Australian Security and Investments Commission chairman Greg Medcraft wants the Turnbull government to give him a tougher penalty regime so it will “actually hurt” anyone the corporate regulator catches.
Speaking on ABC TV’s Lateline last night, the ASIC boss suggested a lack of deterrents under the current law meant companies and their staff were willing to risk breaking the law because of the lack of consequences.
“Unfortunately, people are deterred by the prospect of how serious the penalty is going to be. That is critical,” he told Lateline’s Emma Alberici.
Asked if he had the capacity and the resources to weed out bad behaviour at banks, Medcraft said “we do the best with the resources we have”, acknowledging that Turnbull government promises for additional resources would only restore cuts made in the 2014 Budget.
When it came to the Commonwealth Bank both in financial planning and CommInsure scandals, he said “it was very clear that we were not aware of the extent of what was going wrong there [financial planning]”, and CommInsure “really did come from left field” for both the bank and the regulator.
Medcraft said he believed the CBA was “genuine about making change” at CommInsure.
In response to revelations a fortnight ago before a parliamentary inquiry by CBA CEO Ian Narev that no one had been sacked in the wake of the CommInsure scandal, Medcraft said individual accountability had to be strengthened inside banks.
“I think one of the issues… we have seen on Wall Street is that they recognise this problem and they have started to fire people,” he told Lateline.
Medcraft added that a similar response had emerged in the UK.
“I think this is something I think our banks are going to have to learn from,” he said. “We have got to see more individual accountability, that’s for sure.”
And while ASIC banned 29 financial planners last year, no one has been has yet been prosecuted, despite tens of thousands of people being financially damaged, with some losing their life savings.
One former CBA financial planner, Ricky Gillespie, was charged by ASIC in May with allegedly forging customers’ signatures on 31 documents between January 2007 and June 2009. The charges came two years after the corporate watchdog banned him over the allegations.
Medcraft said we wrote a white paper highlighting the issue of penalties four years ago and government has pledged to review them.
“One of the issues we need to deal with is actually looking at the penalties in our system,” he said.
“As well as the funding for more surveillance and then having penalties that actually work that put the fear of God into people because that is how you actually have a law enforcement regime that works.”
Last week ASIC published the findings of an investigation into the life insurance industry, which included an unnamed company that denied one-third of total and permanent disability (TPD) claims.
Medcraft said there was clearly a problem in TPD and trauma insurance. That included “an error of the remuneration arrangements”, which sees bonuses paid for both insurance policy sign ups and claims denied.
He wants to see the law changed to deal with such conflicts of interest deal via “an obligation to act honestly and fairly”.
“We have come out with recommendations already in saying that we believe that they need to look at perhaps the penalties for insurance. For example, at the moment, insurance companies that actually have not acted in utmost good faith, there is no monetary penalty for actually breaching that duty at the moment, for example,” he said.
“I mean the problem at the moment, often the penalties are not indexed to inflation, they may be a fraction of the benefit gained.
“So doing something about penalties is absolutely critical. So what we want is actually the resources, in particular say penalties, to actually have law enforcement that really hurts and makes a difference that actually underpins that confidence that every Australian expects and deserves.”
The full Medcraft interview on Lateline is here.