing”, communicates a message that exaggerates or misrepresents climate credentials through advertising, branding, labelling or reporting. </p>
<p>Examples include where corporate marketing and government campaigns promising “net-zero emissions by 2050” are not backed by a credible plan. Or products are promoted as “carbon neutral” or “climate friendly” when they’re not. It also includes where banks and other investors claim to fund a “cleaner future” when this is not completely true, potentially masking climate-related financial risk.</p>
<p>Climate-washing is a problem because the offending businesses capitalise on climate anxiety. It also allows businesses lacking robust credentials to gain customers and market advantage on false pretences. Ultimately, it also hinders rather than helps progress towards emissions reduction goals. </p>
<p>In March, the Australian Competition and Consumer Commission (ACCC) <a href="https://www.abc.net.au/news/2023-03-02/accc-to-crack-down-on-%E2%80%98greenwashing%E2%80%99/102045408">announced a crack-down</a> on climate-washing and greenwashing. This followed an ACCC report revealing claims made by <a href="https://www.accc.gov.au/system/files/Greenwashing%20by%20businesses%20in%20Australia.pdf">more than half</a> the 247 Australian businesses reviewed in an internet sweep raised concern. The ACCC has said it will now undertake enforcement, compliance and education activities.</p>
<p>On Wednesday the Senate agreed to establish an <a href="https://greens.org.au/news/greens-establish-senate-inquiry-greenwashing">inquiry into greenwashing</a> by corporations in Australia. The inquiry will investigate the impacts of greenwashing on consumers and the environment and will identify the legal and regulatory actions needed to stop it. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/greenwashing-how-ads-get-you-to-think-brands-are-greener-than-they-are-and-how-to-avoid-falling-for-it-183169">Greenwashing: how ads get you to think brands are greener than they are – and how to avoid falling for it</a>
</strong>
</em>
</p>
<hr>
<h2>The credibility gap</h2>
<p>The imperative to reach net-zero emissions by mid-century has been consistently reinforced by climate science. This includes, most recently, this month’s <a href="https://report.ipcc.ch/ar6syr/pdf/IPCC_AR6_SYR_SPM.pdf">report</a> by the Intergovernmental Panel on Climate Change. </p>
<p>One of the upshots has been a deluge of net-zero strategic marketing. Particularly in the case of large climate change contributors – such as fossil fuel companies, airlines and the meat industry – adopting a net-zero narrative switches public perception that the company is part of the solution, rather than the problem. </p>
<p>Climate-washing essentially describes a gap between what’s promised and what’s likely to be achieved. This “credibility gap” can be due to factors such as over-reliance on speculative technology, offsetting, and modelling that’s outdated or hasn’t been properly verified. Although there’s a big global push toward transparency, many entities don’t adequately disclose the data and assumptions behind their promises. </p>
<h2>Complaints and court cases</h2>
<p>Last week, a group called Flight Free and their lawyers <a href="https://flightfree.net.au/wp-content/uploads/2023/03/230323-MR-Etihad-greenwashing-referral.pdf">approached the ACCC</a> over Etihad Airways advertising that said, “flying shouldn’t cost the earth” and “net zero emissions by 2050”. The ads were shown prominently at a soccer match in Melbourne last year. <a href="https://www.edo.org.au/wp-content/uploads/2023/03/230322-Complaint-to-ACCC-Etihad-Airways-climate-advertisements.pdf">Flight Free says</a> the advertising is misleading.</p>
<p>The Etihad complaint follows the Australasian Centre for Corporate Responsibility’s Federal Court proceedings against gas company Santos. Currently afoot, <a href="https://www.accr.org.au/news/australasian-centre-for-corporate-responsibility-expands-landmark-federal-court-case-against-santos/">this complaint</a> challenges Santos’ “clean fuel” and “net-zero by 2040” claims. </p>
<p>Earlier this year, corporate watchdog ASIC (the Australian Securities and Investment Commission) initiated proceedings <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/">against super fund Mercer</a> for allegedly misleading investors into thinking their investments in a “sustainable” investment option excluded fossil fuels. </p>
<p>Around the world, there’s been a <a href="https://cssn.org/wp-content/uploads/2022/01/CSSN-Research-Report-2022-1-Climate-Washing-Litigation-Legal-Liability-for-Misleading-Climate-Communications.pdf">recent rise</a> in climate-washing litigation. <a href="http://climatecasechart.com/non-us-case-category/misleading-advertising/">Multiple complaints</a> allege that the football association FIFA falsely advertised the Qatar World Cup as “fully carbon neutral.” </p>
<p>In aviation, there’s a pending court case against KLM targeting its “fly responsibly” campaign, and there’s also been a successful challenge to RyanAir’s low-carbon campaign. </p>
<p>Product complaints have ranged from allegedly climate-neutral bin liners, to “climate-controlled pork” in Denmark, and “climate-neutral croquettes” in Germany. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1640179330725867523"}"></div></p>
<h2>How is climate-washing regulated?</h2>
<p>Climate-washing is a form of misleading and deceptive conduct, which is regulated in Australia under federal <a href="https://www.legislation.gov.au/Details/C2023C00043">competition and consumer law</a>. </p>
<p>Climate-washing that relates to financial products and services is regulated under <a href="https://www.legislation.gov.au/Details/C2021C00281">securities and investments law</a>. </p>
<p>Both the ACCC and <a href="https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/">ASIC</a> monitor climate-washing. </p>
<p>Globally, concerns over climate-washing have led to action by the United Nations. A High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities was formed last year to target climate-washing. The group has a “zero tolerance for net-zero greenwashing” mantra, and delivered <a href="https://www.un.org/sites/un2.un.org/files/high-levelexpertgroupupdate7.pdf">a report</a> at November’s Climate Change COP in Egypt, which contains a “how-to” guide for credible, accountable net-zero pledges.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/toxic-cover-up-6-lessons-australia-can-draw-from-the-uns-scathing-report-on-greenwashing-194054">'Toxic cover-up': 6 lessons Australia can draw from the UN's scathing report on greenwashing</a>
</strong>
</em>
</p>
<hr>
<h2>What you can do</h2>
<p>There’s every reason to support businesses taking genuine and meaningful climate action. But as a consumer, it’s hard to fact-check simple statements that are in reality pretty complex claims. </p>
<p>If you’re suspicious of climate-washing, you can report it to the ACCC <a href="https://www.accc.gov.au/contact-us/contact-the-accc/report-a-consumer-issue">here</a>. You can also monitor the work of non-profits investigating and reporting on climate-washing. For example, stay informed by following sites such as ClientEarth’s <a href="https://www.clientearth.org/projects/the-greenwashing-files/">The Greenwashing Files</a>. And follow the public interest law centres taking action, such as <a href="https://www.instagram.com/enviro_justice_australia/?hl=en">Environmental Justice Australia</a>, the <a href="https://www.instagram.com/environmentaldefendersoffice/">Environmental Defenders Offices</a>, and <a href="https://twitter.com/eglawyers?lang=en">Equity Generation</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1640353915316338690"}"></div></p>
<p>When buying a product or service, it never hurts to ask questions and to be sent more information. If you’re a <a href="https://www.nytimes.com/2022/05/10/climate/banks-shareholders-climate-action.html">shareholder</a>, look closely at annual reports. And make the most of voting opportunities. </p>
<p>Have a say on government proposals targeting climate change and climate-washing. The initial <a href="https://treasury.gov.au/consultation/c2022-314397">consultation process</a> for the Australian government’s action on climate disclosure and reporting has recently closed, but submissions on new reporting requirements will open later this year. </p>
<p>Ultimately, it’s a good thing that governments and corporations want to align with a smooth transition toward a net-zero future. And jumping on the net-zero bandwagon is certainly a welcome step away from climate denialism. </p>
<p>But in order for net-zero goals to actually be achieved in a way that avoids a last-minute scramble and significant losses along the way, it’s important for everyone that pledges and promises are made frankly, earnestly and credibly.</p>
<hr>
<p><em><strong>Editor’s note:</strong> In response to the misleading advertising claim, Etihad said it “runs a comprehensive research, development, and innovation programme to address aviation decarbonisation, and is committed to achieving net zero emissions by 2050”.</em></p>
<p><em>The Australian Centre for Corporate Responsibility case against Santos is before the courts.</em></p>
<p><em>Super fund Mercer said in a statement: “We have co-operated with ASIC on their enquiries and take their concerns very seriously. As this matter is before the courts, it would be inappropriate for us to comment further at this time.”</em></p><img src="https://counter.theconversation.com/content/202507/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laura Schuijers does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While the ACCC, ASIC and a new senate inquiry begin to flush out greenwashing, we take a closer look at dodgy climate claims. Complaints and court cases are stacking up. Here’s what you need to know.Laura Schuijers, Deputy Director, Australian Centre for Climate and Environmental Law and Lecturer in Law, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1963612022-12-12T19:03:16Z2022-12-12T19:03:16ZHow FTX Australia was able to claim it was ‘ASIC-licenced’<p>When cryptocurrency exchange <a href="https://www.abc.net.au/news/science/2022-11-12/cryptocurrency-ftx-exchange-collapse-australian-investors/101640914">FTX Group</a> collapsed in the Bahamas last month, its local subsidiaries <a href="https://kordamentha.com/insights/kordamentha-voluntary-administrators-ftx-express">FTX Australia</a> Pty Ltd and <a href="https://kordamentha.com/insights/kordamentha-voluntary-administrators-ftx-express">FTX Express</a> Pty Ltd fell over too. </p>
<p>The Australian companies were placed into administration on November 11 and within days the Australian Securities and Investments Commission (ASIC) had <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-316mr-asic-suspends-ftx-australia-s-afs-licence/">suspended</a> the Australian financial service licence FTX Australia had held since March 2022.</p>
<p>The fact that FTX Australia had an Australian financial service came as a surprise to some people, who had wrongly assumed everything crypto-related was beyond the reach of Australia’s regulators. </p>
<p>It also raised questions – including for <a href="https://www.afr.com/companies/financial-services/asic-had-extensive-powers-to-suspend-or-cancel-ftx-s-licence-20221206-p5c452">Assistant Treasurer Stephen Jones</a> – about how FTX Australia managed to acquire its Australian financial services licence, and how ASIC seemed to have missed the chance to intervene sooner.</p>
<p>And it draws wider attention to the 20-year-old licensing system and what an Australian financial service actually means for the firms that have them.</p>
<h2>Licensed to do what, precisely?</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1064&fit=crop&dpr=1 600w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1064&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1064&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1337&fit=crop&dpr=1 754w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1337&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/500217/original/file-20221211-90872-p3m533.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1337&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.prnewswire.com/news-releases/ftx-establishes-local-presence-in-australia-301506261.html">FTX Trading Limited</a></span>
</figcaption>
</figure>
<p>When FTX commenced operations in Australia this year, its media release was headed: “<a href="https://www.prnewswire.com/news-releases/ftx-establishes-local-presence-in-australia-301506261.html">FTX launches fully registered and licensed Australian operations</a>”. </p>
<p>But what exactly was it licensed to do?</p>
<p>The Australian financial service (AFS) licensing regime in place since the late 1990s authorises each firm to do specified things, in relation to specified financial products, for specified clients.</p>
<p>Each firm’s licence is different, and what is required by ASIC is different depending on what the firm is authorised to do.</p>
<p>FTX Australia’s licence authorised it to deal in, make a market for, and provide general advice relating to derivatives and foreign exchange contracts to retail and wholesale clients. That’s it. </p>
<p>Note that crypto-assets are not specified, nor is running a crypto-asset exchange.</p>
<p>The <a href="https://www.ft.com/content/e8df6ea4-e9fb-4058-9a36-cef9c12f4726">jury is still out globally</a> on whether crypto-assets (as distinct from investments derived from crypto-assets) are financial products at all. </p>
<p>It is possible to think of them as like gold bullion or fine art – or <a href="https://www.afr.com/markets/currencies/jpmorgan-ceo-calls-crypto-tokens-pet-rocks-20221207-p5c496">pet rocks</a> – where the asset itself is not a financial product, but a financial product might be constructed from it. </p>
<p>If a cryptocurrency is not a financial product, then licensing laws can’t apply, which might explain why one of the two firms set up in Australia – FTX Express, which operated the crypto-exchange – was not AFS licensed.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/i-thought-crypto-exchanges-were-safe-the-lesson-in-ftxs-collapse-195800">'I thought crypto exchanges were safe': the lesson in FTX's collapse</a>
</strong>
</em>
</p>
<hr>
<p>The lesson is that knowing a firm has an AFS licence only takes you so far, and often not very far at all.</p>
<p>Unless you check the <a href="https://asic.gov.au/online-services/search-asic-s-registers/professional-registers/">specific authorisations</a>, there’s no way of knowing how little the firm you are dealing with is licensed to do.</p>
<p>And ASIC-regulation doesn’t involve <a href="https://www.apra.gov.au/what-prudential-regulation">prudential regulation</a>, which is directed at the stability of the company itself, ensuring among other things that it should be able to meet its financial commitments under reasonable circumstances. </p>
<p>Prudential regulation is the job of the Australian Prudential Regulation Authority, which regulated neither FTX Australia nor FTX Express.</p>
<h2>Licences for sale</h2>
<p>FTX Australia’s ASIC licence was originally granted to someone else entirely back in 2008. A series of takeovers meant it passed through a number of hands until it ended up with FTX in March this year.</p>
<p>While an original applicant has to satisfy rigorous checks, this hasn’t always been the case for subsequent purchasers.</p>
<p>ASIC has known for years that its ASF licences were ending up in new hands when companies were bought and sold. In 2017, it asked the government’s ASIC <a href="https://treasury.gov.au/review/asic-enforcement-review/r2018-282438">Enforcement Review Taskforce</a> to recommend changes to the law that would allow it to revisit an AFS licence when its owners changed.</p>
<p>The change that was eventually legislated in 2020 only required licensees to <a href="https://asic.gov.au/for-finance-professionals/afs-licensees/changing-details-and-lodging-afs-forms/change-in-control-of-afs-licensee/">notify</a> ASIC when a licence changed hands, within 30 days.</p>
<p>It did not require ASIC to approve the change in control.</p>
<h2>Limited ASIC powers</h2>
<p>ASIC is able to inquire further to determine whether there is reason to believe a new licensee was likely to contravene its statutory obligations or is “fit and proper” – but it is not required to do so.</p>
<p>If it finds either that the licensee is likely to contravene its obligations or that it is not fit and proper, it is able to suspend or cancel the licence after giving the new owners a fair hearing. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-bad-credit-lender-cigno-has-dodged-asics-grasp-187887">How 'bad credit' lender Cigno has dodged ASIC's grasp</a>
</strong>
</em>
</p>
<hr>
<p>But such inquiries have not become routine. Most of the (hundreds of) licensee purchases notified each year seem to go through to the keeper, as did FTX’s.</p>
<p>Even if ASIC had reviewed FTX’s purchase of the licence in March 2022, it might well have found no grounds to revoke it, given the very limited range of activities it authorised.</p>
<p>The FTX collapse may result in ASIC changing its attitude to change-of-control transactions involving AFS licensees, for which it might need more resources.</p>
<p>But even if that happens, clients would still be well advised to take care to understand exactly what “AFS licensed” really means.</p><img src="https://counter.theconversation.com/content/196361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pamela Hanrahan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The licence didn’t extend to trading in cryptocurrenices, and had been granted to a firm FTX took over, rather than FTX itself.Pamela Hanrahan, Professor of Commercial Law and Regulation, UNSW Business School, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1940542022-11-11T03:29:02Z2022-11-11T03:29:02Z‘Toxic cover-up’: 6 lessons Australia can draw from the UN’s scathing report on greenwashing<figure><img src="https://images.theconversation.com/files/494797/original/file-20221111-23-3dtel3.jpg?ixlib=rb-1.1.0&rect=25%2C0%2C5539%2C3717&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Alastair Grant/AP</span></span></figcaption></figure><p>The United Nations this week slammed corporate “greenwashing” and said organisations cannot claim to be net-zero while supporting fossil fuel projects.</p>
<p>The <a href="https://www.un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf">report</a>, released at the global COP27 climate conference in Egypt, called for new rules to ensure emissions pledges were credible and transparent.</p>
<p>UN Secretary-General António Guterres appointed the <a href="https://www.un.org/en/climatechange/high-level-expert-group">expert group</a> in March. Releasing its report this week, Guterres had strong words for companies that use “bogus” net-zero pledges to cover up massive fossil fuel expansion:</p>
<blockquote>
<p>It is rank deception. This toxic cover-up could push our world over the climate cliff. The sham must end.</p>
</blockquote>
<p>Guterres said loopholes in rules around corporate emissions reporting are “wide enough to drive a diesel truck through” and require major tightening. Let’s look at what that means for Australian corporations.</p>
<figure class="align-center ">
<img alt="gas infrastructure in northern Australia" src="https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=392&fit=crop&dpr=1 600w, https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=392&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=392&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=492&fit=crop&dpr=1 754w, https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=492&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/494799/original/file-20221111-27-dgr23y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=492&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rules around corporate emissions reporting contain too many loopholes, the UN says.</span>
<span class="attribution"><span class="source">Dan Peled/AAP</span></span>
</figcaption>
</figure>
<h2>A global problem</h2>
<p>Public concern about climate change is vast and growing. This presents a legitimate economic opportunity for businesses and investors that offer climate-friendly products and services. </p>
<p>But being climate-friendly is not always easy. It may involve significant upfront investment. And measuring, verifying and reporting emissions reduction can be complex.</p>
<p>Concerningly, there’s often a big gap between promises and action. For example, <a href="https://www.reuters.com/business/sustainable-business/report-casts-doubt-net-zero-emissions-pledges-by-big-global-companies-2022-06-12/">one-third</a> of firms on the Forbes Global 2000 list of publicly traded companies have net zero emissions targets. However, two-thirds of them have not outlined how they will achieve the goal, analysis shows.</p>
<p>Australian oil and gas giant Santos is facing <a href="https://www.accr.org.au/news/australasian-centre-for-corporate-responsibility-expands-landmark-federal-court-case-against-santos/">legal action</a> in the Federal Court over its net-zero claims.</p>
<p>In some cases, companies make demonstrably false claims about the steps they’re taking on climate change. In fact, the Australian Securities and Investments Commission (ASIC) <a href="https://www.theguardian.com/australia-news/2022/oct/11/accc-begins-greenwashing-crackdown-on-companies-false-environmental-claims">says</a> a global investigation has found as many as 40% of environmental claims made by companies may be fraudulent. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/global-carbon-emissions-at-record-levels-with-no-signs-of-shrinking-new-data-shows-humanity-has-a-monumental-task-ahead-193108">Global carbon emissions at record levels with no signs of shrinking, new data shows. Humanity has a monumental task ahead</a>
</strong>
</em>
</p>
<hr>
<p>ASIC <a href="https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/">has identified</a> greenwashing as a key concern for consumer and market confidence. </p>
<p>The commission is investigating several listed entities, super funds and managed funds over their green credentials claims. Last month, it <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-294mr-asic-acts-against-greenwashing-by-energy-company/">announced</a> it had fined Tlou Energy more than $53,000 for making alleged false or misleading sustainability-related statements to the ASX.</p>
<p>Our <a href="http://hdl.handle.net/20.500.11937/89322">submission</a> to the UN expert group focused on claims made by fossil fuel companies in Australia and overseas. We explained how natural gas is being promoted as a green investment and a source of emissions reduction in ways that mislead environmental regulators and investors.</p>
<p>Greenwashing doesn’t just have disastrous consequences for the climate. It also harms public trust in all net-zero promises which delays support for real efforts. </p>
<p>As Guterres said this week, we must have “zero-tolerance for net-zero greenwashing”. He touted the expert UN report as “a how-to guide” to ensure clarity and accountability for corporate climate pledges.</p>
<figure class="align-center ">
<img alt="man gestures with hands" src="https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/494794/original/file-20221111-23-52ypd0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">UN Secretary-General António Guterres has called for ‘zero-tolerance for net-zero greenwashing’.</span>
<span class="attribution"><span class="source">Robert Bumsted/AP</span></span>
</figcaption>
</figure>
<h2>What Australian entities should consider</h2>
<p>The report made a number of recommendations relevant to Australian businesses and financial institutions, as well as state, territory, and local governments. </p>
<p>When such organisations are drawing up a net-zero pledge, it must:</p>
<ol>
<li><p>make a fair effort, commensurate with the companies’ contribution to the problem</p></li>
<li><p>be in line with official scenarios limiting warming to 1.5°C and should include interim targets every five years starting in 2025</p></li>
<li><p>make real emissions cuts rather than relying on carbon offsets, which are often lacking in regulation and rigour </p></li>
<li><p>cover all greenhouse gas emissions, including those occurring along a company’s supply chain and through the use of its products</p></li>
<li><p>include specific targets to end the use of, and support for, fossil fuels</p></li>
<li><p>Include public progress reports with verified, standardised information.</p></li>
</ol>
<p>The report’s recommendations are not legally binding. While it shifts expectations of what constitutes <a href="https://cpd.org.au/2021/04/directors-duties-2021/">misleading and deceptive conduct</a> under Australian law, the late climate law expert Sarah Flynne has <a href="https://www.able.uwa.edu.au/__data/assets/pdf_file/0006/3644790/Flynne.pdf">observed</a> the difficulty, to date, in prosecuting greenwashing cases.</p>
<p>Flynne argued successful court action may require a shift away from traditional legal arguments towards more innovative approaches, such as pursuing companies under corporate law. This is the approach being taken in the <a href="https://www.edo.org.au/2022/08/25/australasian-centre-for-corporate-responsibility-expands-landmark-federal-court-case-against-santos/">legal case against</a> Santos mentioned above, which alleges the company breached the Corporations Act and Australian consumer law.</p>
<figure class="align-center ">
<img alt="vehicle follows large coal truck up hill" src="https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/494806/original/file-20221111-21-8e3wfd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Net-zero ratites should cover emissions from the use of a company’s products.</span>
<span class="attribution"><span class="source">Rob Griffith/AP</span></span>
</figcaption>
</figure>
<p>The UN recommendations mean some companies will now be even more heavily scrutinised by investors and the public, such as those relying on <a href="https://theconversation.com/australia-relies-on-controversial-offsets-to-meet-climate-change-targets-we-might-not-get-away-with-it-in-egypt-193460">carbon offsets</a> to meet their climate pledges.</p>
<p>Companies that commit to net-zero pledges while continuing to build or invest in new fossil fuel projects will also be in the spotlight. </p>
<p>And as the federal government takes steps to meet its own <a href="https://theconversation.com/australia-finally-has-new-climate-laws-now-lets-properly-consider-the-astounding-social-cost-of-carbon-190050">climate commitments</a>, pressure on businesses and governments is also likely to increase.</p>
<p>We are at a crucial moment in history. Humanity must act now if it hopes to stabilise Earth’s climate and leave an inhabitable planet for future generations – and corporations must be forced to walk the talk.</p>
<hr>
<p><em>This article was written in memory of our former colleague, the late Sarah Flynne. Sarah’s incredible work and vision was evident across her time at the Environmental Defenders Office, Rio Tinto and Curtin University. Her work touched environmental law, renewable energy, economics, finance and property, including housing affordability issues in Western Australia. Sarah was passionate about the need for strong climate change law, both domestically and internationally, and was a formidable force for – not just of – nature.</em></p><img src="https://counter.theconversation.com/content/194054/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keegan Robertson receives funding from the Australian Department of Foreign Affairs and Trade. </span></em></p><p class="fine-print"><em><span>Hugh Finn is a former chairperson for the management committee for the Environmental Defender's Office Western Australia (EDOWA), which has now merged into the Environmental Defenders Office (EDO). The EDO is providing legal representation to a party mentioned in the article.</span></em></p><p class="fine-print"><em><span>Ifan Odwyn Jones does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>UN Secretary-General António Guterres says rules around corporate emissions reporting are “wide enough to drive a diesel truck through”.Keegan Robertson, PhD Candidate and Research Assistant, Curtin UniversityHugh Finn, Lecturer, Curtin UniversityIfan Odwyn Jones, Emeritus Professor, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1711122021-11-18T19:07:14Z2021-11-18T19:07:14ZAustralia’s insider trading laws might not apply to super – here’s why they should<figure><img src="https://images.theconversation.com/files/432557/original/file-20211118-27-xz449m.jpg?ixlib=rb-1.1.0&rect=179%2C23%2C3682%2C1682&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Insider trading is something that only happens in companies listed on the stock exchange, right?</p>
<p>It could be happening in Australian superannuation funds. </p>
<p>The Australian Securities and Investments Commission suspects so. </p>
<p>It has examined the behaviour of <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-282mr-surveillance-of-investment-switching-by-super-fund-executives-identifies-concerns-with-trustees-conflicts-arrangements/">23</a> members of the trustee boards of Australian super funds (both retail and industry) during the early days of the pandemic.</p>
<p>Super funds hold assets which are only revalued on its books <a href="https://www.afr.com/companies/financial-services/super-fund-trustee-snouts-in-the-trough-20211031-p594mz">from time to time</a>, sometimes monthly, sometimes quarterly.</p>
<p>When asset values were falling sharply last year, it meant super fund trustees had early access to information about valuation decisions and the ability to influence those decisions.</p>
<h2>Using information ‘for personal gain’</h2>
<p>ASIC wanted to find out whether some trustees were “using this information for personal gain” by switching their own personal super investment options based on their knowledge of the timing of the revaluations yet to be announced.</p>
<p>It says the conduct it uncovered “fell below ASIC’s expectations”.</p>
<p>The investigation follows an inquiry by the <a href="https://www.afr.com/politics/federal/super-execs-questioned-over-fund-switches-during-pandemic-turmoil-20201117-p56f8d">parliament’s economics committee</a> that found executives at AustralianSuper, NGS Super, Rest, First State, Hostplus and Intrust Super had switched their own personal super out of options exposed to revaluations at the start of the pandemic.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/insider-trading-has-become-more-subtle-142981">Insider trading has become more subtle</a>
</strong>
</em>
</p>
<hr>
<p>It’s behaviour that seems to have a lot in common with <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1043a.html">insider trading</a>, in which insiders use inside information for their own benefit at the expense of other investors.</p>
<p>But while insider trading in relation to financial products is illegal, the definition of financial products used in the Australian legislation excludes superannuation products that are not provided by a “public offer entity”. </p>
<h2>Not caught by the law</h2>
<p>This means that the laws do not apply to some industry super funds, but might apply to others that are open to all members of the public regardless of the industry they work in.</p>
<p>As well, “trading” in financial products is held to only occur where a person applies for, acquires, or disposes of those products, or enters into an agreement to do so. </p>
<p>This means that insider trading laws might apply when a person first joins a public superannuation fund, but not when they switch their investment options within a fund.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/insider-trading-is-greedy-not-glamorous-and-it-hurts-us-all-60792">Insider trading is greedy, not glamorous, and it hurts us all</a>
</strong>
</em>
</p>
<hr>
<p>ASIC has conceded this result in its announcement, saying the activity it has detected might not be caught by the insider trading prohibition, but is “similar to insider trading and may contravene other provisions of the law”.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Not always glamourous.</span>
<span class="attribution"><a class="source" href="https://www.20thcenturystudios.com/movies/wall-street-money-never-sleeps">20th Century Studios</a></span>
</figcaption>
</figure>
<p>When insider trading laws were last amended two decades ago under the 2002 <a href="https://www.legislation.gov.au/Details/C2005C00498">Financial Services Reform Act</a>, the financial products to which the laws applied were expanded to include “functionally similar” products – but not to all super funds. </p>
<p>At the time super funds held less than <a href="https://www.apra.gov.au/superannuation-australia-a-timeline">A$500 billion</a>. </p>
<p>They now hold more than <a href="https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-june-2021">$3 trillion</a>, which is much more than the entire Australian economy turns over in a year, and constitute for most Australians their biggest financial investment outside the family home.</p>
<p>The restriction, especially the distinction between some kinds of industry funds and others, no longer makes sense.</p>
<p>The <a href="https://www.alrc.gov.au/inquiry/review-of-the-legislative-framework-for-corporations-and-financial-services-regulation/">Australian Law Reform Commission</a> is currently undertaking an inquiry into financial services regulation, which includes the provisions of the Corporations Act prohibiting insider trading. </p>
<h2>We invest more in super than in shares</h2>
<p>It would be timely to amend insider trading laws so that they catch the switching of superannuation investment options within funds and eliminate the distinction between different types of funds. </p>
<p>Australians invest more money in super than in the <a href="https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-04.pdf">Australian share market</a>.</p>
<p>There is no obvious reason why it shouldn’t be as well regulated.</p><img src="https://counter.theconversation.com/content/171112/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Juliette Overland does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>ASIC suspects some super fund trustees of using inside information for personal gain, but they might not be caught by the insider trading laws.Juliette Overland, Associate Professor, Corporate Law, University of Sydney Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1675322021-09-14T05:13:21Z2021-09-14T05:13:21ZASIC, now less a corporate watchdog, more a lapdog<figure><img src="https://images.theconversation.com/files/420675/original/file-20210913-26-s6ed4x.jpg?ixlib=rb-1.1.0&rect=0%2C1077%2C3979%2C1993&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The implosion of Australia’s corporate watchdog, the Australian Securities and Investments Commission, under the federal government’s new directions, has gone from tragedy to farce.</p>
<p>ASIC was described as “<a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/ASIC/Final_Report/index">weak, hesitant and timid</a>” in a 2014 Senate review of its performance. To be fair, that was before ASIC’s current leadership. Now any assessment could add “dazed and confused”. </p>
<p>Last week we got a dose of that in the doublespeak of ASIC’s new chair Joseph Longo and deputy chair Sarah Court in their “first significant media interview” — with the Australian Financial Review. </p>
<p>The pair were asked about ASIC’s commitment to the “why not litigate?” approach recommended in 2019 by the Hayne royal commission into misconduct in the financial services industry.</p>
<p>Following the litany of revelations where the corporate regulator had failed to take action against illegal behaviour, royal commissioner Kenneth Hayne made it clear that when ASIC saw a law broken, its obligation, in deciding on a response, was to first ask itself “why not litigate”?</p>
<p>“I love litigation,” <a href="https://www.afr.com/companies/financial-services/we-love-litigation-say-new-asic-chiefs-20210831">Longo told the AFR</a>. “It’s what I used to do and Sarah is an expert at it.” </p>
<p>But in the same interview Court — ASIC’s head of enforcement — <a href="https://www.afr.com/companies/financial-services/asic-enforcer-dishes-out-warning-to-banks-20210902">said</a> the why-not-litigate strategy “has had its day”.</p>
<h2>Regulatory doublespeak</h2>
<p>Confusion is to be expected when a regulator is told to both enforce and refrain from enforcing the law — which is effectively what the federal government <a href="https://theconversation.com/frydenbergs-directions-to-asic-throw-the-banking-royal-commission-under-a-bus-166813">did last month</a> in the “statement of expectations” it handed ASIC. </p>
<p>The previous statement, issued <a href="https://asic.gov.au/about-asic/what-we-do/how-we-operate/accountability-and-reporting/statements-of-expectations-and-intent/statement-of-expectations-australian-securities-and-investments-commission-april-2018/">in 2018</a>, began with acknowledging “the independence of ASIC and its responsibility for market conduct regulation”. </p>
<p>The <a href="https://asic.gov.au/about-asic/what-we-do/how-we-operate/accountability-and-reporting/statements-of-expectations-and-intent/statement-of-expectations-australian-securities-and-investments-commission-august-2021/">new statement</a> begins by saying ASIC is expected to “identify and pursue opportunities to contribute to the Government’s economic goals”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/frydenbergs-directions-to-asic-throw-the-banking-royal-commission-under-a-bus-166813">Frydenberg's directions to ASIC throw the banking royal commission under a bus</a>
</strong>
</em>
</p>
<hr>
<p>ASIC accepted the banking royal commission’s <a href="https://asic.gov.au/about-asic/news-centre/speeches/asic-s-approach-to-enforcement-after-the-royal-commission/">why-not-litigate recommendation</a> in 2019. But the federal government’s view of this was underlined last Friday when Longo fronted the House of Representatives’ standing committee on economics. </p>
<p>The committee’s chair, Tim Wilson, slammed the “why not litigate” approach as <a href="https://parlview.aph.gov.au/mediaPlayer.php?videoID=554090&operation_mode=parlview">binary, wrong-headed and farcical</a>. He also disputed that ASIC was too close to regulated companies, despite the <a href="https://journals.sagepub.com/doi/full/10.1177/0067205X18816240">overwhelming evidence to the contrary</a>. </p>
<h2>Return to enforceable undertakings</h2>
<p>The answers Longo and Court gave the AFR also suggest ASIC is backing away from the Hayne royal commission’s recommendation on “enforceable undertakings” — by which transgressors negotiate a settlement without an admission of wrongdoing. </p>
<p>A regulator might think using enforceable undertakings was better than taking a company to court, Commissioner Hayne said <a href="https://www.royalcommission.gov.au/system/files/2020-09/fsrc-volume-1-final-report.pdf">in his final report</a>. </p>
<blockquote>
<p>But that view cannot be formed without having first given proper consideration to questions of deterrence, both general and specific. A regulatory response to a breach of law that does not deter, generally and specifically, will rarely be a more effective regulatory outcome.“</p>
</blockquote>
<p>Court, however, told the AFR:</p>
<blockquote>
<p>My own view is that an enforceable undertaking can be completely appropriate in the right circumstance. Infringement notices can be completely appropriate.</p>
</blockquote>
<h2>Royal commission’s fading influence</h2>
<p>The impression gained is of an attempt to pay some lip service to the royal commission but also demonstrate fealty to the federal government.</p>
<p>The federal government repeatedly resisted the royal commission, <a href="https://theconversation.com/ideology-triumphs-over-evidence-morrison-government-drops-the-ball-on-banking-reform-153529">then backed away</a> from its commitment to act on all the recommendations. What has changed since the royal commission? Not much. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/ideology-triumphs-over-evidence-morrison-government-drops-the-ball-on-banking-reform-153529">Ideology triumphs over evidence: Morrison government drops the ball on banking reform</a>
</strong>
</em>
</p>
<hr>
<p>Last week the Federal Court <a href="https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2021/2021fca1008">fined Westpac</a> A$10.5 million for deceptive behaviour towards members of the Westpac-owned BT Superannuation Fund - a ruling stemming from litigation initiated by ASIC in 2016. This is the same BT ordered two weeks ago by the <a href="https://www.abc.net.au/news/2021-08-31/retirement-savings-investing-superannuation-funds-yoursuper-list/100419844">Australia Prudential Regulatory Authority</a> to advise about 500,000 members of its Retirement Wrap fund that they should leave the fund, <a href="https://theconversation.com/my-super-fund-just-failed-the-apra-performance-test-whats-next-166956">so bad have their returns been</a>.</p>
<p>In his judgement, Justice Michael O'Bryan criticised Westpac for failing to fix its compliance failures, tardiness in compensating customers and lack of apology: "Westpac has not expressed regret for the conduct, does not appear to have taken steps to remedy the compliance deficiencies and has been tardy in progressing a remediation plan.” </p>
<p>At least, though, ASIC litigated against Westpac — successfully pursuing an appeal when it lost its first case. What chance would there be of achieving a fair outcome for consumers from a “no-regrets Westpac” had it not gone to court? Not much.</p>
<p>Australia’s battered and bruised financial consumers have every right to say to the regulator, and the government: enforce the law, or get out of the way.</p><img src="https://counter.theconversation.com/content/167532/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow is the founder & CEO, Clarity Prudential Regulatory Consulting, Pty Ltd, he is an Associate Partner, Senior Advisor & Thought-Leader on Financial Services to DB & Associates, a joint Australian-South African Consultancy, he is a member of the Independent Committee of Experts convened by the South African National Treasury for the drafting of the Conduct of Financial Institutions Bill, a Secretariat member for the All Party Parliamentary Group for Personal Banking and Fairer Financial Services, House of Commons House of Lords, a member of the European Banking Institute (EBI) research work-stream on EU financial supervisory architecture, and an independent consultant to Luis Silva Morais/Sérgio Gonçalves do Cabo – Law Firm, for the jurisdictions of Australia and South Africa. He has received funding from various universities, associations and think tanks, most notably CGAP (a division of the World Bank) and the Banking Association, South Africa. He is affiliated with ACAC and the Accountability Round Table. He serves on the Boards of two charities.</span></em></p>The implosion of the Australian Securities and Investments Commission, has gone from tragedy to farce.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1668132021-08-26T18:13:44Z2021-08-26T18:13:44ZFrydenberg’s directions to ASIC throw the banking royal commission under a bus<figure><img src="https://images.theconversation.com/files/417997/original/file-20210826-25-11l7d5e.jpg?ixlib=rb-1.1.0&rect=440%2C810%2C3844%2C2460&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><p>For Australia’s habitually-abused financial consumers it’s Back to the Future (minus the <a href="https://www.youtube.com/watch?v=Psxktpxkc6o">DeLorean</a>).</p>
<p>Treasurer Josh Frydenberg appears to have thrown the most important findings of the banking royal commission under a bus, in glorious double-speak.</p>
<p>On Thursday he issued a direction to the Australian Securities and Investments Commission through what is known as a <a href="https://asic.gov.au/about-asic/what-we-do/how-we-operate/accountability-and-reporting/statements-of-expectations-and-intent/statement-of-expectations-australian-securities-and-investments-commission-august-2021/">statement of expectations</a>.</p>
<p>It is very different from the previous such statement, issued in <a href="https://asic.gov.au/about-asic/what-we-do/how-we-operate/accountability-and-reporting/statements-of-expectations-and-intent/statement-of-expectations-australian-securities-and-investments-commission-april-2018/">2018</a>.</p>
<p>This one includes an entirely new clause, placed right at the top.</p>
<p>The government expects ASIC to: </p>
<blockquote>
<p>identify and pursue opportunities to contribute to the government’s economic goals, including supporting Australia’s economic recovery from the COVID pandemic.</p>
</blockquote>
<p>It’s an odd role for a corporate cop, on its face inconsistent with the way ASIC itself describes its function in the “<a href="https://asic.gov.au/about-asic/what-we-do/our-role/">our role</a>” tab on its homepage.</p>
<p>Perhaps <a href="https://webarchive.nla.gov.au/awa/20190302060713/https://asic.gov.au/about-asic/what-we-do/our-role/">not yet updated</a> to take account of the guidelines, ASIC’s description says it is a regulator whose job is to “take whatever action we can, and which is necessary, to enforce and give effect to the law”.</p>
<h2>From ‘why not litigate’…</h2>
<p>It’s how the royal commission saw ASIC’s role. In his final report, Commissioner <a href="https://treasury.gov.au/publication/p2019-fsrc-final-report">Kenneth Hayne</a> was scathing about how ASIC carried out those duties, saying it was too ready to negotiate, and not keen enough to litigate.</p>
<blockquote>
<p>Financial services entities are not ASIC’s ‘clients’. ASIC does not perform its functions as a service to those entities. And it is well-established that ‘an unconditional preference for negotiated compliance renders an agency susceptible to capture’.</p>
<p>Negotiation and persuasion, without enforcement, all too readily leads to the perception that compliance is voluntary. It is not.</p>
</blockquote>
<p>Hayne said the first question ASIC should ask whenever misconduct was identified was “<a href="https://treasury.gov.au/publication/p2019-fsrc-final-report">why not litigate?</a>”. </p>
<p>Frydenberg’s new statement of expectations turns that on its head. </p>
<h2>…to ‘why not capitulate’</h2>
<p>Rather than “why not litigate,” it reads as “why not capitulate” — justified by the need to identify opportunities to contribute to Australia’s economic recovery.</p>
<p>The statement says the government expects ASIC to “act independently” but also says it should “consult with the government and treasury in exercising its policy-related functions” — a requirement not previously expressed in those terms.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/pro-tip-for-australias-banks-imagine-you-are-in-canada-107795">Pro tip for Australia's banks: imagine you are in Canada</a>
</strong>
</em>
</p>
<hr>
<p>It should “minimise regulatory burdens” (including presumably those that require regulated firms to act in the best interest of their customers).</p>
<p>It should ensure any guidance it offers to financial service providers is not “unduly prescriptive”.</p>
<h2>The banks have not earned leniency</h2>
<p>Granted, these are conditions that could be interpreted positively if ASIC was charged with supervising an industry that had demonstrated its trustworthiness and its commitment to putting its customers first. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=967&fit=crop&dpr=1 600w, https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=967&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=967&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/418000/original/file-20210826-27-1xd19yv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Royal Commissioner Kenneth Hayne believed the banks had not earned out trust.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>But after the evidence that was ventilated before the Hayne Royal Commission no one – not even the <a href="https://www.ausbanking.org.au/statement-from-aba-ceo-anna-bligh-on-the-release-of-the-final-report-of-the/">Australian Banking Association</a> makes such a claim. </p>
<p>Indeed, the damage done by more than a decade of financial industry misconduct, fraud, criminality and venality, committed on an industrial scale, is yet to be fully quantified. </p>
<p>Colleagues at the University of Melbourne estimate the full cost at north of <a href="https://www.unimelb.edu.au/__data/assets/pdf_file/0004/3145612/FinFuture_White_Paper.pdf">A$200 billion</a>, affecting approximately 54% of the population.</p>
<p>Frydenberg’s solution appears to be to put the needs of industry first. Separately, he is trying to scrap <a href="https://www.smh.com.au/politics/federal/creating-massive-uncertainty-government-told-to-act-on-responsible-lending-laws-20210618-p5829v.html">responsible lending laws</a>.</p>
<h2>From somewhere, to nowhere</h2>
<p>What will the upshot be of a newly enfeebled ASIC? In light of the demonstrable failure of banks, super funds and insurers to act with integrity after the royal commission, the upshot will be more of the same. </p>
<p>Indeed, as reported in <a href="https://www.theklaxon.com.au/home/westpacgouge">The Klaxon</a> in November, the almost one million customers in Westpac-BT’s “retirement wrap” umbrella fund had been gouged as much as $8 billion over the past decade, thanks to exorbitant fees.</p>
<p>Between mid-2018 and mid-2020 returns to members were close to zero (0.1%). </p>
<p>According to Australian Prudential Regulation Authority data, had the performance of the Westpac funds been merely average, its customers would have been $5 billion better off. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-bank-shares-are-climbing-despite-the-royal-commission-111175">Why bank shares are climbing despite the royal commission</a>
</strong>
</em>
</p>
<hr>
<p>The matter was reported to ASIC on November 23 last year. All ASIC has done since is “review” the situation. In that time fund members might have lost a further $1.5 billion relative to the industry average. </p>
<p>A better way to support a post-COVID economic recovery would be to give customers confidence that the laws meant to protect them were being properly enforced. It isn’t the road the treasurer has taken.</p><img src="https://counter.theconversation.com/content/166813/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow is the founder & CEO, Clarity Prudential Regulatory Consulting, Pty Ltd, he is an Associate Partner, Senior Advisor & Thought-Leader on Financial Services to DB & Associates, a joint Australian-South African Consultancy, he is a member of the Independent Committee of Experts convened by the South African National Treasury for the drafting of the Conduct of Financial Institutions Bill, a Secretariat member for the All Party Parliamentary Group for Personal Banking and Fairer Financial Services, House of Commons House of Lords, a member of the European Banking Institute (EBI) research work-stream on EU financial supervisory architecture, and an independent consultant to Luis Silva Morais/Sérgio Gonçalves do Cabo – Law Firm, for the jurisdictions of Australia and South Africa. He has received funding from various universities, associations and think tanks, most notably CGAP (a division of the World Bank) and the Banking Association, South Africa. He is affiliated with ACAC and the Accountability Round Table. He serves on the Boards of two charities. </span></em></p>The royal commission wanted the corporate cop to first ask ‘why not litigate?’. The treasurer’s new guidelines suggest it should instead ask ‘why not negotiate?’.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1559522021-03-14T22:49:48Z2021-03-14T22:49:48ZThere’s a bill before the Senate that would make it easier for banks to lend irresponsibly<figure><img src="https://images.theconversation.com/files/389221/original/file-20210312-22-498v81.jpg?ixlib=rb-1.1.0&rect=5%2C0%2C3644%2C1756&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source"> Neale Cousland/Shutterstock</span></span></figcaption></figure><p>The Hayne royal commission into misconduct in the banking, superannuation and financial services industry found Australia’s responsible lending requirements were correctly calibrated.</p>
<p>They are set out in the National Consumer Credit Protection Act, which requires lenders to offer credit that is “not unsuitable” for the borrower.</p>
<p>Hayne’s first recommendation (Recommendation 1.1) was that the National Consumer Credit Protection Act “<a href="https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf">not be amended</a> to alter the obligation to assess unsuitability”.</p>
<p>He saw “<a href="https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf">no reason to alter</a>” the relevant provision of the banking code.</p>
<p>On releasing the royal commissioner’s report in 2019 Treasurer Josh Frydenberg said he was “<a href="https://treasury.gov.au/sites/default/files/2019-03/FSRC-Government-Response-1.pdf">taking action on all 76 recommendations</a>” and “going further”. </p>
<p>Until COVID. </p>
<h2>COVID the pretext for weakening rules</h2>
<p>In <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/simplifying-access-credit-consumers-and-small">September</a>, in the midst of the COVID recession, Frydenberg said he was “reducing the cost and time it takes consumers and businesses to access credit”. </p>
<p>Credit was “the lifeblood of the Australian economy”.</p>
<p>He put forward a plan to remove responsible lending obligations from the Act, with the exception of small amount credit contracts and consumer leases where he would impose heightened obligations.</p>
<p>Allowing lenders to rely on the information provided by borrowers would replace the current practice of “lender beware” with “borrower responsibility”.</p>
<h2>‘Borrower responsibility’</h2>
<p>Frydenberg introduced the legislation in <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/simplifying-access-credit-consumers-and-small-0">December</a>. On <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/NCCPEcoRocovery/Report">Friday</a> a Senate committee recommended approving it, finding the current consumer protection framework “potentially overly prescriptive”.</p>
<p>Labor and Greens Senators dissented. The bill faces a Senate vote <a href="https://parlwork.aph.gov.au/Senate/DynamicRed#5b8e0587-ea76-eb11-b861-005056b55c61">this week</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/none-of-the-justifications-for-weakening-bank-lending-standards-quite-makes-sense-147843">None of the justifications for weakening bank lending standards quite makes sense</a>
</strong>
</em>
</p>
<hr>
<p>We are members of a consortium of 12 academics who conducted an in-depth <a href="https://cdn.theconversation.com/static_files/files/1514/Submission_91_-_Consumer_Law_Academics.pdf?1615515679">analysis</a> of the proposed changes and found they should be rejected. This is why.</p>
<p>Even after Hayne, banks are continuing to <a href="http://eresources.hcourt.gov.au/downloadPdf/2021/HCA/3">fight their obligations</a> and have yet to show they have changed their ways.</p>
<p>The drop in lending since COVID was not caused by overly strict lending laws. Indeed, after a win by Westpac in a <a href="https://www.abc.net.au/news/2020-06-26/asic-appeal-on-westpac-wagyu-shiraz-home-lending-dismissed/12396646">court case</a> brought by the Securities and Investments Commission the banks said the laws were <a href="https://cdn.theconversation.com/static_files/files/1515/Comments_from_Big_4_Banks_in_recent_appearances_%284_and_11_September_2020%29_before_the_HoR.pdf?1615522687">set appropriately</a>.</p>
<h2>Lending standards protect against crises</h2>
<p>Consumer protection in the field of finance is important — it contributes to strengthening financial stability. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389224/original/file-20210312-23-zy4pz5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Not everyone knows what they are signing.</span>
<span class="attribution"><span class="source">Jacob Lund/Shutterstock</span></span>
</figcaption>
</figure>
<p>The abusive, predatory and irresponsible lending practices that led to the US subprime mortgage crisis make this clear.</p>
<p>The government’s suggestion that it is fair for borrowers to take responsibility for their own circumstances doesn’t hold water.</p>
<p>No matter how diligent their inquiries, consumers frequently lack the expertise to understand their circumstances and what financial products will be best for them.</p>
<p>For many, almost all of the expertise lies with the banks. </p>
<p>Since COVID, their need for this expertise has become greater, not less. </p>
<p>The government says <a href="https://www.abc.net.au/news/2017-09-11/500b-dollars-of-liar-loans-in-australia-ubs/8892030">mortgage brokers</a> will fill this gap under a change proposed by Hayne that will require brokers to act in the “best interests” of their clients.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-its-one-thing-to-back-down-on-haynes-recommendation-about-mortgage-brokers-its-another-to-offer-nothing-in-its-place-113544">Vital signs. It's one thing to back down on Hayne's recommendation about mortgage brokers, it's another to offer nothing in its place</a>
</strong>
</em>
</p>
<hr>
<p>But Hayne’s recommendations were based on the responsible lending requirements being in place. </p>
<p>And Hayne wanted mortgage brokers banned from taking conflicted remuneration, under which they get paid by the banks they steer customers to, a recommendation Frydenberg at first <a href="https://treasury.gov.au/sites/default/files/2019-03/FSRC-Government-Response-1.pdf">accepted</a>, then <a href="https://joshfrydenberg.com.au/latest-news/mortgage-broking-sector-to-be-stronger-under-a-coalition-government/">backed away</a> from. </p>
<p>Brokers continue to be paid by the banks whose products they recommend.</p>
<h2>APRA has no history of consumer protection</h2>
<p>Hayne also recommended (<a href="https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf">Recommendation 6.1</a>) that Australia’s “twin peaks” system of regulation continue.</p>
<p>Under twin peaks, the Prudential Regulation Authority (APRA) regulates in order to ensure financial system stability, and the Securities and Investments Commission (ASIC) regulates to protect consumers.</p>
<p>While in his final report Hayne found that ASIC’s appetite for law enforcement had been limited, he found APRA’s had been non-existent.</p>
<p>The upshot is that, not only are the responsible lending requirements to be relaxed, but what’s left of them is to be handed to an agency (APRA) with no track record in the field, at the expense of ASIC.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389227/original/file-20210312-18-d7as97.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Until now, APRA hasn’t done consumer regulation.</span>
<span class="attribution"><span class="source">APRA</span></span>
</figcaption>
</figure>
<p>The government has argued that the <a href="https://joshfrydenberg.com.au/latest-news/taking-action-on-the-banking-superannuation-financial-services-royal-commission-going-further-by-requiring-afca-to-extend-its-remit/">Australian Financial Complaints Authority (AFCA)</a> will step up to protect consumers. </p>
<p>But AFCA has to be guided by the law. Without responsible lending laws and regulations, it is unclear what laws AFCA could apply. Thus far, APRA’s standards have been aimed at protecting financial stability rather than consumers. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389229/original/file-20210312-16-1skxwu7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Financial Complaints Authority would rely on APRA for guidance.</span>
<span class="attribution"><span class="source">Tashatuvango/Shutterstock</span></span>
</figcaption>
</figure>
<p>In our assessment the proposed changes fail in every respect. </p>
<p>They ignore the key lesson of the global financial crisis: that it was caused by reckless and predatory lending. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-about-to-become-easier-to-lend-irresponsibly-to-help-the-recovery-146916">It's about to become easier to lend irresponsibly, to help the recovery</a>
</strong>
</em>
</p>
<hr>
<p>They ignore the findings of the Hayne Commission and <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Credit_Card_Interest/Report/c05">other inquiries</a> dating back at least a <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Completed_inquiries/2010-13/postGFCbanking/report/c06%20para%206.31">decade</a>.</p>
<p>They will neither properly protect consumers nor create the confidence in the financial industry the post-COVID recovery will need.</p>
<p>The government has named its legislation the National Consumer Credit Protection Amendment (<a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6656">Supporting Economic Recovery</a>) Bill. </p>
<p>A more apt title might have been the “Reducing Consumer Protection Bill”.</p><img src="https://counter.theconversation.com/content/155952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow consults to DB & Associates. He receives funding from the World Bank; Banking Association South Africa; and Bryte Insurance. He is affiliated with the All Party Parliamentary Group for Personal Banking and Fairer Financial Services, House of Commons House of Lords. </span></em></p><p class="fine-print"><em><span>Elise Bant receives funding from the Australian Research Council for Discovery Project DP180100932 'Developing a Rational Law of Misleading Conduct' with Professor Jeannie Marie Paterson of Melbourne Law School and for ARC Future Fellowship project FT190100475 'Unravelling Corporate Fraud'.</span></em></p><p class="fine-print"><em><span>Nicola Howell has previously received funding through the Australian Government's Research Training Program and Endeavour Program, the Australian Securities and Investments Commission and the Queensland Department of Justice and Attorney-General. Nicola is a member of the Consumers' Federation of Australia (CFA), and has previously been a member of the CFA Executive.</span></em></p><p class="fine-print"><em><span>Therese Wilson has previously received funding from Consumer Affairs Victoria and National Australia Bank for research related to consumer credit and financial exclusion. Therese Wilson has previously served as Chair of the Board of Foresters Community Finance Limited and the Australian Financial Inclusion Network. She is currently the Dean of Law and Head of School at Griffith Law School, Griffith University.</span></em></p>The National Consumer Credit Protection Amendment bill goes against two explicit recommendations of the banking royal commission.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongElise Bant, Professor of Law, The University of Western AustraliaNicola Howell, Senior lecturer, Queensland University of TechnologyTherese Wilson, Senior Lecturer, Griffith Law School, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1490022020-10-29T05:13:27Z2020-10-29T05:13:27ZWe put forward a way to govern ASIC better. The government said no<p>The current governance/management crisis at the Australian Securities and Investments Commission (ASIC) has seen a deputy chairman <a href="https://www.theguardian.com/australia-news/2020/oct/26/asic-deputy-chairman-resigns-after-70000-rental-payment-revealed">resign</a> and the chairman <a href="https://theconversation.com/asic-chair-james-shipton-steps-aside-after-adverse-finding-by-auditor-general-148728">step aside under a cloud</a>.</p>
<p>It might have arisen simply because of lax internal accounting, compliance, and reporting procedures regarding payments (larger than those approved) benefiting the chairman and deputy chairman (a bad look for a regulator). </p>
<p>Or it might reflect something more substantive about whether the way ASIC is set up is consistent with good governance.</p>
<p>The <a href="https://treasury.gov.au/publication/c2014-fsi-final-report">financial system inquiry</a> set up by the Coalition after taking office examined the governance structure of ASIC in 2014. I was one of members of the inquiry.</p>
<p>ASIC’s governance (and also that of Australian Prudential Regulation Authority, the Australian Competition and Consumer Commission and other statutory authorities) is built around a “commission” structure. </p>
<p>A small group of full-time executives (appointed by the government as “commissioners” and one designated as the “chairman” or chief executive) are responsible for both the governance and management of the organisation.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/asic-chair-james-shipton-steps-aside-after-adverse-finding-by-auditor-general-148728">ASIC chair James Shipton steps aside after adverse finding by Auditor-General</a>
</strong>
</em>
</p>
<hr>
<p>This contrasts with the conventional corporate structure found in the private sector where a board (in theory appointed by the shareholder owners, but often a self-perpetuating “<a href="https://www.ownershipmatters.com.au/research-news/2020/10/25/many-are-called-few-are-chosen/">mates club</a>”) is separate from the day-to-day management of the business which is undertaken by the chief executive and other full-time employees. </p>
<p>The board is responsible for monitoring company performance, determining strategy (including approving funding plans), and hiring and firing the chief executive.</p>
<h2>We considered carefully the best way to run ASIC</h2>
<p>In considering the governance structure we noted that a board structure involving part-time external directors was put in place when the Australian Prudential Regulation Authority was established in 1998 but discarded after a few years. </p>
<p>This reflected the recommendation of the <a href="https://parlinfo.aph.gov.au/parlInfo/download/library/prspub/XZ896/upload_binary/xz8964.pdf;fileType=application%2Fpdf#search=%22library/prspub/XZ896%22">royal commission into the collapse of HIH insurance</a>, which concluded that the board structure had blurred accountability between management and the board.</p>
<p>Our inquiry (<a href="https://treasury.gov.au/publication/c2014-fsi-final-report">the Murray financial system inquiry</a>) also decided that a board structure was not appropriate.</p>
<h2>What was needed was oversight</h2>
<p>Why not? Well, it is very hard to imagine the federal treasurer giving up the powers to appoint (and sack) the chief executive, determine the funding level, and set mandates and performance objectives. In practice the board would have little to do.</p>
<p>In fact all that would really be left would be monitoring the performance of the regulator. </p>
<p>While the regulators are required to report to the minister and are monitored in other ways (including by the audit office) we came to the view that a separate overarching Financial Regulator Assessment Board (FRAB) would be the best way to oversee the performance of all of the regulators.</p>
<p>Although the treasurer could do this, we came to the view that in practice things would slip under that treasurer’s radar. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366334/original/file-20201029-19-1kfqc4o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/publication/c2014-fsi-final-report">Financial System Inquiry final report, November 2014</a></span>
</figcaption>
</figure>
<p>It was one of the only two (out of 44!) recommendations rejected by the government. </p>
<p>But it has resurfaced as a recommendation of the <a href="https://financialservices.royalcommission.gov.au/Pages/default.html">Hayne royal commission</a> into misconduct in the banking, superannuation and financial services industries.</p>
<p>Recommendation 6-14 is for the establishment of a new oversight authority, differing in some details from our recommendation, but otherwise similar.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=276&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=276&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=276&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=347&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=347&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366336/original/file-20201029-15-1a1jkfq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=347&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://financialservices.royalcommission.gov.au/Pages/reports.html#final">Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry final report , February 2019</a></span>
</figcaption>
</figure>
<p>In its response to the Hayne report the government <a href="https://treasury.gov.au/publication/p2019-fsrc-response">accepted</a> this recommendation, despite having earlier rejected ours. </p>
<p>Consultation on draft legislation to set up such a body took place in early 2020, but the bill has not yet been brought to parliament.</p>
<p>Whether having such an oversight authority will help resolve ASIC’s internal management and governance failings is an open question.</p>
<h2>The current structure isn’t helping</h2>
<p>In the <a href="https://treasury.gov.au/publication/fit-for-the-future-a-capability-review-of-the-australian-securities-and-investments-commission">2015 ASIC Capability Review</a> (led by Karen Chester – subsequently appointed as an ASIC Commissioner), a significant recommendation was to “realign its internal governance structure to achieve a clear separation of the non-executive (governance) and executive line management roles”.</p>
<p>The primary focus of the commissioners would become “setting the strategy of the organisation and supervising overall delivery and performance against the strategy, along with making, and taking ultimate responsibility, for key regulatory decisions”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-about-to-become-easier-to-lend-irresponsibly-to-help-the-recovery-146916">It's about to become easier to lend irresponsibly, to help the recovery</a>
</strong>
</em>
</p>
<hr>
<p>Commissioners would no longer be in charge of individual divisions, a change ASIC later adopted in 2018.</p>
<p>Has it worked? If <a href="https://www.afr.com/companies/financial-services/why-frydenberg-needs-to-take-the-axe-to-asic-20201025-p568af">reports on internal ASIC conflicts</a> in the media are to be believed, not really.</p>
<p>The proposed assessment authority wouldn’t help with uncovering compliance failings such as those prompting the current crisis – they remain the responsibility of the auditor. </p>
<h2>Our idea could help put it right</h2>
<p>But it would help with the broader goal of ensuring ASIC is working well. </p>
<p>Its remit would include how ASIC’s governance and management arrangements enable it to achieve the mandate and performance expectations set for it by the government.</p>
<p>Whether the government will go beyond a knee-jerk reaction to the current scandal and actually adopt such a more considered approach is anyone’s guess!</p><img src="https://counter.theconversation.com/content/149002/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It was one of only two recommendations the government rejected.Kevin Davis, Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1487962020-10-26T05:08:06Z2020-10-26T05:08:06ZAs the government drags its heels, a better model for a federal integrity commission has emerged<figure><img src="https://images.theconversation.com/files/365434/original/file-20201026-19-f7chk0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mick Tsikas/AAP</span></span></figcaption></figure><p>Independent MP Helen Haines has just introduced a <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6597">bill</a> into parliament that seeks to establish a robust new federal integrity commission. </p>
<p>This is a consensus bill that involved consultation with legal academics, panels of retired judges, civil society stakeholders, ethicists and MPs. </p>
<p>Without the government’s support, it is unlikely to pass. But it is a move designed to force the government’s hand. </p>
<p>Although the government has agreed to establish a <a href="https://theconversation.com/governments-commonwealth-integrity-commission-will-not-stamp-out-public-sector-corruption-heres-why-127502">Commonwealth Integrity Commission</a>, it has been dragging its heels on the issue. An exposure draft of the government’s CIC bill was sent to the attorney-general in December, but it has <a href="https://www.tai.org.au/sites/default/files/Commonwealth%20Integrity%20Commission%20timeline%20%5BWeb%5D.pdf">yet to be publicly released</a>. </p>
<p>The government has said the bill’s release was <a href="https://www.theguardian.com/australia-news/2020/may/22/federal-integrity-commission-delayed-again-amid-warnings-of-coronavirus-response-corruption-risk">delayed</a> due to the immediate priority of responding to the pandemic.</p>
<p>However, the need for a federal integrity commission is just as important as ever, with the government now plagued by multiple scandals involving the misuse of federal funds, such as the <a href="https://www.theguardian.com/australia-news/2020/oct/19/senator-i-agree-30m-western-sydney-airport-land-deal-looks-like-a-cover-up-says-infrastructure-chief">Western Sydney airport deal</a>, the <a href="https://www.abc.net.au/news/2020-10-23/investigation-asic-launched-chair-james-shipton-stepping-aside/12807278">ASIC chair’s tax advice bill</a>, the <a href="https://www.theguardian.com/australia-news/2019/oct/31/not-a-drop-of-water-after-government-spends-80m-on-rights-from-agribusiness">Angus Taylor water buyback scheme</a> and the <a href="https://theconversation.com/the-sports-rorts-affair-shows-the-need-for-a-proper-federal-icac-with-teeth-122800">“sports rorts” affair</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365450/original/file-20201026-21-1674jq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bridget McKenzie was forced to resign after the sports rorts affair.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<p>A strong — and independent — integrity commission would be able to investigate such issues thoroughly. It shouldn’t be left to the government to monitor itself any longer.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/governments-commonwealth-integrity-commission-will-not-stamp-out-public-sector-corruption-heres-why-127502">Government's Commonwealth Integrity Commission will not stamp out public sector corruption — here’s why</a>
</strong>
</em>
</p>
<hr>
<h2>What makes this proposal worth considering</h2>
<p>Overall, the bill proposes a robust commission with strong powers, coupled with checks and balances to ensure it does not abuse its powers.</p>
<p>Perhaps most significantly, the proposed integrity commission would have the power to conduct public hearings if it believes it’s in the public interest, balancing the seriousness of allegations with any unfair prejudice to a person’s reputation or unfair exposure of a person’s private life. </p>
<p>This is a proportionate model that enhances public trust through public hearings, but also takes into account legitimate concerns about damage to an individual’s reputation. </p>
<p>By contrast, the government’s proposed CIC would not have the power to conduct public hearings. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365452/original/file-20201026-17-4pnj5d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The AFP is investigating possible criminal offences linked to the $30 million land deal for the new Sydney airport.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<p>Haines’s proposed commission would also have the power to make findings of fact and recommendations in a public report. It could refer matters involving criminality to law enforcement authorities. </p>
<p>The commissioner would be a statutory office holder who is independent of government. He or she would be supported by several assistant commissioners to allow for internal checks and balances. </p>
<p>And the body would include a whistleblower protection commissioner, which is particularly necessary given how <a href="https://theconversation.com/from-richard-boyle-and-witness-k-to-media-raids-its-time-whistleblowers-had-better-protection-121555">weak</a> Australia’s
whistleblower laws are considered to be.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-richard-boyle-and-witness-k-to-media-raids-its-time-whistleblowers-had-better-protection-121555">From Richard Boyle and Witness K to media raids: it’s time whistleblowers had better protection</a>
</strong>
</em>
</p>
<hr>
<p>Importantly, the bill would provide for external accountability mechanisms to “watch the watchdog” via parliament and the courts. </p>
<p>Specifically, there would be oversight by a parliamentary joint committee to ensure the body’s compliance with the law, due process and other standards. Its decisions would also be subject to judicial review.</p>
<p>The commission’s funding would need approval by the joint parliamentary committee, as well, which provides some financial protection. This is important as the NSW Independent Commission Against Corruption (ICAC) has had its <a href="https://www.theguardian.com/australia-news/2020/oct/20/icacs-independence-threatened-under-nsw-funding-model">budget severely cut</a> following its explosive revelations of corruption in government. </p>
<p>Haines’ bill also proposes a corruption prevention program for the Commonwealth public sector. This is a positive, pro-integrity function that monitors major corruption risks across all sectors.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=336&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=336&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=336&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365453/original/file-20201026-19-5guhmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The NSW ICAC is currently investigating former MP Daryl Maguire’s alleged misuse of public office for personal gain.</span>
<span class="attribution"><span class="source">ICAC handout</span></span>
</figcaption>
</figure>
<h2>Why the government’s model has been criticised</h2>
<p>The government’s CIC model is a <a href="https://theconversation.com/the-proposed-national-integrity-commission-is-a-watered-down-version-of-a-federal-icac-108753">watered-down version</a> of Haines’s proposed body. It has been criticised for a few reasons. </p>
<p>The first is that it would fail to achieve its main aim of exposing corruption in the public sector.</p>
<p>The bar for investigation is too high, requiring a reasonable suspicion of corruption amounting to a criminal offence before an inquiry can even begin. This is a difficult hurdle to clear. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365455/original/file-20201026-23-xgz5bz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Morrison government has been criticised for postponing its proposed integrity commission.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<p>Lessons from the state anti-corruption commissions show evidence of corruption is typically unveiled through investigations themselves (based on credible allegations), rather than before an investigation begins.</p>
<p>Another major criticism is the proposed CIC will not have the power to hold public hearings. </p>
<p>Public hearings ensure proceedings are not cloaked in secrecy. They also increase public trust. Widespread corruption has been uncovered through such hearings in the past, such as the <a href="https://www.ccc.qld.gov.au/about-us/our-history/fitzgerald-inquiry">Fitzgerald inquiry</a> in the 1980s into corruption in the Queensland police force. This led to the resignations and imprisonments of various former ministers and officials. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/grattan-on-friday-morrisons-promised-integrity-commission-cant-hide-behind-covid-much-longer-can-it-148636">Grattan on Friday: Morrison's promised integrity commission can't hide behind COVID much longer – can it?</a>
</strong>
</em>
</p>
<hr>
<h2>The time to act is now</h2>
<p>All states now have an anti-corruption commission and the federal government is lagging behind.</p>
<p>A bill is now before parliament that puts forward a strong, yet proportionate, vision for an integrity commission with robust powers and both internal and external accountability mechanisms. </p>
<p>It has been developed through a strong consultative process with legal experts, academics and civil society. </p>
<p>In short, it is a better model than what the government has proposed. It is now time for the government to move forward to promote political integrity — without any further delay.</p><img src="https://counter.theconversation.com/content/148796/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yee-Fui Ng has received funding from the New South Wales Independent Commission Against Corruption for a commissioned project on lobbying regulation.</span></em></p>Independent MP Helen Haines’s bill will likely not pass without the government’s support, but it proposes a robust body with suitable accountability mechanisms. It’s worth serious consideration.Yee-Fui Ng, Senior Lecturer, Faculty of Law, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1478432020-10-12T18:45:27Z2020-10-12T18:45:27ZNone of the justifications for weakening bank lending standards quite makes sense<p>The budget plan to scrap Australia’s decade-old responsible lending obligations warrants detailed examination. </p>
<p>It is hard to see how the stated reasons for easing what’s asked of banks and other lenders make much sense, and the timing is strange.</p>
<p>Introduced in 2009, the <a href="https://ministers.treasury.gov.au/ministers/nick-sherry-2007/media-releases/new-national-responsible-lending-laws">responsible lending obligations</a> made it illegal to offer credit that was unsuitable for a consumer based on their needs and capacity to make payments.</p>
<p>In the leadup to last week’s budget Treasurer Josh Frydenberg announced plans to <a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Consumer-credit-reforms-fact-sheet.pdf">dismantle</a> a regime he said had become “<a href="https://ministers.treasury.gov.au/ministers/michael-sukkar-2019/media-releases/simplifying-access-credit-consumers-and-small-business">overly prescriptive, complex and unnecessarily onerous on consumers</a>”.</p>
<p>“Now more than ever,” he said, it had become important there were “no unnecessary barriers” to the flow of credit to households and business.</p>
<p>But, if well designed, responsible lending obligations ought to be largely irrelevant to responsible lenders. They take account of needs and capacity to repay anyway.</p>
<h2>The standards don’t hurt responsible lending</h2>
<p>Their merit lies in restraining “bad apples” and preventing the good ones from letting loan standards slip and permitting lax management to allow bad practices.</p>
<p>The <a href="https://financialservices.royalcommission.gov.au/Pages/reports.html#final">Hayne Royal Commission</a> into the financial services industry chastised banks and others for misconduct when it came to lending. The banks say they have listened and implemented better practices. </p>
<p>They probably have, which should mean the minimum standards embodied in responsible lending obligations make little difference to them.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-about-to-become-easier-to-lend-irresponsibly-to-help-the-recovery-146916">It's about to become easier to lend irresponsibly, to help the recovery</a>
</strong>
</em>
</p>
<hr>
<p>Another of Hayne’s recommendations, that would have outlawed conflicted remuneration for mortgage brokers, was <a href="https://www.afr.com/politics/coalition-backs-down-on-ending-trail-commissions-for-mortgage-brokers-20190312-h1caoj">rejected</a> by the government in favour of a <a href="https://www.afr.com/politics/federal/frydenberg-moves-on-royal-commission-mortgage-broker-recommendations-20190825-p52kke">best interests</a> obligation along the lines of the responsible lending obligations for lenders that it wants to remove.</p>
<h2>The timing is odd</h2>
<p>The timing of the responsible lending obligations decision is hard to justify. </p>
<p>The Australian Securities and Investments Commission spent much of 2019 consulting on a review of its responsible lending guidelines and released a new version <a href="https://download.asic.gov.au/media/5403117/rg209-published-9-december-2019.pdf">in December</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/362869/original/file-20201012-18-ttt2h2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Wagyu and Shiraz needn’t rule out a loan.</span>
</figcaption>
</figure>
<p>Then in June it lost an appeal in the long-running “<a href="https://www.abc.net.au/news/2020-06-26/asic-appeal-on-westpac-wagyu-shiraz-home-lending-dismissed/12396646">Wagyu and Shiraz</a>” case in which it attempted to prosecute Westpac for relying on general borrower expense benchmarks.</p>
<p>If anything, that should have somewhat settled bank concerns that the responsible lending obligations required too much of them. </p>
<p>Banks such as Westpac are no longer required to rely on detailed examination of an applicant’s past expenditure levels when assessing whether payments can be met.</p>
<p>In the words of Justice Perram of the Federal Court, “I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare”.</p>
<p>Instead banks will be able to focus on whether applicants are willing to forgo discretionary spending (on things such as school fees) in order to obtain the loan size required for buying an otherwise unaffordable house. </p>
<p>The change will put some of the onus of assessing loan suitability back on the borrower, which is what the Treasurer <a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Consumer-credit-reforms-fact-sheet.pdf">says he wants</a>.</p>
<h2>They ought to be becoming less burdensome</h2>
<p>It might be that the responsible lending obligations impose excessive assessment costs on the banks. And the extra work for applicants to provide the required information might dissuade them from applying.</p>
<p>But with the recent introduction of <a href="https://www.commbank.com.au/banking/open-banking.html">open banking</a> allowing banks to access applicants’ data with their permission, and “fintechs” developing products to cost-effectively mine that data, it seems likely that loan assessment costs (including meeting responsible lending obligations) are likely to decline.</p>
<p>If costs are the issue, why change the rules in the midst of a cost-reducing revolution?</p>
<h2>And they ought to have stopped bad loans</h2>
<p>Another argument has been that abolishing responsible lending obligations will facilitate growth in lending. </p>
<p>Maybe – but not permanently without increasing unsuitable lending. Responsible lending obligations may slow the approval process but could only have reduced the level of loans on issue if one or both of two conditions apply:</p>
<ul>
<li><p>the information-supply requirements (gathering of which should help applicants understand their borrowing capacity) have dissuaded potential applicants, meaning removing them would allow more poorly-informed borrowers to take out loans</p></li>
<li><p>the obligations have led to banks lending less to unsuitable borrowers, meaning removing them will encourage more lending to unsuitable borrowers</p></li>
</ul>
<p>Another argument, that the Australian Prudential Regulation Authority can police and enforce good lending behaviour ignores the fact that APRA’s remit relates to credit risk and safety of the banks. </p>
<p>It has no mandate for (nor expertise in) considering whether borrowers will be put into financial hardship by loan obligations.</p><img src="https://counter.theconversation.com/content/147843/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis was a member of the government's 2014 financial system inquiry.</span></em></p>If anything, the standards are becoming easier, rather than harder, to apply.Kevin Davis, Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1469162020-09-28T19:58:31Z2020-09-28T19:58:31ZIt’s about to become easier to lend irresponsibly, to help the recovery<figure><img src="https://images.theconversation.com/files/360226/original/file-20200928-24-11yjrvp.jpg?ixlib=rb-1.1.0&rect=0%2C613%2C4309%2C1991&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Kittisak Jirasittichai/Shutterstock</span></span></figcaption></figure><p>What used to be known as a requirement to lend responsibly is now regarded as red tape.</p>
<p>The National Consumer Credit Protection Act introduced by the Rudd government after the global financial crisis introduced responsible lending obligations that required lenders to ensure the loans they were offering were “<a href="https://www.asic.gov.au/regulatory-resources/credit/responsible-lending/">not unsuitable</a>” for borrowers.</p>
<p>No longer. If passed into law, changes announced by treasurer Josh Frydenberg last week in the leadup to the budget will remove the obligation for most lenders, allowing them to rely instead on the <a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Consumer-credit-reforms-fact-sheet.pdf">information presented to them by borrowers</a>.</p>
<p>In the treasurer’s words, it will replace the current principle of “lender beware” with “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/simplifying-access-credit-consumers-and-small">borrower responsibility</a>”.</p>
<p>He says it will make it easier for consumers to borrow, which would have been a disquieting prospect during the borrowing and house price boom that peaked three years ago <a href="https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release">under the old rules</a> and was only slowed by intervention from the <a href="https://www.apra.gov.au/news-and-publications/apra-announces-further-measures-to-reinforce-sound-residential-mortgage">Australian Prudential Regulation Authority</a> (APRA). </p>
<h2>Safeguards offered…</h2>
<p>Frydenberg says there will be safeguards. Lenders will have to comply with APRA lending standards. The special restrictions on “small amount credit contracts” (a discrete category that covers payday loans) will remain in place. Debt management firms will be required to hold licences.</p>
<p>But the provisions will not require lenders to assess the crucial question of whether a particular product is suitable for an individual borrower. </p>
<p>For the first time in a decade, that will be up to the borrower.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-proposes-changes-to-smooth-the-path-for-borrowers-146877">Government proposes changes to smooth the path for borrowers</a>
</strong>
</em>
</p>
<hr>
<p>Lenders might decide to do that, but they won’t have to. What the treasurer calls “borrower responsibility” will become “buyer beware”.</p>
<p>Lenders will be obliged to be members of the Australian Financial Complaints Authority and have to act efficiently, honestly and fairly. </p>
<p>And members of the Banking Association will be subject to a <a href="https://theconversation.com/lunch-with-bankers-even-theyre-unimpressed-with-their-new-banking-code-of-conduct-122036">code of practice</a> that requires them to exercise the care and skill of a diligent and prudent banker.</p>
<p>But the duty of a banker is to the bank. That means a banker’s job is to ensure that a loan can be recovered, perhaps by selling property, rather than that the borrower can afford to make the payments. </p>
<h2>…but bankers work for banks</h2>
<p>When the financial crisis struck, <a href="https://www.legislation.gov.au/Details/C2009B00148/Explanatory%20Memorandum/Text">equity was stripped</a> from family homes by lenders looking after themselves. The new proposed changes would allow it to happen again.</p>
<p>The government says lenders have had to devote substantial resources to checking incorrect and misleading information provided by borrowers. </p>
<p>But much of it would have come from <a href="https://www.abc.net.au/news/2017-09-11/500b-dollars-of-liar-loans-in-australia-ubs/8892030">mortgage brokers</a> acting on behalf of borrowers but being paid as if they were lenders, receiving a commission related to the size of the loan.</p>
<h2>And brokers work for banks</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360218/original/file-20200928-16-s70v2h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mortgage brokers till get paid by banks, despite a recommendation of the royal commission.</span>
</figcaption>
</figure>
<p>The Royal Commission recommended that brokers be subject to a new “best interest” requirement, which is due to come in <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-040mr-asic-consults-on-draft-guidance-on-the-new-best-interests-duty-for-mortgage-brokers/">in January</a>, untested, just before the responsible lending requirement is withdrawn in April.</p>
<p>Commissioner Kenneth Hayne also recommended <a href="https://www.canstar.com.au/home-loans/banking-royal-commission-recommendations/">banning brokers’ commissions</a> and having them accept payment instead in the form of an upfront fee paid by the borrower not the lender. The government at first accepted and then <a href="https://www.abc.net.au/news/2019-03-12/government-backs-away-from-mortgage-commission-ban/10894228">rejected</a> the recommendation.</p>
<p>Even where they are not encouraged to over-borrow, consumers are often making decisions under stress or blinded by <a href="https://thedecisionlab.com/biases/optimism-bias/">optimism bias</a>.</p>
<p>Even where entirely honest they can be unable to make reliable predictions about the level of credit they can bear. </p>
<p>If the responsible lending rules we have are considered <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/simplifying-access-credit-consumers-and-small">too prescriptive, complex and onerous</a> as the treasurer says, a reasonable approach would be to make them simpler and principles-based rather than prescriptive as <a href="https://theconversation.com/understanding-hayne-why-less-is-more-110509">recommended by Commissioner Hayne</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-its-one-thing-to-back-down-on-haynes-recommendation-about-mortgage-brokers-its-another-to-offer-nothing-in-its-place-113544">Vital signs. It's one thing to back down on Hayne's recommendation about mortgage brokers, it's another to offer nothing in its place</a>
</strong>
</em>
</p>
<hr>
<p>The Australian Law Reform Commission has just commenced an inquiry into <a href="https://www.alrc.gov.au/inquiry/review-of-the-legislative-framework-for-corporations-and-financial-services-regulation/">how to simplify Australia’s complex financial services regime</a>. </p>
<p>The government might have asked it for a heads up or kept the responsible lending obligations in place until it saw what it had to say.</p><img src="https://counter.theconversation.com/content/146916/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeannie Marie Paterson receives funding from the Australian Research Council for project DP180100932 (with Professor Elise Bant) on ‘Developing a rational law of misleading conduct’. </span></em></p><p class="fine-print"><em><span>Elise Bant receives funding from the Australian Research Council for project DP180100932 (with Professor Jeannie Paterson) on ‘Developing a rational law of misleading conduct’ and for Future Fellowship project FT190100475 on ‘Unravelling Corporate Fraud’. </span></em></p><p class="fine-print"><em><span>Nicola Howell receives funding through the Australian Government's Research Training Program Scholarship (PhD scholarship) and has previously received funding from the Australian Securities and Investments Commission and Queensland Department of Justice and Attorney-General. Nicola is a member of the Consumers' Federation of Australia. </span></em></p>It’ll be up to the borrower, not the lender to determine whether what’s offered is suitable under changes to be detailed in the budget.Jeannie Marie Paterson, Professor of Law, The University of MelbourneElise Bant, Professor of Law, The University of Western AustraliaNicola Howell, Senior lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1446652020-09-01T04:58:10Z2020-09-01T04:58:10ZIs ASIC more concerned about relationships with boards than enforcing the law?<figure><img src="https://images.theconversation.com/files/355692/original/file-20200901-22-qsxtzq.jpg?ixlib=rb-1.1.0&rect=185%2C233%2C3401%2C1371&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A recent decision by Australian Securities and Investments Commission to deny a newspaper access to a confidential bank document raises questions about its attitude to regulating the financial services industry.</p>
<p>In the wake of the banking royal commission, the Australian Financial Review made a <a href="https://www.afr.com/companies/financial-services/asic-refuses-to-release-secret-cba-board-report-20200817-p55mk7">freedom of information</a> request, seeking a report prepared for the Commonwealth Bank board by its lawyers, Speed & Stracey. </p>
<p>ASIC obtained a copy of it from the bank as part of its post-royal commission intensification of oversight. </p>
<p>The report is important because it deals with astounding claims that emerged during the royal commission. </p>
<p>Under questioning, the bank’s chair Catherine Livingstone said she had <a href="https://financialservices.royalcommission.gov.au/public-hearings/Documents/transcripts-2018/transcript-21-november-2018.pdf">voiced concerns at a board meeting</a> about its responses to breaches of money laundering laws that led to a record <a href="https://theconversation.com/commonwealth-banks-700-million-fine-will-end-up-punishing-its-customers-97918">A$700 million </a>penalty. </p>
<p>The concerns were not recorded in the board minutes. Her recollections were disputed by others present.</p>
<p>Keeping accurate minutes is a core obligation under the Corporations Act. Breaches attract heavy penalties because minutes can become central evidence in prosecutions.</p>
<p>ASIC has chosen not to pursue Livingstone and the Commonwealth Bank board. </p>
<p>In its response to the Australian Financial Review’s request, ASIC said:</p>
<blockquote>
<p>ASIC’s (regulatory) function is best achieved by maintaining a trusting and cooperative relationship with organisations who have shown a willingness to voluntarily provide information to ASIC on a confidential basis.</p>
</blockquote>
<p>The statement raises questions about how ASIC balances its relationship with those it regulates with its job of enforcing the law. </p>
<p>In the final report of the banking royal commission Commissioner Kenneth Hayne challenged regulators such as ASIC to ask - <a href="https://asic.gov.au/about-asic/news-centre/speeches/asic-s-approach-to-enforcement-after-the-royal-commission/">why not litigate</a>? </p>
<p>It’s a question still relevant today.</p>
<h2>Concern and co-regulation</h2>
<p>After losing a case against <a href="https://www.regulationasia.com/asics-loss-to-westpac-is-terrible-for-everyone/">Westpac</a> in the Federal Court over the way it approved loans, ASIC decided <a href="https://www.afr.com/companies/financial-services/shipton-why-asic-lost-hunger-for-wagyu-and-shiraz-appeal-20200830-p55qm3">not to appeal</a> to the High Court because it wanted to be a “force for the recovery”.</p>
<p>“We are in a very different economic environment than we were when we started this case,” its chairman James Shipton said on Monday. “The world has changed. We are cognisant of that.”</p>
<p>ASIC has long extolled the virtues of “<a href="https://asic.gov.au/regulatory-resources/markets/resources/markets-articles-by-asic/asic-viewpoint-enhancing-administrative-decision-making-processes-in-financial-services-regulation/">co-regulation</a>”, which it defines as “circumstances where the administration and enforcement of regulatory obligations occur in collaboration with industry”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/in-defence-of-asic-theres-more-to-regulation-than-prosecution-106239">In defence of ASIC: there's more to regulation than prosecution</a>
</strong>
</em>
</p>
<hr>
<p>Co-regulation, sometimes called <a href="https://www.routledge.com/Meta-Regulation-in-Practice-Beyond-Normative-Views-of-Morality-and-Rationality/Simon/p/book/9780367228705">meta-regulation</a>, is a concept with some advantages. By subcontracting regulation to professional organisations, boards and managers closest to the action, the uber regulators can save money and concentrate on the big picture.</p>
<p>But it relies on those managers acting well.</p>
<p>Shipton stressed how important this was to ASIC in a speech delivered while the royal commission was sitting:</p>
<blockquote>
<p>…industry, and the people within it, need to do more to support the proper functioning of the financial system. They need to take more of a leadership role in promoting professionalism. For example, the industry itself, working with standard setting and professional bodies, could promote and perhaps even require professionalism within their sectors.</p>
</blockquote>
<p>After the royal commission, ASIC embedded <a href="https://www.afr.com/chanticleer/asic-puts-shrinks-in-the-boardroom-20190618-p51yxr">psychologists</a> in boardrooms to assess the quality of <a href="https://download.asic.gov.au/media/5291301/rep631-attachment-a-published-2-10-2019.pdf">board decision making</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355528/original/file-20200831-24-e0ql99.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Hiring psychologists is a gentle approach.</span>
</figcaption>
</figure>
<p>This <a href="https://aicd.companydirectors.com.au/membership/company-director-magazine/2019-back-editions/august/advocacy">unnerved directors</a>, but didn’t seem to produce many <a href="https://www.afr.com/policy/economy/putting-boards-onto-the-psychologist-s-couch-told-us-nothing-20191006-p52y1a">meaningful insights</a>. </p>
<p>While seeming reasonable, co-regulation is unreasonably one-sided. It extracts promises to do better in the future, while undermining the courts’ ability to hold them to account.</p>
<p>It sends the message that undocumented boardroom recollections, for instance, are acceptable, or at least no more than a regrettable lapse.</p>
<p>Yet finding after finding in the fields of criminology, business ethics, public administration and political science suggests that what matters most for misconduct is not psychology but structure.</p>
<p>One multi-disciplinary study entitled <a href="https://journals.sagepub.com/doi/abs/10.1177/1362480606065911">Beyond bad apples and weak leaders</a> examined both prisoner abuse in Baghdad’s notorious Abu Ghraib prison and also the falsification of architectural internship report in the United States.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-way-banks-are-organised-makes-it-hard-to-hold-directors-and-executives-criminally-responsible-93638">The way banks are organised makes it hard to hold directors and executives criminally responsible</a>
</strong>
</em>
</p>
<hr>
<p>It found that in both of these very different environments organisational structures and incentives contributed more to bad behaviour than “bad apples” with bad psychology.</p>
<p>For banks, what needs attention are </p>
<ul>
<li><p><em><a href="https://theconversation.com/solving-deep-problems-with-corporate-governance-requires-more-than-rearranging-deck-chairs-99297">Board structure</a></em>. Current structures are susceptible to capture by executives or dominant shareholders, with independent directors have limited desire or ability to monitor what’s going on. </p></li>
<li><p><em><a href="https://link.springer.com/article/10.1007/BF00881308">Organisational design</a></em>.
Removing hierarchies, outsourcing and creating temporary project teams limits oversight and opportunities to raising concerns about ethically problematic conduct.</p></li>
<li><p><em><a href="https://www.jstor.org/stable/2392857?seq=1#metadata_info_tab_contents">Pay for Performance</a></em>. Bonuses distort decision making and create incentives that can reward misconduct.</p></li>
<li><p><em><a href="https://journals.sagepub.com/doi/abs/10.1177/1362480606065911">Policies and procedures</a></em>. Poor ones create confusion and make decisions excessively reliant on discretion.</p></li>
<li><p><em><a href="https://journals.sagepub.com/doi/abs/10.1177/1362480606065911">Conflicts between laws and norms</a></em>. Maximising shareholder value is not an express legal duty of directors, but companies have justified breaking the law in its pursuit. </p></li>
<li><p><em><a href="https://journals.aom.org/doi/abs/10.5465/ame.2004.13837400">Moral/ethical language in guidelines</a></em>. Their absence opens the way for a focus on instrumental goals (often linked to bonuses) without consideration of ethics.</p></li>
<li><p><em><a href="https://www.jstor.org/stable/3857430?seq=1#metadata_info_tab_contents">Consequences</a></em>. Prosecuting <a href="https://www.smh.com.au/business/companies/comminsure-charges-reflect-a-double-standard-20191016-p5319y.html">corporations</a> doesn’t deter office bearers, prosecuting individuals does. The last prominent Australian company director to go to jail was <a href="https://www.smh.com.au/national/nsw/i-ve-been-to-jail-and-i-don-t-wish-jail-on-anyone-rodney-adler-20200821-p55nzs.html">Rodney Adler</a>, in 2005.</p></li>
</ul>
<p>Immediately actionable ideas include putting <a href="https://theconversation.com/giving-workers-a-voice-in-the-boardroom-is-a-compelling-corporate-governance-reform-115463">employees and unions</a> on boards, <a href="https://www.smh.com.au/national/the-sick-culture-at-the-heart-of-corporate-australia-20200830-p55qo0.html">reemphasising the pivotal role of boards and directors</a>, increasing <a href="https://www.brisbanetimes.com.au/national/the-sick-culture-at-the-heart-of-corporate-australia-20200830-p55qo0.html">real diversity</a>, reducing outsourcing and temporary teams, embedding <a href="https://www.jstor.org/stable/3857430?seq=1#metadata_info_tab_contents">ethics</a> in decision making processes, and criminal prosecutions of company directors and company executives.</p><img src="https://counter.theconversation.com/content/144665/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Linden received funding from RMITs EU Centre to conduct his doctoral research. The Centre is funded by the European Union</span></em></p><p class="fine-print"><em><span>Warren Staples has received funding from Australia China Council, Department of Foreign Affairs and Trade (DFAT), and the Victorian Managed Insurance Authority (VMIA). Warren is currently a member of the Institute of Public Administration Australia (IPAA) Victoria’s Sustainability Community of Practice (CoP) Advisory Committee.</span></em></p>ASIC is passing up opportunities to prosecute, all the more so in this ‘very different economic environment’.Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT UniversityWarren Staples, Senior Lecturer in Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1449372020-08-25T01:28:10Z2020-08-25T01:28:10ZAMP doesn’t just have a women problem. It has an everyone problem<figure><img src="https://images.theconversation.com/files/354305/original/file-20200824-22-11tl0g8.jpg?ixlib=rb-1.1.0&rect=0%2C200%2C5568%2C3500&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>The sexual harassment scandal enveloping AMP is another graceless turn in what looks like the death spiral of one of Australia’s oldest and formerly most trusted companies. </p>
<p>Joining a long line of executives to walk the plank at the venerable financial services giant, AMP chairman <a href="https://www.abc.net.au/news/2020-08-24/amp-chair-david-murray-director-john-fraser-resign-boe-pahari/12588366">David Murray and board member John Fraser have quit</a> over the promotion of Boe Pahari (disciplined in 2018 for sexually harassing a female colleague) to head AMP’s capital business division. </p>
<p>Since the Australian Financial Review broke the story of the claims made against Pahari, sparking a <a href="https://www.afr.com/companies/financial-services/amp-women-stage-revolt-over-pahari-promotion-20200702-p558gq">revolt among AMP’s female employees</a>, the board had been under increasing external pressure to admit and correct its mistake.</p>
<p>Now it has – half-heartedly. </p>
<p>The exit of Murray and Fraser (and Pahari’s demotion to his previous job level) was, AMP said in its statement to the <a href="https://www.asx.com.au/asx/share-price-research/company/AMP">Australian Stock Exchange</a>, a response “to feedback expressed by some major shareholders”.</p>
<p>Murray’s <a href="https://www.afr.com/companies/financial-services/boe-pahari-david-murray-john-fraser-resign-from-amp-20200824-p55ol5">own statement</a> was even less apologetic: </p>
<blockquote>
<p>The board has made it clear that it has always treated the complaint against Mr Pahari seriously. My view remains that it was dealt with appropriately in 2017 and Mr Pahari was penalised accordingly.</p>
<p>However, it is clear to me that, although there is considerable support for our strategy, some shareholders did not consider Mr Pahari’s promotion to AMP Capital CEO to be appropriate.</p>
</blockquote>
<p>In other words: what’s all the fuss about? </p>
<p>Murray’s failure to appreciate why he and the board made a mistake is, arguably, symptomatic of AMP’s management for at least two decades. Its focus on money over trust is central to the failures and scandals that have trashed its reputation and share price. </p>
<h2>Vertically challenged</h2>
<p>Founded in 1849 as the Australian Mutual and Provident Society, AMP was a not-for-profit life insurer for almost 150 years before it <a href="https://www.rba.gov.au/publications/bulletin/1999/jan/1.html">demutualised</a> in 1998. Since then it has pursued profits with gusto, if not prudence. </p>
<p>Part of the push to privatise was to have funds to expand, with “vertical integration” all the rage in the financial services sector.</p>
<p>Vertical integration involves a bank or other financial services company providing products all along the financial supply chain. Once a bank might have offered you just banking services, for example. Now it will provide contents and life insurance, financial and retirement planning, and ways to invest in the stock market. </p>
<p>“From the perspective of banks,” noted the 2019 <a href="https://financialservices.royalcommission.gov.au/Pages/reports.html#final">final report</a> of the Hayne Royal Commission that uncovered systemic cheating of customers in the financial services industry, “vertical integration always promised the benefit of cross-selling opportunities.” But the internal efficiency of the “one-stop shop” did not necessarily produce efficiency for customers:</p>
<blockquote>
<p>The ‘one stop shop’ model creates a bias towards promoting the owner’s products above others, even where they may not be ideal for the consumer.</p>
</blockquote>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commission-the-real-problem-is-how-we-value-executives-and-workers-111094">Banking Royal Commission: the real problem is how we value executives and workers</a>
</strong>
</em>
</p>
<hr>
<p>When what isn’t best for the customer becomes the business model, it’s a slippery slope to taking other liberties. AMP slipped to charging fees for no service and <a href="https://www.abc.net.au/news/2018-09-17/amp-charges-dead-customers-for-life-insurance/10255978">billing dead customers</a> for life insurance. </p>
<p>Following these and other revelations from the royal commission, AMP chair Catherine Brenner, chief executive <a href="https://www.abc.net.au/news/2018-04-20/amp-ceo-craig-meller-steps-down-banking-royal-commission/9679138">Craig Meller</a> and most of the board resigned. But interim chief executive Mike Wilkins made it clear AMP remained “committed to a vertically integrated business model”. </p>
<p>That commitment was buttressed by the appointment of Murray, a long-term <a href="https://www.afr.com/companies/financial-services/david-murrays-long-road-from-a-commonwealth-bank-branch-to-amp-chairman-20180506-h0zoxo">defender of vertical integration</a> in financial services, as AMP’s new chair <a href="https://corporate.amp.com.au/newsroom/2018/june/david-murray-to-commence-as-amp-chairman-">in June 2018</a>. </p>
<h2>Bad habits</h2>
<p>It’s not only vertical integration, though, to which AMP’s management appears rusted on. Money (not trust) is still number one. </p>
<p>It is plain the board’s primary concern in keeping, then promoting, Pahari was that he “<a href="https://www.afr.com/companies/financial-services/pahari-made-a-lot-of-money-for-amp-capital-20200706-p559i5">made a lot of money for the company</a>”. </p>
<p>In this case, despite Murray’s insistence that the board treated the complaint against Pahari seriously, the evidence suggests AMP downplayed Pahari’s behaviour as “low level” and “<a href="https://www.smh.com.au/business/companies/sexually-harassed-amp-executive-says-the-company-is-still-covering-up-20200816-p55m7n.html">about comments made</a>”. The former executive who made the complaint, Julia Szlakowski, has detailed a much more substantial pattern of inappropriate behaviour.</p>
<p>To cap it all off, the company is reportedly seeking to track down employees who might have leaked information to the media. Chief executive Franco de Ferrari and other executives have warned about the consequences of leaking, including “possible termination”.</p>
<p>“I think this is a battle for the heart and soul of AMP, in my view,” the Australian Financial Review <a href="https://www.afr.com/companies/financial-services/culture-of-fear-amp-threatens-to-sack-leakers-20200821-p55o4i">reported one employee saying</a>. “It’s moving from a culture of harassment to a culture of fear.”</p>
<h2>Breaking up</h2>
<p>On June 30, de Ferrari appeared before the House of Representatives economics committee. He <a href="https://www.afr.com/companies/financial-services/amp-ioof-admit-preferential-pricing-for-in-house-products-20200630-p557kk">enthused about the changes the company had made</a>, declaring:</p>
<blockquote>
<p>Virtually no aspect has been untouched, starting from the top, with complete board renewal and streamlining and strengthening of the management team.</p>
</blockquote>
<p>Within days the appointment of Paharai had kicked of a staff revolt. By <a href="https://www.afr.com/companies/financial-services/investigation-inside-alex-wade-s-final-month-at-amp-20200808-p55jul">August 6</a>, the chief executive of AMP’s Australia division, Alex Wade, was forced to resign after multiple women, reportedly emboldened by the response to Pahari’s promotion, complained about behaviour including allegedly sending explicit photos. </p>
<p>On August 13, <a href="https://www.moneymanagement.com.au/news/financial-planning/culture-top-10-priority-amp">de Ferrari declared</a> during a teleconference with journalists to discuss AMP’s first-half results: </p>
<blockquote>
<p>We know we have more to do in improving diversity and inclusion. The transformation of culture is now my top priority.</p>
</blockquote>
<p>Granted, AMP may well be “the most challenging corporate transformation in corporate Australia”, and he might have said “right from the beginning this does not happen overnight”. </p>
<p>But from someone two years into the job it was a startling remark.</p>
<p>Leaks, needless to say, should be the least of AMP’s concerns. It’s the lack of a moral compass that threatens to run this ship aground and ultimately break it up.</p><img src="https://counter.theconversation.com/content/144937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow has received funding from numerous entities that have included universities, charitable trusts, government and NGOs such as the CGAP/World Bank and the Banking Association of South Africa. He is affiliated with Australian Citizens Against Corruption, and advises DB and Associates. </span></em></p>AMP’s handling of sexual harassment charges shows its culture is still rotten.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1337802020-03-16T07:49:47Z2020-03-16T07:49:47ZReserve Bank and government prepare fresh emergency measures as markets tumble<figure><img src="https://images.theconversation.com/files/320882/original/file-20200316-27627-1dilqv0.jpg?ixlib=rb-1.1.0&rect=71%2C320%2C2484%2C1397&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">STEVEN SAPHORE/AAP</span></span></figcaption></figure><p>The government is planning to deliver a second coronavirus economic support package within days, and the Reserve Bank will announce “<a href="https://www.rba.gov.au/media-releases/2020/mr-20-07.html">further policy measures</a>” to support the economy on Thursday.</p>
<p>The bank sometimes uses the phrase “policy measures” to describe adjustments to its “policy rate”, the so-called cash rate from which most other rates are priced.</p>
<p>Two weeks ago it cut the cash rate to 0.50%, a record low that is only 0.25 points above what Governor Philip Lowe has described as the <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-11-26.html">effective lower bound</a> of 0.25%, beneath which the bank would need to engage in “<a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-11-26.html">unconventional monetary policy</a>” which would involve buying government bonds, residential mortgage bonds and perhaps corporate bonds to force a suite of longer-term interest rates lower.</p>
<p>At Thursday’s announcement Governor Lowe is also likely to take the opportunity to set out in detail how unconventional measures would be applied.</p>
<hr>
<p><strong>Reserve Bank cash rate</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=172&fit=crop&dpr=1 600w, https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=172&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=172&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/318234/original/file-20200303-18270-1bjl5b0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>The Australian share market crashed 9.7% on Monday in its worst one-day sell-off since 1987. </p>
<p>In an emergency meeting earlier on Monday New Zealand’s Reserve Bank slashed its cash rate by 0.75 points from 1.00% to 0.25% and said it will remain at that level for <a href="https://www.rbnz.govt.nz/news/2020/03/ocr-reduced-to-025-percent-for-next-12-months">at least the next 12 months</a>. </p>
<p>Should it need to do more, it would turn to unconventional measures along the lines of those being planned for in Australia and implemented in the United States and Europe.</p>
<p>On Sunday, the US Federal Reserve cut its benchmark interest rate <a href="https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html">to zero</a> and launched a new round of unconventional measures saying it would buy US$700 billion of government, corporate and mortgage-backed securities.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/now-we-know-the-reserve-bank-has-spelled-out-what-it-will-do-when-rates-approach-zero-127697">Now we know. The Reserve Bank has spelled out what it will do when rates approach zero</a>
</strong>
</em>
</p>
<hr>
<p>Mid-Monday Australia’s Reserve Bank and the <a href="https://www.cfr.gov.au/news/2020/mr-20-01.html">Council of Financial Regulators</a> which is made up of the bank, the Prudential Regulation Authority, the Securities and Investments Commission and the Commonwealth Treasury, announced a series of measures to keep financial markets working after investors turned away from both shares and government bonds.</p>
<p>Normally when investors desert shares they buy government bonds, forcing down the interest rates quoted on the bonds.</p>
<h2>Reserve Bank to buy bonds as needed</h2>
<p>But in both the US and Australia, investors have sold bonds as well, pushing up the rate (almost doubling the yield on a 10 year Australian government bond from 0.6% last Monday to 1.1%) and starving the market of buyers at any price, a phenomenon the council of regulators describes as a <a href="https://www.cfr.gov.au/news/2020/mr-20-01.html">deterioration in liquidity</a>.</p>
<p>The Reserve Bank has acted to inject liquidity by promising to buy unlimited amounts of one-month and three-month securities until further notice. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/were-staring-down-the-barrel-of-a-technical-recession-as-the-coronavirus-enters-a-new-and-dangerous-phase-132752">We're staring down the barrel of a technical recession as the coronavirus enters a new and dangerous phase</a>
</strong>
</em>
</p>
<hr>
<p>The Australian Prudential Regulation Authority said it would ensure banks take advantage of the injection of liquidity to support their customers.</p>
<p>Both the Authority and the Securities and Investments Commission will be flexible in applying rules where those would cause hardship to businesses and customers.</p>
<blockquote>
<p>In particular, each agency will, where warranted, provide relief or waivers from regulatory requirements. This includes requirements on listed companies associated with secondary capital raisings, annual general meetings and audits.</p>
</blockquote>
<p>The <a href="https://www.ato.gov.au/Media-centre/Media-releases/Support-measures-to-assist-those-affected-by-COVID-19/">Tax Office</a> earlier announced a series of administrative measures to assist people and businesses in difficulty as a result of the coronavirus including deferring the payment date of amounts due through the business activity statement and income tax assessments by up to four months.</p>
<p>The government’s second coronavirus support package follows a package of A$17.6 announced on last Thursday.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/this-coronavirus-share-market-crash-is-unlike-those-that-have-gone-before-it-133691">This coronavirus share market crash is unlike those that have gone before it</a>
</strong>
</em>
</p>
<hr>
<p>It will be aimed at shoring up business and households affected by new travel and isolation rules <a href="https://theconversation.com/view-from-the-hill-scott-morrison-announces-mandatory-self-isolation-for-all-overseas-arrivals-and-gives-up-shaking-hands-133715">announced on Sunday</a>.</p>
<p>A skeleton parliament will meet for a few hours next week to approve measures announced in the first and possibly the second stimulus package. Members will be paired to ensure that only those needed for quorums will be present.</p><img src="https://counter.theconversation.com/content/133780/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Reserve Bank has scheduled an announcement for Thursday. The government will unveil a second coronavirus stimulus package within days.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1271022019-12-09T01:18:57Z2019-12-09T01:18:57ZLitigation is the real reason financial reports are becoming harder to read<p>Westpac can expect a bumper turnout of shareholders at its annual general meeting in Sydney on Thursday, many of them angry at its alleged role in <a href="https://www.austrac.gov.au/sites/default/files/2019-11/20191120%20Westpac%20Concise%20Statement%20FILED%2019008953.pdf">facilitating child exploitation</a> in the Philippines, its 23 million alleged breaches of anti-money-laundering laws, and its initial ritualistic response to the allegations. </p>
<p>This included donating <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/media_release_response_plan.pdf">A$18 million</a> to an anti sexual exploitation charity, followed by the <a href="https://www.asx.com.au/asxpdf/20191126/pdf/44by46ysjf6w06.pdf">departure of its chief executive</a> and the foreshadowed departure of its chairman later in the year.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
</strong>
</em>
</p>
<hr>
<p>Some of those shareholders will be clutching the bank’s <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2019_Westpac_Group_Full_Year_Financials.pdf">154-page financial statement</a>. They’ll need to understand it to ask questions about Westpac’s financial performance.</p>
<p>Back at the start of the 2000s, Westpac’s financial statement was only <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/res0900.pdf">35 pages</a></p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=852&fit=crop&dpr=1 600w, https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=852&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=852&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1071&fit=crop&dpr=1 754w, https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1071&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/305578/original/file-20191206-183400-xd8mu6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1071&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">‘Help when it matters’.</span>
<span class="attribution"><a class="source" href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2019_Westpac_Group_Full_Year_Financials.pdf">Westpac's 154 page statement of financial results.</a></span>
</figcaption>
</figure>
<p>Much of what’s been added to statements such as Westpac’s has been in response to the threat of litigation. Companies making false or misleading disclosures risk class actions. It’s safer to include more rather than less, even if it makes the total hard to navigate.</p>
<p>Australia has just had its <a href="https://theconversation.com/why-australias-first-securities-class-action-judgment-sort-of-cleared-myer-125925">first class action judgement</a>, after earlier cases that had been settled out of court. The United States has had many. </p>
<p>My own research with colleagues in the United States finds that caution in the face of the threat of litigation has made financial reports <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3478994">increasingly less readable</a> over time.</p>
<h2>How might litigation make reports harder to read?</h2>
<p>Firms can be sued for making misleading disclosures. This happens most often where shareholders allege that the firm failed to disclose all relevant information, or where it has failed to meet projections. </p>
<p>After such class actions, firms can face increasing difficulties with customers, suppliers and lenders, being seen as less credible. Managers face <a href="https://doi.org/10.1016/j.jfi.2011.09.001">pay cuts and termination</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-australias-first-securities-class-action-judgment-sort-of-cleared-myer-125925">Why Australia's first securities class action judgment (sort of) cleared Myer</a>
</strong>
</em>
</p>
<hr>
<p>One way to head off such class actions is to make disclosures more detailed. </p>
<p>Increasing detail enables firms to add caveats, footnotes and nuance, conveying uncertainty – the consequence of which is that their reports are less clear.</p>
<h2>How we teased out the link</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1135&fit=crop&dpr=1 754w, https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1135&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/305596/original/file-20191206-90609-eomrtx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1135&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://gunning-fog-index.com/">The Gunning Fog Index for this article</a></span>
</figcaption>
</figure>
<p>My coauthors and I examined 96,000 US annual reports issued between 1993 to 2013.</p>
<p>We also collected data on class actions in relation to reports for those years.</p>
<p>One of the best readability metrics is the so-called <a href="http://gunning-fog-index.com/">fog index</a>, which measures the number of syllables per word and words per sentence in order to provide a measure of the number of years of education needed to read a statement.</p>
<p>It says this article needs the best part of 15 years.</p>
<p>We also used other indexes including the so-called <a href="http://stylewriter-usa.com/stylewriter-editing-readability.php">bog index</a> which scores documents on word choice and sentence structure.</p>
<p>We captured firms’ tendency to avoid declarative statements by calculating the proportion of words that were “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3478994">uncertain</a>”, and measured their tendency to address specific legal threats by calculating the proportion of words that were legal in nature, both of which were subjective exercises.</p>
<h2>What we found</h2>
<p>We found litigation risk encouraged firms to take steps that reduced the readability of their financial reports. </p>
<p>After firms had experienced a class action, their readability metrics worsened significantly. This was even the case several years after that class action, suggesting a long-lasting change.</p>
<p>We found if a chief executive had experienced a class action at one job, their reports were likely to be less readable in subsequent jobs, strongly suggesting that litigation drove hard to read reports rather than the other way round.</p>
<p>We also found:</p>
<ul>
<li><p>litigation experience increased the size and volume of firms’ disclosures. While worsening readability, this at least had the virtue of increasing thoroughness</p></li>
<li><p>litigation experience was associated with using more complex words and more words per sentence. This implies firms add more detail and nuance to their disclosures, potentially increasing their accuracy</p></li>
<li><p>after litigation, firms used more uncertain words in their reports. This suggests they avoid declaratory statements in an attempt to better reflect the risk and uncertainty associated with projections</p></li>
<li><p>following litigation, firms use more legalistic terms. This implies they attempt to preempt legal action by specifically addressing potential legal issues.</p></li>
</ul>
<p>The Australian Securities and Investments Commission (ASIC) has expressed concern over what it calls “<a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-279mr-asic-calls-time-on-disclosure-reliance/">sludge</a>” in reports that covers bases but leaves readers uninformed. </p>
<p>It says over-reliance on disclosure “in some ways proved an enabler” of the poor conduct revealed by the banking royal commission. </p>
<p>Our work and the work of ASIC suggests much needs to happen to make reports both accurate and readable.</p><img src="https://counter.theconversation.com/content/127102/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner receives funding from the Australian Research Council</span></em></p>Westpac’s 154 page financial statement will be a challenge for shareholders attending Thursday’s annual general meeting. In the early 2000s, it was only 35 pages.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1114282019-04-17T19:46:00Z2019-04-17T19:46:00ZConstructively tough? Neither side has committed to fully adopting perhaps the most important recommendation of the banking royal commission<p>Among the many recommendations of the banking Royal Commission was a <a href="https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final">Board of Oversight</a> for the two regulators in charge of financial institutions; the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority: ASIC and APRA. </p>
<p>Since then APRA’s own internal review conducted by deputy chairman John Lonsdale and NSW Supreme Court Judge Robert Austin, Australian Competition and Consumer Commission commissioner Sarah Court and UNSW professor Dimity Kingsford-Smith has found APRA to be soft on enforcement and <a href="https://www.apra.gov.au/sites/default/files/apra_enforcement_strategy_review_-_final_report_web.pdf">timid by comparison to its international peers</a>. </p>
<p>Nonetheless, and to demonstrate that APRA still doesn’t get what it doesn’t get, its chairman used Tuesday’s <a href="https://www.apra.gov.au/enforcement">release of the review</a> to announce a new mantra. From now on, APRA is to be: “<a href="https://www.financialstandard.com.au/news/apra-to-up-the-ante-135451581">constructively tough</a>”. </p>
<h2>‘Constructively tough’?</h2>
<p>It sounds like “tough but flexible”, a contradiction in terms if ever there was one. Despite its Royal Commission hammering, APRA still seems not to have internalised the message: fraud and theft are not up for negotiated settlement.</p>
<p>This is why a board of oversight is so necessary. </p>
<p>I have frequently argued in favour of such a reform: a <a href="https://theconversation.com/australias-financial-regulators-need-policing-91396;%20https://theconversation.com/to-clean-up-the-financial-system-we-need-to-watch-the-watchers-38359">regulator to regulate the regulators</a>. Along with colleagues Karen Fairweather and John Tarrant, I was invited to make a submission to the Royal Commission detailing egregious examples of regulator inefficacy, and capture by, and subornation to, the industries they are meant to regulate. Included was a body of theoretical and empirical international scholarship suggesting that financial sector regulators are more susceptible to capture than regulators of other industries. </p>
<p>We argued that the gravity of the potential harm from crises, superimposed with the frailties – both observable and theoretical – of regulators, required enhanced safety in the form of an overseer to police the corporate police.</p>
<p>So it was encouraging to see our submission reflected in the commission’s recommendation for a board of oversight:</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=167&fit=crop&dpr=1 600w, https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=167&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=167&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=210&fit=crop&dpr=1 754w, https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=210&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/269730/original/file-20190417-139084-e0dozd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=210&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final">Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, February 2019</a></span>
</figcaption>
</figure>
<hr>
<p>Of concern, however, is that the commissioner elected to leave the details of how the board would work to parliament. It is here that the process faces its greatest risk: the risk of clumsy albeit well-intentioned implementation, all the way to purposefully bad implementation, fully intended to undermine the fundamental goals of the whole endeavour, and facilitated by equally captured and suborned politicians. </p>
<h2>Politicians have a history of backing down</h2>
<p>It has happened before. The 1991 report of the The House of Representatives Standing Committee on Finance and Public Administration entitled “<a href="https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_representatives_Committees?url=reports/1991/1991_pp290report.htm">Pocket Full of Change</a>” recommended a banking code of practice, which was ditched at the last minute to be replaced by a different code written by the Australian Bankers’ Association. The result was a code that protected banks against their customers, while allowing them to virtue signal.</p>
<p>So far Treasurer Frydenberg has refused to commit to one of the single most necessary powers that such a board can possess: the power of public opprobrium. As far back as the late 1860s Charles Francis Adams Jr wrote of the need to subject captured and corrupted railroad commissions to the disinfecting power of sunlight; what Thomas McCraw, writing in the mid-1980s referred to as a <a href="https://military.wikia.org/wiki/Charles_Francis_Adams,_Jr.">Sunshine Commission</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/defence-mechanisms-why-nab-chairman-ken-henry-lost-his-job-111182">Defence mechanisms. Why NAB chairman Ken Henry lost his job</a>
</strong>
</em>
</p>
<hr>
<p>The anti-viral power of public exposure has been amply demonstrated by the banking royal commission already. Heads have rolled: the chair, chief executive and group counsel at AMP. The chair and chief executive of the National Australian Bank (albeit after significant procrastination). Some entities have self-selected out of their business model. Others have self-selected out of the market entirely. Retail Super funds have haemorrhaged well in excess of one million members, and over <a href="https://www.afr.com/personal-finance/superannuation-and-smsfs/industry-super-funds-win-11b-from-retail-funds-after-hayne-scandals-20190226-h1bqiq">$11 billion in funds</a>. </p>
<p>But none of this fallout, none of it, is due to post-royal commission enforcement measures. It is all thanks to public opprobrium: sunshine.</p>
<h2>Few things are as powerful as the power to shame</h2>
<p>So it is of concern that the treasurer hasn’t yet made an unequivocal commitment to make public the board of oversight’s reports into the performance of our regulators, performance which to date has been weak enough, feckless enough, and incompetent enough to more than justify the royal commission.</p>
<p>Speaking to the ABC on February 4 in what might be some sort of Orwellian <em>newspeak</em>, Frydenberg would only say: </p>
<blockquote>
<p>this new oversight board will be reporting to government and governments don’t operate in secret.</p>
</blockquote>
<p>Sometimes they do, and especially when dealing with banks. APRA reports are routinely withheld form the public, making use of the secrecy provisions of the <em>Banking Act</em>.</p>
<p>Frydenberg should instead be mindful of the extensive protection his government has provided to the banking and retail super industry over the past five years, shielding them from the threat of inquiry by a royal commission up until the point when it was impossible to resist. It will serve no purpose to replace one protection racket with another. And that applies to both banks and super, something Labor’s Chris Bowen should keep in mind should he become treasurer.</p>
<p>Put simply, as we emerge from this dark, decade-long night of the most appalling dishonesty and wickedness in our financial sector, more than anything else, now we must ensure the sun shines.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commission-no-commissions-no-exemptions-no-fees-without-permission-hayne-gets-the-government-to-do-a-u-turn-110974">Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/111428/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow consults to Datta Burton and Associates and the Australian Institute of Superannuation Trustees. He has previously received funding from the South African Human Sciences Research Council, the Ernst and Ethel Eriksen Trust, the Harvard Law School, the University of the Witwatersrand, the University of Pretoria, and various universities in Australia. He is affiliated with Australian Citizens Against Corruption and the American Council on Consumer Interests. </span></em></p>The government has agreed to create an independently-chaired body to report on the performance of ASIC and APRA, but it hasn’t said its reports will be made public.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1137432019-03-21T02:25:14Z2019-03-21T02:25:14ZNo better than roulette. How foreign exchange trading rips off mum and dad investors<figure><img src="https://images.theconversation.com/files/265019/original/file-20190321-93039-10bfqo1.jpg?ixlib=rb-1.1.0&rect=35%2C35%2C1839%2C1110&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's no trading strategy that will deliver better returns than chance.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>In 2013 I wrote a <a href="https://theconversation.com/gambling-on-the-dollar-time-to-reign-in-forex-trading-21150">piece on The Conversation</a> arguing that foreign exchange trading should be much more tightly regulated. </p>
<p>In particular, I said that retail (mum and dad) investors should only be allowed to trade foreign currencies in limited circumstances. Since then there has been little change. It is still shockingly easy for a retail investor with a very limited understanding of foreign currency to trade foreign exchange, as was demonstrated on ABC 7.30 on <a href="https://www.abc.net.au/7.30/the-risky-world-of-online-foreign-exchange/10922394">Wednesday</a> and <a href="https://www.abc.net.au/7.30/the-opaque-world-of-foreign-exchange-trading/10927348">Thursday</a> nights.</p>
<p>There is a basic difference between foreign exchange trading and other forms of investment such as share trading. Over time, share markets tend to rise, so that if an investor buys a diversified basket of shares, or even an individual share, they should expect a positive return over time. Of course markets go up and down, and individual share trades can go wrong, but in the long run the market tends to rise.</p>
<h2>Share trading it isn’t</h2>
<p>Foreign currency markets are fundamentally different, in that there is no reason to expect exchange rates such as the Australian-US dollar rate to rise or fall over any short- or medium-term trading horizon. </p>
<p>For 30 or more years, academics have tried to build models to predict exchange rates. None of them work. If even the most sophisticated academic or trader built a model to predict whether the AUD/USD would go up or down tomorrow, they would get it wrong 50% of the time – exactly the same as a coin toss. This means trading foreign exchange on the basis of whether major currencies will go up or down is exactly the same as playing <a href="https://en.wikipedia.org/wiki/Two-up">two-up</a>!</p>
<h2>Losses can exceed what you put in</h2>
<p>The second reason that retail investors should be wary of foreign exchange trading is that many promoted products are highly leveraged - funded by borrowing. The Australian Securities and Investments Commission has <a href="https://www.moneysmart.gov.au/investing/complex-investments/foreign-exchange-trading">clear warnings about foreign exchange trading</a> on its Moneysmart webpage, including a case study of a typical trader who invests A$500 to borrow to buy A$100,000 at an exchange rate of 91 US cents. </p>
<p>With this contract, a fall in the USD/AUD exchange rate to 88.5 US cents sees this trader lose A$2,825, meaning they have to pay another A$2,325 in addition to the original A$500 to close out the contract. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=338&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=338&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265003/original/file-20190321-93057-1krimjl.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=338&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">How to lose a lot from a little.</span>
<span class="attribution"><a class="source" href="https://www.moneysmart.gov.au/investing/complex-investments/foreign-exchange-trading">ASIC MoneySmart</a></span>
</figcaption>
</figure>
<hr>
<p>If foreign exchange trading is so risky, and in my view no different to playing two-up or roulette, why do we allow retail investors to leverage into these products? </p>
<p>The problem, as I see it, is that regulators can take one of two approaches to investors. The traditional view is that if investors have enough information they will make informed choices in their own best interests. Economists describe this as behaving rationally. The ASIC approach is very much based on this view: provide good information and let investors make informed choices.</p>
<h2>Information isn’t enough</h2>
<p>There is a second view that is gradually replacing this view of individuals as rational. The “behavioural economics” approach examines the psychology and actual approaches of individuals in different circumstances, to explore departures from rationality. Unsurprisingly, in many arenas people are irrational, creatures of habit, ill-informed, and so on. </p>
<p>An implication is that sometimes people ought to be protected from their own poor decisions, even though that might limit choice. I would argue strongly that there is no reason for retail investors to trade foreign exchange, and certainly no reason to borrow to do it. Measures to limit such trading, except in circumstances where an investor can demonstrate their expertise, ought to be encouraged.</p>
<h2>We’re a magnet for promoters</h2>
<p>This is very far from the case in Australia currently. In fact Australia is seen as an attractive location for firms offering retail foreign exchange trading. Websites offer “training and tips” and then allow trading inside 24 hours. </p>
<p>I have spent 30 years studying foreign exchange markets and would still say that I’m not sophisticated enough to trade them. Maybe I’m dumb, but I’m not crazy enough to trade foreign exchange.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/gambling-on-the-dollar-time-to-reign-in-forex-trading-21150">Gambling on the dollar: time to reign in forex trading</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/113743/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Crosby does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The odds of winning are no better than even, and the costs of losing are enormous. We ought to limit forex to traders who can demonstrate their expertise.Mark Crosby, Professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1122982019-02-27T02:47:00Z2019-02-27T02:47:00ZFines that’ll hurt. ASIC’s powerful, if ill-fitting, teeth<p>At last, our corporate watchdog has a strong set of teeth with which to fight crime and serious misconduct in the financial sector.</p>
<p>The Treasury Laws Amendment (<a href="https://www.aph.gov.au/Parliamentary_Business/Bi%0Alls_Legislation/Bills_Search_Results/Result?bId=r6213">Strengthening Corporate and Financial Sector Penalties</a>) Bill finally made it through parliament last week.</p>
<p>In cases of serious misconduct it will empower the Australian Securities and Investments Commission to seek new, hefty fines. For example, in cases of unconscionable conduct, ASIC can seek A$10.5 million (up from the previous A$1 million), to get back three times the proceeds of (or expense saved from) the misconduct, or fine a corporation 10% of its annual turnover up to a maximum of A$210 million, whichever is the greatest.</p>
<p>The enhanced fines were recommended by the Treasury’s <a href="https://treasury.gov.au/review/asic-enforcement-review/r2018-282438/">ASIC Enforcement Review Taskforce</a> which predated the financial services royal commission. </p>
<p>The legislation (and the speed with which it was finally passed) makes it clear that parliament wants to stop fines and penalties being viewed simply as a cost of doing business. </p>
<p>This has been made even clearer by courts being given power to make “relinquishment orders” that aim to strip any remaining profits from wrongdoers over and above the penalties.</p>
<p>Also important is the bill’s change to the definition of the word “dishonest”.</p>
<p>The new definition requires courts simply to focus on whether the conduct was dishonest “according to the standards of ordinary people”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commission-no-commissions-no-exemptions-no-fees-without-permission-hayne-gets-the-government-to-do-a-u-turn-110974">Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn</a>
</strong>
</em>
</p>
<hr>
<p>Previously courts were required to use an “eye of the beholder” definition that required plaintiffs to prove that the wrongdoer also understood the conduct was dishonest according to those standards. </p>
<p>As <a href="https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf#10878%20ROT_Banking%20RC_VOL1_FA.indd%3A.263385%3A4082">the royal commissioner Kenneth Hayne noted</a>, under the previous definition it was all too easy for directors and senior managers to blame misconduct on “processing and administrative errors” – in effect saying wrongdoers didn’t realise they were being dishonest even if ordinary people would have thought they were. </p>
<h2>Strong, yet imperfect</h2>
<p>While there is much to be applauded in this legislation, there are serious remaining problems raised in <a href="https://treasury.gov.au/review/asic-enforcement-review/r2018-282438/">submissions</a> to the Treasury that have been left unaddressed. </p>
<p>That might in part be due to the speed with which the bill was prepared and passed, but it is also the result of a wider systemic problem.</p>
<p>The pieces of legislation expressly changed by the bill were the major ones dealing with corporations, financial service providers, consumer credit providers, and insurance. </p>
<p>That meant that other statutes that also prohibit misconduct in trade and commerce remain unchanged, and were apparently not taken into account in drafting the bill. It has made the treatment of similar misconduct inconsistent.</p>
<p>An example illustrates the problem. </p>
<p>The pieces of legislation changed provide a defence to a civil pecuniary penalty order only where a defendant made a “mistake of fact”, established by considering whether the defendant “considered whether or not facts existed” and “was under a mistaken but reasonable belief about those facts”.</p>
<p>But an unchanged part of the law, Section 226 of the Australian Consumer Law, allows the court to show leniency where it establishes that “the person acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused”. So rather than having its hands tied, the court can consider all the circumstances, including whether the seriousness of the breach (for example, causing physical harm to consumers) demands a large penalty, notwithstanding that the defendant made an honest and reasonable mistake.</p>
<p>The second approach is arguably better, but the discrepancy between the two is likely to lead to “regulatory arbitrage” as both sides tie up the legal system trying to establish which part of the law should apply.</p>
<h2>Anything but a complete redesign</h2>
<p>This government, like many before it, has responded to deficiencies in the law by attempting to patch it up. It said it couldn’t respond to the royal commission’s recommendations before parliament closed because it would need to amend more than 40 pieces of legislation. </p>
<p>But that’s indicative of the problem. Patching up legislation, rather than replacing it with something simple, runs the risk of making it worse. Hayne spoke about enforcing core principles. We’re not there yet.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/understanding-hayne-why-less-is-more-110509">Understanding Hayne. Why less is more</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/112298/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>With Professor Paterson, Elise Bant receives funding from the Australian Research Council to support research on DP180100932 'Developing a Rational Law of Misleading Conduct'.</span></em></p><p class="fine-print"><em><span>With Professor Bant, Jeannie Marie Paterson receives funding from the Australian Research Council to support research on DP180100932 'Developing a Rational Law of Misleading Conduct'.</span></em></p>Suddenly, ASIC is about to have real power. It’ll be easier to get prosecutions and they will hurt, even if the law remains less than completely clear.Elise Bant, Professor of Law, The University of MelbourneJeannie Marie Paterson, Professor of Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1122132019-02-22T05:49:11Z2019-02-22T05:49:11ZDon’t bank on Dollarmites to teach financial literacy: here are our alternatives<figure><img src="https://images.theconversation.com/files/260341/original/file-20190222-195870-17bnfyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Research shows combining maths education and financial literacy concepts is a better way to teach children good financial habits and boost numeracy.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The recent <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">royal commission into banking</a> has revealed rampant wrongdoing by the big banks. As a result, there is <a href="https://www.abc.net.au/news/2019-02-20/dollarmites-program-out-of-schools-aeu-push-banking/10806554">renewed public interest</a> in school banking schemes. The Commonwealth Bank’s <a href="https://www.commbank.com.au/banking/school-banking.html#terms">Dollarmites</a> program has once again come into the spotlight. </p>
<p>Dollarmites was awarded a 2018 <a href="https://www.choice.com.au/shonky-awards/hall-of-shame/shonkys-2018/commonwealth-bank-dollarmites">Choice Magazine</a> Shonky award. The program has over 300,000 active participants, and although it’s not the only school banking program, it’s the largest by far.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">Should banks play a role in teaching kids about how to manage money effectively?</a>
</strong>
</em>
</p>
<hr>
<p><a href="https://www.commbank.com.au/banking/school-banking.html#terms">According to the Commonwealth Bank</a>, the motive behind the Dollarmites program is to teach good savings habits and develop financial literacy. But I could find little independent research evidence it actually does.</p>
<p>On the surface, the Commonwealth Bank’s intentions are good. But <a href="https://www.abc.net.au/life/how-to-switch-banks/10007610">research</a> has found 40% of people develop loyalty to their banks and continue banking with them into adulthood.</p>
<p>We need to consider other options. Here are some research-backed alternatives.</p>
<h2>Alternatives to school banking</h2>
<p>Financial literacy can be taught both at home and at school, in practical and meaningful ways. If we consider the core business of schools to be learning, then our classrooms are not an appropriate place for the distractions of corporate marketing. There is definitely no time to be wasted on the logistics of organising school banking. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/financial-literacy-is-a-public-policy-problem-84695">Financial literacy is a public policy problem</a>
</strong>
</em>
</p>
<hr>
<p>In fact, schools have several options when it comes to teaching financial literacy. There are a number of free resources already aligned to the curriculum. </p>
<p>In <a href="https://www.moneysmart.gov.au/media/560516/moneymathematicsengagement_final_report_14_september_2016-assoc-prof-catherine-attard.pdf">my research</a>, using ASIC’s <a href="https://www.moneysmart.gov.au/teaching/how-teachers-can-use-moneysmart">MoneySmart</a> resources, financial literacy was combined with maths. Students did activities that allowed them to deal with real money while applying maths skills. </p>
<p>For example, some students borrowed money from the school principal to set up small businesses. They then ran their business at a school market day, and used their profits to buy Christmas gifts for underprivileged children. </p>
<p>Simple activities such as setting up classroom economies or allowing children to help plan events (such as class excursions) are also excellent at engaging children in financial literacy in a fun, realistic and interactive way.</p>
<p>Findings from my study showed learning about money and maths improved engagement, understanding of mathematical concepts and knowledge of financial concepts such as budgeting, profit and loss, lending and interest. </p>
<p>There are also resources such as <a href="https://www.banqer.com.au/">Banqer</a>, a free subscription-based app that allows students to manage fictitious money to budget and cover expenses (such as “renting” a desk). In my professional opinion, apps such as this are high quality. They may have corporate sponsorships, but are offered brand-free, which is preferable. </p>
<h2>Parents can teach financial literacy too</h2>
<p><a href="https://www.igrad.com/articles/childhood-money-habits-learned-from-parents">Parents</a> are one of the biggest influences on the financial habits of children. Parents have a responsibility to model good financial behaviours.</p>
<p>Involving children in shopping, having discussions about family budgeting and encouraging children to save some of their pocket money using a bank account of their choice all <a href="https://www.moneysmart.gov.au/media/560516/moneymathematicsengagement_final_report_14_september_2016-assoc-prof-catherine-attard.pdf">contribute</a> to the development of financial literacy. These are really simple, everyday things parents can do to help their children learn financial literacy.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/teaching-kids-about-maths-using-money-can-set-them-up-for-financial-security-85327">Teaching kids about maths using money can set them up for financial security</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/112213/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catherine Attard has previously provided advice to the MoneySmart program. In 2015 she was awarded funding from Financial Literacy Australia. </span></em></p>There are better ways to teach financial literacy than through school banking schemes.Catherine Attard, Associate Professor, Mathematics Education, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1062392018-11-14T19:04:47Z2018-11-14T19:04:47ZIn defence of ASIC: there’s more to regulation than prosecution<p>An irony of the banking royal commission is that it may end up having its greatest impact on an entity that isn’t a bank. </p>
<p>The Australian Securities and Investments Commission and its shortcomings have become a major theme of the Commission. </p>
<p>Whereas the banks have already implemented a host of changes in anticipation of the Commissioner’s final report, the future of ASIC remains in flux. </p>
<p>It is mentioned in the Commission’s interim report more often than any of the banks, apart from the Commonwealth and the ANZ.</p>
<p>ASIC has also become something of a <a href="https://www.abc.net.au/news/2018-04-23/banking-royal-commission-how-asic-went-mia/9685792">whipping boy in media accounts of misconduct</a>, frequently getting more column inches than the institutions it regulates.</p>
<h2>ASIC under the microscope</h2>
<p>The irony is deepened by the fact that many of the cases examined by the Commission came to its attention as a result of ASIC’s work. </p>
<p>In his interim report the Commissioner advocates a prosecutorial approach to regulation, going as far as to say that all breaches should be prosecuted <a href="https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx">unless public interest shows otherwise</a>. </p>
<p>The Commissioner seems committed to the need to <a href="https://www.afr.com/opinion/columnists/its-not-lack-of-resources-hayne-report-shows-regulator-asic-has-been-captured-20180930-h161sk">reinvent the regulator</a> as an adversarial, proactive force. </p>
<p>Throughout the Commission hearings, ASIC has been depicted as gentle and overly fond of negotiated settlements rather than wielding the stick. </p>
<p>This week a Federal Court judge took a critical stand about a negotiated settlement reached by ASIC with Westpac bank. </p>
<p>Justice Nye Perram threw out a A$35 million settlement between ASIC and Westpac over the bank’s alleged failure to properly assess whether borrowers could meet repayments.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/behind-the-judgment-why-the-federal-court-tore-up-a-35m-settlement-between-asic-and-westpac-over-lending-standards-106915">Behind the judgment. Why the Federal Court tore up a $35m settlement between ASIC and Westpac over lending standards</a>
</strong>
</em>
</p>
<hr>
<p>He told the parties he could not approve the requested settlement because there was no contravention of the law shown in the proposed terms of settlement. </p>
<p>One of the consequences of Justice Perram’s action is that now ASIC may have to prove a contravention in relation to each and every loan where it says Westpac was in breach. Negotiated settlements avoid this extremely expensive and time-consuming use of ASIC’s resources.</p>
<h2>Regulation by prosecution?</h2>
<p>Before changes are implemented to sharpen ASIC’s teeth and commit more scarce public funds to expensive court proceedings, it’s worth reflecting on the realities of enforcement. </p>
<p>All regulators use a mix of negotiation and litigation. This includes the Australian Competition and Consumer Commission, which has been commended by the Commissioner. </p>
<p>In the financial year 2016-17, the ACCC initiated 24 new civil cases, <a href="https://www.accc.gov.au/media-release/nyk-convicted-of-criminal-cartel-conduct-and-fined-25-million">instigated one criminal conviction</a>, accepted 14 enforceable undertakings, and received payment for 11 infringement notices with a total value of A$115,200.</p>
<p>In the same period, ASIC initiated 112 new civil actions, <a href="https://download.asic.gov.au/media/4527819/annual-report-2016-17-published-26-october-2017-full.pdf">drove 20 criminal convictions</a>, accepted 16 enforceable undertakings, and issued 74 infringement notices with a total value of A$4.3 million. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/uncomfortable-comparisons-why-rod-sims-broke-the-accc-record-105730">Uncomfortable comparisons. Why Rod Sims broke the ACCC record</a>
</strong>
</em>
</p>
<hr>
<p>In the face of misconduct on display at the royal commission, talk of tackling the banks head-on is understandable. </p>
<p>The signs of a greater commitment to court proceedings are already apparent: the appointment of Melbourne-based lawyer Daniel Crennan as a new <a href="https://www.smh.com.au/business/banking-and-finance/asic-boss-comes-out-swinging-slams-government-for-stalled-legislation-20181019-p50an9.html">Commissioner responsible for enforcement</a>, more staff, closer relations with the Director of Public Prosecutions, and tough talk. </p>
<h2>Adversarial isn’t always best</h2>
<p>ASIC is at a crossroads. </p>
<p>Greater reliance on the courts may well be characterised by delay, smaller compensation for customers, ballooning costs and, as a result, a shrinking budget for detection and investigation. </p>
<p>Even with the then Treasurer Scott Morisson’s <a href="http://sjm.ministers.treasury.gov.au/media-release/turnbull-government-expands-asics-armoury/">A$70 million injection to boost enforcement</a>, ASIC’s total budget pales in comparison to the deep pockets of the big four banks.</p>
<p>Getting onto the front foot needn’t always mean going to court. </p>
<p>Negotiated settlements like enforceable undertakings with more penetrating terms can be just as effective as going to court, as can stronger surveillance and investigation. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-problem-with-australias-banks-is-one-of-too-much-law-and-too-little-enforcement-103996">The problem with Australia's banks is one of too much law and too little enforcement</a>
</strong>
</em>
</p>
<hr>
<p>In times with less frenzied scrutiny, enforcement outside courts wouldn’t be seen as a sign of weakness, but of judgement. ASIC ought to be judged on its results and left to exercise a mix of enforcement strategies under its independent powers. </p>
<p>Enforcement outside the court system does not mean capture or weakness. Lawyers at ten paces is not the only way to regulate the banks.</p><img src="https://counter.theconversation.com/content/106239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimity Kingsford Smith is a member of the ASIC External Advisory Panel and has undertaken contract research for ASIC. She was a member of the Treasury Taskforce on ASIC's Enforcement Powers in 2017. Professor Kingsford Smith was the NAB Wealth Customer Advocate from 2015-2017. She has done a small number of hours of consulting work for the CBA in 2018. </span></em></p><p class="fine-print"><em><span>Clinton Free and Hannah Harris do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>ASIC is under pressure to take every significant case to court. But that would delay justice and break its budget.Clinton Free, Professor, UNSW SydneyDimity Kingsford Smith, MinterEllison Professor of Risk and Regulation, UNSW Law; Director, Centre for Law Markets and Regulation, UNSW Law, UNSW SydneyHannah Harris, Lecturer, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1069152018-11-14T03:58:20Z2018-11-14T03:58:20ZBehind the judgment. Why the Federal Court tore up a $35m settlement between ASIC and Westpac over lending standards<figure><img src="https://images.theconversation.com/files/245471/original/file-20181114-194497-1kgyan7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Justice Perram has decided that some things are more important than quick settlements.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Very rarely does a judge tear up a multimillion-dollar penalty signed up to by both the regulator and the alleged perpetrator.</p>
<p>Yet that’s what Federal Court judge Nye Perram did on Tuesday, throwing out a A$35 million settlement between Westpac and the the Australian Securities and Investments Commission over its alleged <a href="https://www.smh.com.au/business/banking-and-finance/judge-tears-up-35m-settlement-between-asic-and-westpac-in-home-loan-case-20181113-p50fon.html">failure to properly assess whether borrowers could meet their repayments before signing them up to mortgages</a>.</p>
<h2>Agreed settlements are common</h2>
<p>In commercial litigation, as in most litigation, there is an emphasis on trying to settle matters early before they are heard in court. </p>
<p>In criminal law matters the prosecutions encourage early guilty pleas in exchange for lower penalties. </p>
<p>The Australian Securities and Investments Commission (<a href="https://asic.gov.au/">ASIC</a>) has been increasingly resorting to early settlements as a means of achieving cheaper and quicker outcomes.</p>
<p>The quick win for ASIC is an <a href="http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/asaica2001529/s93aa.html">enforceable undertaking</a> and a media release. The quick win for the other party is avoiding a drawn-out court case and being able to get on with its business.</p>
<h2>Courts usually rubber-stamp them</h2>
<p>Where the alleged breach of the law is serious, necessitating a large penalty, a judge has to formally approve the settlement, in a hearing until now regarded as something of a rubber-stamping exercise.</p>
<p>As the <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">Hayne Royal Commission into the Misconduct in Financial Services</a> has pointed out, the downside of such quick settlements can be that the facts aren’t established in court and the law isn’t tested. </p>
<p>Where they are established and the law is tested, as Justice Yates did earlier this year in <a href="http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2018/2018fca0930">Australian Transaction Reports and Analysis Centre versus Commonwealth Bank of Australia</a> very big penalties can be handed down - A$700 million for more than 50,000 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/commonwealth-banks-700-million-fine-will-end-up-punishing-its-customers-97918">Commonwealth Bank's $700 million fine will end up punishing its customers</a>
</strong>
</em>
</p>
<hr>
<p>Along with it were landmark judgments that establish the scope of the law and tell firms what to avoid in the future.</p>
<h2>This time the court said no</h2>
<p>On Thursday Justice Perram in the Federal Court <a href="https://www.smh.com.au/business/banking-and-finance/judge-tears-up-35m-settlement-between-asic-and-westpac-in-home-loan-case-20181113-p50fon.html">sought the right to do the same</a>.</p>
<p>He rejected the joint application for settlement between ASIC and Westpac Banking Corporation for a penalty of A$35 million.</p>
<p>The problem, as he pointed out was that it was not clear from the agreed facts what actual contraventions of the <a href="http://www8.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/nccpa2009377/">National Consumer Credit Protection Act 2009</a> Westpac had been accused of. </p>
<p>He asked ASIC and the Westpac to redraft the agreed settlement and return to court by 27 November 2018. </p>
<h2>To establish the law and what happened</h2>
<p>The case matters because the Financial Services Royal Commission has been examining the use of computer programs to determine the ability of borrowers to repay loans.</p>
<p>It is possible that many Westpac loans were approved to customers who would have been found to be unable to meet the repayments had their individual circumstances been examined, and it is possible that is in breach of the law.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/consumers-need-critical-thinking-to-fend-off-banks-bad-behaviour-93489">Consumers need critical thinking to fend off banks' bad behaviour</a>
</strong>
</em>
</p>
<hr>
<p>But without a clear judgment or a clear statement of facts for the court to examine, or a clear judgment from the court, it is impossible to tell.</p>
<p>That’s why Justice Perram said no, to establish what the law requires and what Westpac did.</p><img src="https://counter.theconversation.com/content/106915/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Adams receives funding from Australian research Council, but not in respect of this article. </span></em></p>Negotiated deals between ASIC and alleged wrongdoers leave us in doubt as to the reach of the law.Michael Adams, Professor of Corporate Law & Governance, School of Law, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1057302018-10-29T04:27:54Z2018-10-29T04:27:54ZUncomfortable comparisons. Why Rod Sims broke the ACCC record<p>The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its <a href="https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx">interim report</a> last month.</p>
<p>This month <a href="https://www.9news.com.au/2018/10/25/10/59/accc-chairman-rod-sims-re-appointed">Rod Sims was re-appointed</a> as chairman of the Australian Competition and Consumer Commission (ACCC).</p>
<p>The reappointment, the second by a Coalition government after the then Labor treasurer, Wayne Swan, appointed Sims in 2011, will give him an <a href="https://www.9news.com.au/2018/10/25/10/59/accc-chairman-rod-sims-re-appointed">unprecedented third term</a>.</p>
<p>The two events might seem unrelated, but it pays to take a closer look. </p>
<h2>Compare the pair</h2>
<p>Royal Commissioner Kenneth Hayne’s preliminary diagnosis was that fault lay, at least in part, with the financial system regulators; in particular the Australian Securities and Investments Commission (ASIC). </p>
<p>His chapter on “the regulators” is peppered with comparisons between ASIC and the ACCC. These do not favour ASIC.</p>
<h2>ASIC plays too nice</h2>
<p>The report charges ASIC with bending over backwards to negotiate agreed outcomes with offenders. Instead of litigating in pursuit of sanctions, too often ASIC has resorted to enforceable undertakings, the terms of which were heavily manipulated by the offending entity, or infringement notices that involved no admission of guilt. The report states:</p>
<blockquote>
<p>… ASIC’s starting point appears to have been: How can this be resolved by agreement? </p>
</blockquote>
<p>The starting point should be: Why would it not be in the public interest to bring proceedings to penalise the breach?</p>
<p>The agreements focused on remediation measures, which, as Hayne also notes, took far too long to reach. While it is important to compensate victims, it is not a substitute for penalties that punish wrongdoers and deter others. </p>
<p>As Hayne put it: </p>
<blockquote>
<p>The regulator <em>must</em> do whatever can be done to ensure that breach of the law is not profitable.</p>
</blockquote>
<p>Limited resources are no excuse. Allocation of ASIC’s limited resources is a process of prioritisation. Bringing cases against wrongdoers appears to have been low on its list of priorities.</p>
<h2>The ACCC plays tough</h2>
<p>The ACCC has the same tools at its disposal as ASIC and makes good use of negotiated agreements. But it is also prepared to escalate its approach from negotiation to litigation.</p>
<p>By contrast, under ASIC oversight, financial institutions have been allowed to think, in Hayne’s words, that they could “decide when and how the law will be obeyed or the consequences of breach remedied”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/criminal-charges-against-banking-cartels-show-australia-is-getting-tough-on-competition-law-97855">Criminal charges against banking 'cartels' show Australia is getting tough on competition law</a>
</strong>
</em>
</p>
<hr>
<p>Comparisons between the volume of proceedings brought by each regulator are difficult given the differences in their responsibilities and the provisions governing them.</p>
<p>However, it is hard to imagine a charge of litigating too little being made against the ACCC. </p>
<p>Enforcement has been at the centre of the ACCC’s mission under Sims, and under Allan Fels before him. </p>
<h2>The ACCC takes on the big end of town</h2>
<p>Hayne bemoans the fact that 70% of ASIC’s enforcement actions have been against small business. A healthy proportion of the ACCC’s have been against large businesses including the big supermarkets, the airlines, telecommunication companies and banks.</p>
<p>Over the past decade the ACCC has racked up A$366 million in fines for breaches of just one of the many prohibitions that it is responsible for enforcing: the prohibition against cartel conduct. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cartel-case-shows-not-all-corporate-misbehaviour-goes-unpunished-82149">Cartel case shows not all corporate misbehaviour goes unpunished</a>
</strong>
</em>
</p>
<hr>
<p>Aided in part by an upward adjustment in the statutory maximum size of the penalty it is able to obtain, its average over the past ten years has been <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3149143">double that of the preceding ten years</a>.</p>
<p>In May this year, the ACCC persuaded the Federal Court to impose Australia’s highest civil penalty for anti-competitive conduct to date – <a href="https://www.accc.gov.au/media-release/record-46-million-in-penalties-for-yazaki-cartel">A$46 million</a>. This topped the A$36 million against cardboard giant Visy that had stood as the record for more than 10 years. </p>
<p>The fresh record was an important step in the Sims-led campaign to lift the benchmark for corporate fines. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cartels-caught-ripping-off-consumers-should-be-hit-with-bigger-fines-78750">Cartels caught ripping off consumers should be hit with bigger fines</a>
</strong>
</em>
</p>
<hr>
<p>Not content with higher civil penalties, Sims also oversaw the first criminal prosecutions for cartel behaviour. The first produced a penalty of <a href="https://theconversation.com/cartel-case-shows-not-all-corporate-misbehaviour-goes-unpunished-82149">A$25 million against a Japanese shipping company</a>, discounted by half for cooperation. Further prosecutions against a <a href="https://www.accc.gov.au/media-release/criminal-cartel-proceedings-commenced-against-country-care-and-its-managers">regional healthcare company</a> and three major banks swiftly followed.</p>
<p>The value of such litigation goes beyond public denunciation, beyond punishment and beyond deterrence. It strengthens respect for and support for the law. </p>
<p>In an age in which distrust in institutions is verging on acute, it has been one of the ACCC’s most important contributions.</p>
<h2>ASIC avoids risks</h2>
<p>The report further charges ASIC with failing to take necessary risks in its litigation strategy, by shying away from “strategically important” cases. </p>
<p>When it does go to court, ASIC’s success rate has averaged above 90%.</p>
<p>That “seeming accomplishment”, according to Hayne, “has concerning implications”. It suggests the agency largely picks low-hanging fruit.</p>
<p>Contrast this from Sims in his <a href="https://www.accc.gov.au/speech/accc-future-directions">first major speech</a> on his appointment:</p>
<blockquote>
<p>The ACCC’s success rate in first instance litigation stands at almost 100%. This is frankly too high. It may sound strange to say so, but benchmarking against our international counterparts we are sitting at a much higher level of success. Of course I’m happy with the implication that ACCC staff handle cases well, but the flip side is that we have been too risk-averse. We need to take on more cases where we see the wrong but court success is less assured.</p>
</blockquote>
<h2>The ACCC tests boundaries</h2>
<p>For Sims, legal losses are neither a waste of resources nor a stain on the agency’s reputation. </p>
<p>They are an important mechanism for providing the business community with greater certainty about its obligations and a constant reminder that the ACCC will proceed in a way that reflects the seriousness and culpability of the conduct, without fear or favour.</p>
<p>Showcasing its appetite for testing uncharted territory were the cases brought against Coles and Woolworths for <a href="https://theconversation.com/coles-v-accc-finding-the-balance-between-fair-trading-and-competition-33135">unconscionable conduct against their suppliers</a>, a win and a loss respectively. </p>
<p>The ACCC also proceeded quickly to flex its muscles in <a href="https://www.accc.gov.au/media-release/jj-richards-contract-terms-declared-unfair-and-void">enforcing the unfair contracts provisions that took effect in 2016</a>. </p>
<p>Hayne went to lengths to compare the ACCC’s boldness to ASIC’s timidity in seeking compliance with these reforms.</p>
<h2>The ACCC is prepared to be unpopular</h2>
<p>The ACCC has been on the end of its fair share of criticism. </p>
<p>For some, it has been too soft on mergers – banking acquisitions included (although it should be noted these were waved through pre-Sims under then chairman Graeme Samuel).</p>
<p>For others, it has overstepped the mark in its use of the media. </p>
<p>For my own part, the ACCC’s approach to cooperating offenders could be sharpened. It could do more to secure compensation for cartel victims and review its merger decisions after the fact.</p>
<p>But law enforcement is not a popularity contest and, as the indomitable Fels was fond to remark, if there’s criticism, then we must be doing something right. </p>
<h2>While ASIC tries to accommodate</h2>
<p>Hayne pointedly observed that the major banks could not “find a word of criticism for ASIC”.</p>
<p>The royal commission is still to produce recommendations to deal with the suite of issues exposed to date. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">Banking Royal Commission's damning report: 'Things are so bad that new laws might not help'</a>
</strong>
</em>
</p>
<hr>
<p>But clearly Hayne favours <a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">more effective enforcement of the laws we have</a>, rather than the creation of new ones.</p>
<h2>What’s next?</h2>
<p>Hayne says there is a case for a new statutory body to ensure regulators are subject to regular critical review and held to greater account for their performance – a sort of body to watch over the regulators that are supposed to be watching over us. </p>
<p>An alternative would be to ask them to “watch Sims”.</p><img src="https://counter.theconversation.com/content/105730/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Caron Beaton-Wells receives funding from the Australian Research Council.</span></em></p>Compare the ACCC to ASIC and it’s clear why
Rod Sims has been reappointed to a record third term as Australia’s top competition and consumer cop.Caron Beaton-Wells, Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1039992018-10-01T04:35:27Z2018-10-01T04:35:27ZThree simple steps to fix our banks<figure><img src="https://images.theconversation.com/files/238596/original/file-20181001-19009-107cbbr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It isn't brain surgery.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/">Shutterstock</a></span></figcaption></figure><p>Here are three simple steps to address the widespread misconduct revealed in the interim report of the banking royal commission, arising out of <a href="https://law.unimelb.edu.au/about/staff/jeannie-paterson">research I have undertaken with my colleague Associate Professor Jeannie Paterson</a>.</p>
<p>While not exhaustive, they are good places to start:</p>
<h2>Step 1: back to basics</h2>
<p>Commissioner Hayne is spot on when he says that simply adding more regulation is not going to do the job. </p>
<p>In fact, more regulation can be more damaging than helpful. </p>
<p>There are literally dozens of overlapping state and federal statutes that prohibit misleading or deceptive conduct, and they often use subtly but significantly different language and impose different penalties. </p>
<p>This “legislative porridge” splits the regulation of financial services and products in ways that defy rational justification.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">Banking Royal Commission's damning report: 'Things are so bad that new laws might not help'</a>
</strong>
</em>
</p>
<hr>
<p>The result is protracted and cripplingly expensive litigation to determine who is covered by what prohibition. </p>
<p>This plays perfectly into the hands of well-funded corporations who know that delaying tactics and the limited resources of regulators and commercial and consumer are likely to produce soft settlements, “agreed penalties” and no real pressure to change behaviour – all while profits continue to flow in.</p>
<p>So we need to get back to basics. Simple, overarching prohibitions contained in one or two pieces of key legislation, which apply to every trader and corporation who engages in trade or commerce. No exceptions. No carve outs. No special treatment. The same penalties and remedies. Simple, powerful and unavoidable.</p>
<h2>Step 2: calling out deceptive conduct</h2>
<p>For many years, the Australian Securities and Investments Commission has concentrated its relatively meagre litigation efforts on proving “misleading” conduct by corporations. This is probably because it is notoriously difficult to prove the personal dishonesty traditionally required to prove fraud (the “deceptive” part of the prohibition on “misleading or deceptive” conduct). </p>
<p>Part of the problem has been that corporations are artificial persons and so need to operate through directors, managers, employees and agents. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fees-for-no-service-how-asic-is-trying-to-make-corporate-misconduct-hurt-103089">Fees for no service: how ASIC is trying to make corporate misconduct hurt</a>
</strong>
</em>
</p>
<hr>
<p>Nailing down instances of individual personal dishonesty, intention and responsibility is often impossible. </p>
<p>Misleading conduct, by contract, is relatively easy to prove, because it focuses on the objective meaning of conduct, does not require proof of fault – and does not require ASIC to identify the personal intentions of individuals behind the conduct. </p>
<p>But, focusing on misleading conduct comes at the cost to effective regulation. </p>
<p>The reputational damage flowing from a finding of misleading conduct is very low.</p>
<p>As Commissioner Hayne has noted, corporations are quick to characterise this sort of conduct as involving “mistakes”, <a href="https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-volume-1.pdf#page=296&zoom=auto,40,364">to apologise and to promise reform</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/hayne-holds-fire-but-the-banks-day-of-reckoning-is-coming-104055">Hayne holds fire, but the banks' day of reckoning is coming</a>
</strong>
</em>
</p>
<hr>
<p>It is time to face the reality that what matters is the behaviour of corporations rather than what is in their (artificial) minds.</p>
<p>It isn’t brain surgery. </p>
<p>As the commissioner himself as noted, you don’t need legal advice to know that “charging for doing what you do not do is dishonest”. Much of the reported conduct “<a href="https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-volume-1.pdf#page=149&zoom=auto,83,341">ignores basic standards of honesty</a>”.</p>
<p>A change in focus from personal intention to objective standards of honest conduct is needed to address what the commissioner identifies as “the root causes of conduct, which often lie <a href="https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-volume-1.pdf#page=114&zoom=auto,40,598">within the systems, processes and culture</a> cultivated by an entity”. </p>
<h2>Step 3: genuine punishment</h2>
<p>The final piece of the puzzle (missing from the otherwise incisive discussion in the interim report) is to bring courts on board.</p>
<p>Australian courts have been very cautious in awarding penalties for misleading conduct, and give substantial weight to mitigating factors such as expressions of remorse and cooperation with regulators. </p>
<p>They have said repeatedly that the focus of penalties should be on deterrence rather than punishment. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-courts-and-costs-are-undermining-asic-and-the-acccs-efforts-to-police-misbehaving-banks-and-businesses-95528">How courts and costs are undermining ASIC and the ACCC's efforts to police misbehaving banks and businesses</a>
</strong>
</em>
</p>
<hr>
<p>Their approach may be entirely appropriate in cases where courts are dealing with human defendants facing personal ruin. But when applied to corporations, it can undermine the legitimate role of punishment in changing repeated and longstanding corporate misbehaviour. </p>
<p>Again, there are some simple changes to the law that could address this problem. </p>
<p>One is to clarify that punishment is an important aim of the civil penalties regime, required for “<a href="https://www.documentcloud.org/documents/4951274-Banking-royal-commission-interim-report.html#document/p1">public denunciation</a>” of bad behaviour and to provide effective deterrence.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-problem-with-australias-banks-is-one-of-too-much-law-and-too-little-enforcement-103996">The problem with Australia's banks is one of too much law and too little enforcement</a>
</strong>
</em>
</p>
<hr>
<p>Another is for courts to frame penalties with a strong eye to the profits amassed as a result of the breach. Often the profit earned <a href="https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-volume-1.pdf#page=324&zoom=auto,40,463">will be larger than the damage to consumers</a>. Misconduct cannot be allowed to make good financial sense.</p>
<p>Yet another (also not yet on the commission’s radar) is to seriously consider expanding private rights of redress to include additional, punitive damages in cases of serious misconduct. </p>
<p>Not only would this make private claims more feasible for commercial victims. The recent <a href="https://www.smh.com.au/business/companies/banks-set-to-face-massive-class-action-over-rip-offs-20180911-p502yo.html">launch of group proceedings by Slater & Gordon</a> shows that, when brought together, private litigants are capable of sharing the regulatory burden of keeping banks on the straight and narrow: it needn’t all be done by the Australian Securities and Investments Commission.</p>
<p>There are important issues to consider about the strengths and dangers of group litigation, currently <a href="https://www.alrc.gov.au/inquiry-categories/class-action-proceedings-and-third-party-litigation-funders">the subject of review by the Australian Law Reform Commission</a>. </p>
<p>But if it can be done properly, the deep pockets of banks might well meet their match in well organised teams of lawyers and litigation funders, aggressively seeking justice both in the interests of their clients and for their own financial reward.</p><img src="https://counter.theconversation.com/content/103999/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elise Bant receives funding from the Australian Research Council for the Discovery Grant 180100932 (with Associate Professor JM Paterson) for ‘Developing a rational law of misleading conduct’ (2018-2020) and ARC Discovery Grant DP140100767 (with Associate Professor JM Paterson) for ‘Remedies under the Australian Consumer Law and the Common Law: Evolution and Revolution’ (2014-2018).</span></em></p>Getting better behaved banks isn’t difficult. Here are three places to start.Elise Bant, Professor of Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1039132018-09-26T20:20:27Z2018-09-26T20:20:27ZABC Board Chair over-reaches in a bid to appease hostile government<p><em><strong>Update</strong>: Justin Milne has now <a href="https://theconversation.com/justin-milne-quits-as-abc-chairman-after-furore-over-attack-on-political-editor-103995">resigned as chair of the ABC board</a>.</em></p>
<hr>
<p>Reports of the contents of <a href="https://www.smh.com.au/politics/federal/they-hate-her-emails-show-abc-chairman-told-michelle-guthrie-to-fire-emma-alberici-20180925-p505z4.html">leaked emails</a> written by ABC Board Chair Justin Milne provide a powerful insight into how governments of the day can exert influence over what parliament had intended to be an independent agency. </p>
<p>The emails have emerged in the wake of the <a href="https://theconversation.com/abc-board-sacks-managing-director-michelle-guthrie-103756">ABC board’s termination</a> of ABC managing director, Michelle Guthrie.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-sets-up-inquiry-into-embattled-abc-chairmans-email-103930">Government sets up inquiry into embattled ABC chairman's email</a>
</strong>
</em>
</p>
<hr>
<p>Milne is correct in asserting that the ABC Act <a href="http://about.abc.net.au/statements/statement-from-the-chairman/">requires the board</a> “to independently govern the Corporation, protect its best interests, ensure that it is well funded, well managed and that our content is of the highest standards”.</p>
<p>But it doesn’t operate in exactly the same way as other corporate boards.</p>
<h2>The ABC board is different</h2>
<p>For example in most corporations, commercial or otherwise, boards exercise control over management by using specific delegations and determining corporate policy. </p>
<p>Boards also appoint the chief executive and in some instances other members of the management group.</p>
<p>However that’s not the case for the ABC. </p>
<p>The ABC Act provides that on advice of the prime minister and communications minister the governor general appoints the chair and other directors with the exception of the managing director and the staff elected director. </p>
<h2>Partly non-political</h2>
<p>The Act bars former members of parliament and senior political staffers (for a time) from being appointed as the chair or as non-executive directors.</p>
<p>Appointments to all other ABC board positions, including the chair, must follow <a href="https://www.communications.gov.au/what-we-do/television/abc-and-sbs">a merit-based process</a> with candidates interviewed in a process that the government does not control. </p>
<p>But that requirement does not apply to the managing director. This gives the board greater latitude to appointment a candidate that may draw less criticism from the Government of the day. </p>
<h2>And partly political</h2>
<p>This is highly problematic because of real (but usually latent) potential that a managing director might arrive with an agenda to undermine the board’s statutory role and parliamentary-determined Charter to be an independent public broadcaster. </p>
<p>The potential conflict is more acute because at the ABC the managing director is designated in the Act as the editor-in-chief.</p>
<p>Because the managing director is responsible for content, the reported instances of the Chair pressuring the managing director to remove individual journalists and approaching ABC editorial staff are inappropriate. </p>
<h2>Setting the scene for conflict</h2>
<p>The Act sets up a potential conflict between most of the ABC directors (who essentially have a trustee role) and the managing director who might be a non-merit based appointee.</p>
<p>The ABC board used to avoid this conflict by sticking to the public service tradition of appointing technocrats to the managing director role.</p>
<p>But over time perceptions about the appointment have become increasingly politicised.</p>
<hr>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1044785484516356096"}"></div></p>
<hr>
<p>As Marco Bass, ex head of ABC news and current affairs Victoria <a href="https://www.smh.com.au/national/michelle-guthrie-was-staggeringly-unqualified-for-abc-role-20180925-p505vm.html?utm_medium=Social&utm_source=Facebook#Echobox=1537848894">has written</a>, the temptation to control the news is becoming harder to resist:</p>
<blockquote>
<p>What [Guthrie and Shier] shared was an implicit brief to disrupt the ABC, dismantle internal fiefdoms and, importantly, bring the news and current affairs division under control. </p>
<p>Make no mistake, federal governments, regardless of political complexion, don’t care about Peppa Pig. They care about political coverage by the ABC’s journalists and broadcasters.</p>
</blockquote>
<p>These idiosyrantic governance rules amplify flaws in the design of boards on which both executives and non executives sit. </p>
<h2>Other boards have similar problems</h2>
<p>As I and colleagues <a href="https://theconversation.com/solving-deep-problems-with-corporate-governance-requires-more-than-rearranging-deck-chairs-99297">have written previously</a>, mixing executive and non-executive directors on a single board creates governance problems.</p>
<p>On corporate boards managers who are also directors can (and usually do) position themselves as very powerful gate keepers and dominate both other directors and senior executives.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/solving-deep-problems-with-corporate-governance-requires-more-than-rearranging-deck-chairs-99297">Solving deep problems with corporate governance requires more than rearranging deck chairs</a>
</strong>
</em>
</p>
<hr>
<p>This was a problem at the Commonwealth Bank and from some reports was becoming a problem at the ABC.</p>
<p>If a government can use the idiosyncrasies of the the ABC Act to cower a much-loved and very public institution like the ABC, imagine how pliable agencies like APRA, ASIC and ACCC might be in accommodating the views of a government who might not want to deal with the political fallout of, for example, tough but necessary decisions such as <a href="https://financialservices.royalcommission.gov.au/public-hearings/Documents/exhibits-2018/17-august/EXHIBIT-5.307.pdf">cancelling banking or superannuation licences</a>.</p>
<hr>
<p><em>This piece has been edited to remove an earlier incorrect statement that under the ABC Act the managing director is appointed by the governor general on the advice of government ministers. The managing director is appointed by the board, but without the constraints imposed on the government in appointing other board members.</em></p><img src="https://counter.theconversation.com/content/103913/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Linden received funding from RMITs EU Centre to conduct his doctoral research. The Centre is funded by the European Union.</span></em></p>Flaws in the ABC Act set up conflict and allow the government to pressure it.Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.