The corporate watchdog has defended its policing of the financial industry, saying it has limited resources.
Australia’s corporate watchdog says policing the finance industry is a battle of fear versus greed, as it responds to a critical report into its handling of dishonest activity by Commonwealth Bank financial advisers.
But the Australian Securities and Investments Commission (ASIC) has not endorsed a call for a royal commission into the bank scandal, with ASIC chairman Greg Medcraft questioning whether the money for such an inquiry could be better spent.
A senate committee report has called for a royal commission to investigate the Commonwealth Bank’s financial planning arm after fraudulent activity by advisers caused thousands of investors to lose their savings.
Unethical dealings by advisers between 2006 and 2010, including forging client signatures and acting without client authority, were brought to ASIC’s attention by whistleblowers but the regulator took more than a year to act.
The report found ASIC seemed to miss or ignore signs of corporate wrongdoing and was a “timid, hesitant regulator”.
The senate committee also investigated predatory lending practices by brokers and financial advisers in Australia between 2002 and 2010, and found shortcomings in ASIC’s ability to warn consumers of risks.
Mr Medcraft today said ASIC had made changes to its processes as a result of the committee investigation but defended his organisation, saying it did what it could with its current resources
“Our job is to do the best with the resources and powers we have,” he said.
“We have 30 staff looking to monitor over 40,000 financial planners.
“We need, at the end of the day, for consumers to take care when they’re dealing with a financial planner and secondly we need those that are licensees to make sure that they supervise the financial planners that come under them.”
Mr Medcraft said he was not afraid to take on big financial institutions in cases of wrongdoing but pointed to a need for heftier penalties to frighten businesses into complying with the law.
“As a former investment banker unfortunately it’s fear versus greed and if you’re going to have an effective financial system you’ve got to make it very clear to those that breach the law … that the penalties will be absolutely severe and that we will pursue them,” he said.
“The more that you can lift the fear, suppress the greed, you end up with a stronger financial system.”
Mr Medcraft said current civil penalties were inadequate, with most not indexed to inflation and “20 years old”.
He said establishing a royal commission was a matter for the federal government but, asked if resources for a commission could be better spent augmenting ASIC, he said: “that’s a very good question.
“We’ve already spent nearly a million in resources on this senate inquiry,” he said.
ASIC is currently facing a 12 per cent reduction in its staff and its budget as a result of cuts in the federal budget.