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The royal commission’s scathing interim report prompted the federal treasurer Josh Frydenberg to slam ASIC’s weak response to misconduct by large financial services institutions.
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ASIC cops it as royal commission report released
28 September 2018
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11 minute read
The royal commission into misconduct in the banking, superannuation and financial services industry this afternoon released its interim report. This follows months of spectacular findings including fee for no service, charging fees to dead people, and inappropriate loan advice with devastating consequences.
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In his address this afternoon, Treasurer Josh Frydenberg made a point of noting the failings of the corporate regulator, ASIC, in capturing and punishing misconduct.
“This interim report also makes clear that while behaviour was poor, misconduct when it was revealed when unpunished, or the consequences did not meet the seriousness of what has been done,” he said.
Often, in cases of misconduct, little beyond an apology from an offending entity or an immaterial infringement notice was forced by ASIC, the royal commission found.
“Too often, entities were treated in ways that would allow them to think that they, not ASIC, not the parliament, and not the courts, will decide when and how the laws will be obeyed,” Mr Frydenberg said.
“This is clearly unacceptable, and cannot continue,” he said.
For example, earlier this month, the royal commission heard that ASIC allowed a 96 per cent penalty to CBA after it misled consumers in its marketing. Further, ASIC allowed CBA to draft a media release on the issue.
ASIC responded to the interim report, saying it notes the “serious and important” observations, and will continue to assist the royal commission in its work with government.
Accountants Daily, together with sister publication SMSF Adviser, has previously reported its fears that the smaller end of town is a disproportionate focus of ASIC’s compliance action. It’s significantly easier for the corporate regulator to capture non-compliance in a suburban firm than it is at one of the major banks. This puts small to medium-sized accounting firms directly in its firing line.
Some reassurance for accountants came from the architect of the Future of Financial Advice reforms, Bernie Ripoll, last month. Accountants Daily asked him if he fears smaller operators will bear the brunt of ASIC’s compliance action, given they are an easier target than their larger counterparts. At the time, Mr Ripoll said he was confident this won’t exclusively be the case.
“We've already seen the evidence of it not being about just one poor accountant down the end of the supply chain where they just copped the brunt of everything that's happened in the sector. We've seen board directors go, senior people with big reputations gone,” Mr Ripoll told Accountants Daily.
“I am confident that it's not going to be just more of the same… where a junior person at the end of the supply chain was instructed to do something and they cop all the brunt of everything that's gone wrong,” he said.
“This is not the case this time. We've got the most senior people who are either have resigned, have been sacked, removed, are on sick leave indefinitely, because they really are sick with worry,” he said.
Focus on SMEs
The interim report of the royal commission has also suggested a rethink of the legal framework governing small and medium enterprise lending, with questions arising around adequate forecasts and documentation.
In the interim report, Commissioner Kenneth Hayne raised questions around responsible lending, and what checks were required to be in place.
“The chief general issue that emerged from those case studies can be identified as being what inquiries a diligent and prudent banker should make when deciding to lend to an SME,” the interim report said.
“More particularly, to what extent may the banker take the business case presented by the loan applicant at face value? Is the banker to do more than conduct such checks and stress testing of assumptions made in the business case as the lender’s policies require?”
Accordingly, some of the questions raised include whether critical analysis to cash flow forecasts and other business plan documentations by customers are required, and if so, what level of analysis will be considered adequate.
The findings come in line with accountants already noting tighter lending conditions for their clients.
In particular, accountants have been earmarked by the banks as a crucial piece in helping clients access finance through an analysis of their financial position.
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