Wednesday, 19 March 2014

Watchdog shies away from enforcement

I have often complained about (lack of) enforcement in Malaysia regarding corporate matters, but it seems that in Australia a similar problem occurs. That is, if the article written by Michael West in The Sydney Morning Herald is indeed true. Some snippets (emphasis mine):

In mid-2008 the Australian Securities and Investments Commission was warned Storm Financial group was going to blow up.

We know this because we warned them ourselves.

"Clean bill of health" was the response. Six months later, Storm and its 13,000 clients and $4 billion in funds collapsed. On the barometer of sheer human misery, this was the worst collapse the country had seen.

The regulator had been fielding complaints about Storm's founder Emmanuel Cassimatis since Cassimatis had been flogging financial product for the Commonwealth Bank in the 1990s.

It had also been warned in advance about Allco and Babcock, ABC Learning, Rubicon, City Pacific and Australian Capital Reserve. No doubt a host of others. These are merely the ones we were involved with, or knew about.

Entire industries blown to smithereens: plantation schemes such as Great Southern, debenture funds such as Westpoint and mortgage funds such as City Pacific, with almost no regulatory action and nary a prosecution. Some $30 billion in savings.

The message, and one which is by no means lost on sharp operators, is that you can swindle people with impunity and you will not be brought to justice; as long as you are big enough.

In this job, you hear the tales of life savings lost, savvy con-jobs - often actionable but rarely apprehended - and the dreadful stories of suicide and marriage breakdown. For two decades we have been listening to this stuff while trying to get ASIC to act.

In the past, we had wondered why they were loath to discuss schemes which might soon obliterate people's life savings. More than once we pleaded, "Look, we're on the same side here. We should be trying to nail these hucksters together. Can we talk?" No.

The regulator did act the other day. It set up a section on its website where it names and shames journalists: "ASIC responds to wayward reporting.''

It is fair to say that many good people work at the corporate regulator. It is also fair to say, caveat emptor, there should be a burden of vigilance on investors themselves. ASIC cannot be expected to prevent every collapse or bring every miscreant to justice.

It confronts complex matters of policy and execution.

Yet the cultural problems run deep. The big one is guts. The leadership has always been weak. They regulate by press release, they keep their heads low. They are reactive, not proactive.

And so, in the wake of the scandal inside the Commonwealth Bank's financial arm, they now face an inquiry, the Senate Inquiry into the Performance of ASIC. Last week chairman Greg Medcraft identified what he saw as the problem: "communications".

In testimony before the Senate, Medcraft blamed bad PR for ASIC's woes. He also said the penalties regime could be toughened to enforce good corporate behaviour.

But ASIC already has the powers. It is not the laws that need to change, it is their enforcement.

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