ASIC set to to triple corporate penalties to $3 million

‘ASIC needs to be a world class regulator,’ said Financial Service Minister Kelly O’Dwyer. Photo: Stefan Postles/Getty Images

The Turnbull government is preparing to triple corporate penalties for wrongdoing and force offending companies to forfeit profits from wrongdoing, to give incoming chairman of the Australian Securities and Investments Commission James Shipton a big stick to re-energise the watchdog.

Minister for Financial Service Kelly O’Dwyer will release a review by the ASIC Enforcement Review Taskforce as early as Monday on “strengthening penalties for corporate and financial sector misconduct”, which follows recommendations by David Murray’s Financial System Inquiry to “substantially increase” civil and criminal penalties.

The government established the ASIC taskforce – led by senior members of Treasury, ASIC, the Attorney-General’s Department and the Commonwealth Director of Public Prosecutions – last year as part of its move to dampen Labor’s calls for a royal commission into the banks. It followed warnings by outgoing ASIC chairman Greg Medcraft that Australia had become “a bit of a paradise” for white collar criminals because of low penalties and a lack of powers.

The taskforce has already recommended broadening ASIC’s search warrant powers and bringing its banning powers against individuals into line with the Banking Executive Accountability Regime (BEAR), which is causing consternation among Liberal backbenchers who are warning they will not tolerate any more direct intervention in the affairs of big business.

The government is finalising its response to the taskforce’s latest positions paper, which is expected to recommend tripling corporate penalties from $1 million to $3 million in the Corporations Act. Other options being canvassed include allowing the court to impose a multiple penalty based on what corporate criminals gain from their crime, a disgorgement of company profits reaped from wrongdoing and a penalty based on company turnover, so that the larger the business the bigger the fine.

“The taskforce process will help to ensure that ASIC has the right tools to combat corporate and financial sector misconduct and to protect consumers,” Ms O’Dwyer plans to say on releasing the ASIC taskforce’s recommendations.

Ms O’Dwyer will also release draft legislation on Monday to protect whistleblowers which requires companies to have a whistleblower policy or face penalties. The new law widens the definition of whistleblowers to include not only employees, but also contractors, suppliers, a spouse or child of a whistleblower and the trustees, custodians and investment managers of superannuation funds. Other protections include the right to compensation and confidentiality of a whistleblower’s identity. If a whistleblower’s identity is revealed, a court may order the person to pay $200,000 for an individual; or $1 million for a company.

ASIC has long complained their penalty regime for corporate wrongdoing – limited to a maximum $1.7 million for companies in the ASIC Act – is out of line with other regulators, for example the Australian Transaction Reports and Analysis Centre which can seek penalties up to $18 million, and the Australian Competition and Consumer Commission which for cartel conduct can seek a civil penalty that is the greater of $10 million, three times the value of the benefits obtained or 10 per cent of the annual company turnover.

The government’s planned move to higher penalties is designed to coincide with their appointment last week of new ASIC chairman James Shipton, who will begin in February and be based in Melbourne – away from ASIC’s Sydney headquarters – but has been given a mandate to shake up the regulator and bring about cultural change. It comes as ASIC’s controversial case against the banks for allegedly rigging the bank bill swap rate begins in Melbourne on Monday.

“ASIC needs to be a world class regulator. Through its actions ASIC must instil confidence in both consumers and those it regulates. Mr Shipton has the practical skills and experience needed for that critical task,” Ms O’Dwyer told The Australian Financial Review.

ASIC’s new penalties and powers come after last year’s top-up in the lead-up to the federal election to claim there was already a “tough cop on the beat“. ASIC received an additional $120 million which the Abbott government had cut, as well as a powerful product intervention power, a new user pays system to fund the regulator and moved ASIC out of the Public Service Act to allow it to make some more high-profile hires.

Incoming ASIC chairman Mr Shipton, a lawyer at Harvard who worked at the Hong Kong securities regulator and Goldman Sachs, has already vowed to continue the “important work” of stamping out bad culture in the financial sector.

“One of the reasons I left [Goldman Sachs] to become a regulator is that I genuinely believed that financial institutions, big and small, had lost their way and were losing the trust of the broader community and this public service mindset which had been instilled in me, made me think I have to do something about it,” Mr Shipton told the Financial Review.

Mr Shipton said a number of speeches which he had given while at the Hong Kong regulator were key to him securing the position, after the dramatic withdrawal of Credit Suisse’s local investment bank chairman, John O’Sullivan. In one of his speeches in 2015, Mr Shipton said bonuses were the “elephant in the room” and called for creative solutions to incentivise good behaviour.

“Too often I have heard from the industry that people need not be incentivised to “do the right thing” since that is what is ordinarily expected of them. If that logic were true, then financiers need not be incentivised to perform better and bonuses should be done away with entirely,” he said

“We should consider creative solutions relating to incentives … long-term incentive solutions such as the ‘performance bond’ mentioned by William Dudley or clawing back into fixed pay mentioned by Mark Carney should be evaluated by the industry.”

Mr Shipton also called for greater gender diversity to break poor culture in financial services firms as part of the speech at the Hong Kong Securities Institute.

“When I was reflecting on the latest forex rigging scandal, particularly when I was reading the transcripts of the chatroom conversations, it struck me that this was an all-male group that had very deep-rooted cultural loyalties to each other .. it was very clear that this was a male-dominated culture that directed its loyalty exclusively to its members and not their employers, their clients or indeed the integrity of the market,’ he said.

“I wondered whether the outcome may have been different if there were more women in senior leadership positions on the forex desks of the affected firms.”

This article first appeared at the AFR.com. See the original here.

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