Banking royal commission: James Shipton probed on ASIC’s relationship with banks

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Banking royal commission: James Shipton probed on ASIC’s relationship with banks

The chairman of the Australian Securities and Investment Commission, James Shipton, possibly walked into the royal commission witness box expecting to be chastised for not talking enough to naughty banks and financial institutions.

Instead, he was interrogated for talking to them too much.

After softening Shipton up with a series of questions about the expansion of ASIC’s regulatory remit and the more modest expansion of its resources, senior counsel assisting Rowena Orr began asking about Shipton’s engagement with chief executives and boards.

Shipton said his contact was regular and irregular, formal and informal – annual meetings with boards, for example, as well as ad hoc phone calls with CEOs when a point needs to be made.

“I’ve called CEOs to express dissatisfaction on a number of occasions as regards the handling of particular matters that are being handled by our enforcement teams. I have called CEOs and spoken at meetings about my dissatisfaction about what I call legal trench warfare. I have also expressed my dissatisfaction to these leaders about the lack of professionalism in the Australian financial sector, and I have also spoken to these leaders to a man and a woman about the fact that I believe that they have forgotten that they are dealing with other people’s money.”

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Stirring stuff, albeit with a hidden, worrying message – even with the royal commission raging, Shipton has still needed to call bank executives about “handling or delays or intransigence by the financial institution”.

But Orr let this slip by. Her focus on whether these chats are examples of regulatory capture.

“It’s part of human nature, isn’t it, Mr Shipton, that when we have a relationship with someone, it’s usually harder for us to do something that might harm that person’s interests,” Orr said.

“Even accepting that there is benefits to ASIC from regular engagement with boards and senior executives of these organisations, is it really appropriate that the same people who have that engagement are the people who are ultimately responsible for making decisions about whether to take enforcement action against these agencies?”

James Shipton might have expected to be chastised for not talking enough to naughty banks and financial institutions. ...
James Shipton might have expected to be chastised for not talking enough to naughty banks and financial institutions. Instead, he was interrogated for talking to them too much.

David Rowe

Professional interactions

Shipton said he and his commissioners handled these interactions professionally at all times, and he has spoken to his colleagues about “the importance of treating carefully and with a healthy dose of scepticism” the subjects of these chats.

Is there are policy governing how these interactions take place, Orr asked. Are formal minutes taken?

There is no policy, and no minutes, Shipton said, although he had instituted a policy of bringing a senior executive to observe the meetings.

Shipton: 'We are tough, we are resolute, we are strong, but we also apply principles of fairness and follow due process.'
Shipton: ‘We are tough, we are resolute, we are strong, but we also apply principles of fairness and follow due process.’

Commissioner Ken Hayne intervened.

“Would not having a note-taker at these meetings ensure that there was a method of preserving the corporate memory within the organisation of what has been said, when it has been said, and what was said?” he asked Shipton.

The ASIC chairman again defended the tone and contents of these engagements, but he agreed that a note-taker would be a good idea.

(These will surely be boom times for providers of secretarial services, given Orr’s suggestions on Wednesday that minutes of board meetings should be much more closer to a verbatim record of events. Shorthand classes across the land will be bulging.)

Orr then started in on ASIC’s willingness to name names in reports on sectors. She used the example of a report released this year about the direct life insurance sector.

The report used a number of case studies, but did not name the companies involved. Why not, demanded Orr, and then Hayne.

Shipton fumbled for his answer, mentioning the need to be fair to the organisation. He eventually agreed that ASIC needs to name more names.

Orr went further. When ASIC does name names, does it tell the company before it releases the findings?

Principles of fairness

Shipton said ASIC did notify firms, something he said was a matter of fairness.

“Does this come back to the relationship that you’re trying to cultivate and maintain with the entity, Mr Shipton?”

“Absolutely not. Absolutely not. I see it as the exercise of professional judgment. I see it as ensuring that we are tough, we are resolute, we are strong, but we also apply principles of fairness and follow due process. I do not see that there is an inconsistency in those two concepts.”

The rest of the afternoon was taken up with a predictable set of questions about ASIC’s poor enforcement record.

Expect more action, more quickly, the ASIC chairman said.

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