Tuesday, May 11, 2021

Frydenberg declares war on corporate regulator in a bid to reduce powers | Banking


Josh Frydenberg has declared war on the corporate regulator, saying the Australian Securities and Investments Commission needs to be overhauled so it conforms to the will of parliament.

Asic was caught in a pincer movement on Wednesday, with a parliamentary committee chaired by a Liberal senator mulling ways to break up or reduce the powers of the regulator while Frydenberg used a speech to declare it must not “supplement, circumvent or frustrate” the law.

While regulators needed to make enforcement decisions independent of government, they “do not carry out their mandates in a vacuum”.

“They must pursue their mandates in a manner that is consistent with the will of the parliament,” he said. “There need to be mechanisms to hold them to account.”

Asic is under extreme pressure over $190,000 in payments benefiting its chairman and deputy chairman that the auditor-general says fell outside remuneration rules.

There has been a long-running dispute between Asic and Frydenberg over responsible lending rules and a backlash by the financial sector against tougher regulation proposed by the banking royal commission.

Asic’s decision to appeal a legal loss over responsible lending in what is known as the “wagyu and shiraz” case sparked outrage among government backbenchers and in September, after heavy lobbying from the banks, Frydenberg decided to abolish the rules.

By doing so he broke a promise he had made in February last year to fully implement all the recommendations made by commissioner Kenneth Hayne. Hayne’s first recommendation in his final report was not to change the responsible lending law.

On Wednesday the auditor-general, Grant Hehir, told a joint parliamentary committee with oversight of Asic that the regulator was slow to provide information about payments involving chair James Shipton and deputy chair Daniel Crennan, QC, who is also head of enforcement.

Asic paid $118,000 to KPMG for tax advice given to Shipton – an amount that ballooned from an initial quote of $8,000 – and almost $70,000 in rent so that Crennan could stay in Sydney where the regulator’s headquarters are.

Crennan has resigned and Shipton has stood aside until the completion of an investigation by Treasury, due by the end of the year. Both have denied doing anything wrong.

Hehir told the committee he asked questions of Asic about the payments before last year’s audit but by the time this year’s audit rolled around the problem still had not been resolved.

“It felt to me we weren’t getting enough traction with management given the significance of the issue,” he said.

He said Asic also failed to explain to him why the issue of whether or not the payments fell within remuneration rules had not been resolved a year later.

“They described the action they had taken, which was to draft some correspondence internally and I think seek some legal advice,” he said.

Asic’s acting chair, Karen Chester, said the regulator cooperated with the audit. She said some material had been given to the auditor general’s office late because it was not in the possession of commissioners other than Shipton.

“They were documents that were on the chairman’s private computer,” she said.

The committee also heard from witnesses including former competition tsar Graeme Samuel and Reserve Bank board member Ian Harper, who conducted a review of competition regulation for the government in 2015 about ways to overhaul Asic.

It is believed options under consideration by the government include taking away Asic’s ability to publish regulatory guides setting out how it will implement the law and giving the power to Treasury.

Harper said Asic should be stripped of its consumer protection role, which should be handed to the Australian Competition and Consumer Commission – the opposite of what he recommended as part of the Wallis review of financial regulation in 1997.

“I’ve changed my mind,” he told the committee.

Other options canvassed by the committee included replacing the commission structure – where commissioners wield executive power – with a board of non-executive directors who supervise management instead of being directly involved in operational decisions.

Harper supported the idea, saying it would bring common sense to the operation of Asic.

But Samuel said it was unnecessary if Asic’s culture was reformed and pointed out that part-time directors would have conflicts of interest when it came to the regulator’s powers.

“These responsibilities should not be impeded or subject to conflicts of interest,” he said.

Chester, who ran a review of Asic in 2015 that recommended making commissioners less hands-on, also rejected the idea of appointing part-time board members.

“We make a lot of regulatory decisions,” she said. “That in and of itself is beyond a part-time role.”

Earlier on Wednesday, in a speech to the same forum addressed by Frydenberg, she said the government had beefed up Asic’s powers and the regulator would not be asking for any more.

“So the recent past of an Asic imploring government for new regulatory powers and better field coverage is just that,” she said. “The past. It is time for us to simply get on with it.”

Opposition frontbencher Andrew Leigh accused Frydenberg of opportunism in attacking Asic while it lacked a permanent leader.

“I think it’s extraordinary that Josh Frydenberg is attacking Asic while at the same time leaving it leaderless for two months,” Leigh said.

“It looks to me like an attempt to distract from the issues of the day.”

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