Overhauled ASIC unveil new plan to get tougher and litigate first
The corporate regulator's overhauled leadership team is vowing to get tougher on business misconduct and take greater risks going to court as part of a new, litigate-first strategy, newly appointed regulator Sean Hughes warns.
The threat comes as the Australian Securities and Investments Commission reveal they have been deluged with corporate breach reports and complaints in the wake of the Hayne royal commission and want to run their budget "close to empty" to turn around the perception they are the soft cop on the beat.
Mr Hughes, the former head of New Zealand's regulator, who Nationals senator John Williams said should be leading ASIC, has warned the public will need to accept the regulator will lose more cases and take longer to secure a result.
Sean Hughes is promising a tougher approach by ASIC. Josh Robenstone Â
The new strategy is expected to be endorsed by the overhauled ASIC commission, who will meet for the first time early this year, and detailed in an internal review of enforcement policy by Commissioner Dan Crennan, QC, to be provided to Commissioner Kenneth Hayne shortly before his final report on February 1.
"The mantra at ASIC I can tell you going forward will be 'why not litigate?'," Mr Hughes told The Australian Financial Review in a wide-ranging interview at ASIC's Melbourne headquarters about their plan for the year ahead.
"It is inevitable there will be more litigation and people out there in the market will have to be prepared for a much firmer, much stronger regulator, who is far less likely to compromise and we are likely to be seeing them in the court," said Mr Hughes, who has previously worked at ASIC, as well as legal counsel for NAB, ANZ, UniSuper and Tabcorp. 'Not here to make friends'
"As a regulator we have to get used to running more cases that we might lose.
"We are going to have to be bolder and stronger in our approach to enforcement. The approach we will take to resolving disputes will inevitably entail the likelihood that we will take court action, so people shouldn't be looking on ASIC anymore as some sort of soft option to push a problem out of the way."
Despite previously acting for the big banks and companies, Mr Hughes insisted "he is not here to make friends".
ASIC chairman James Shipton was subject to a grilling at the banking royal commission. JOEL CARRETT
"In the last days I've had sit-down conversations with two of the big bank CEOs and I can tell you I don't think either walked away thinking it was all that friendly," he said. "I am not in this job to be liked or be a friend to anyone in the industry."
The new approach will be complemented by new ASIC powers including the "crucial product intervention and design powers" and higher penalties that Mr Hughes urged Parliament to quickly pass because they were long overdue.
ASIC has been humiliated by the Hayne royal commission after the interim report indicated the regulator's role has been "unacceptable" because it has been too cozy with the banks and failed to take them to court. Former ASIC commissioner Peter Kell unexpectedly resigned in the wake of his appearance before the royal commission.
ASIC chairman James Shipton – also put through the wringer at the royal commission – has been forced to abandon the approach of his predecessor Greg Medcraft who relied on enforceable undertakings that the royal commission exposed as too weak with the terms too often dictated by the banks.
"I don't think we will utilise enforceable undertakings as much as we have done in the past, we have moved into a new era," Mr Hughes said.
"The consequence of that is justice may inevitably be slower. Money did flow, $1.82 billion in compensation has flowed to consumers since 2011 but that may not be a game we play anymore."
The new ASIC team – which also includes former productivity commissioner Karen Chester and Equipsuper CEO Danielle Press – is expected to endorse a return to the big litigation era of former chairman Tony D'Aloisio, whose cases including One.Tel, James Hardie, Centro, AWB and Fortescue, and delivered a mixed record and also resulted in harsh criticism.
Mr Hughes said the new commission will be "much less in the weeds of the day-to-day operations and more focused on strategic enforcement".
The long-time litigator said in the past that ASIC had a litigation success rate of above 90 per cent and "maybe the right number should be closer to the 70s". Bad headlines
The new approach is likely to result in more bad headlines for ASIC such as being slapped down in the penalty hearing in the BBSW case against Westpac late last year, and the regulator's possibly flawed, interpretation of responsible lending laws exposed by the courts.
The public can also expect to see more cases testing the law such as ASIC's recently launched case against Clayton Utz to obtain secret documents from interviews with AMP executives.
"I firmly believe if we are doing our job well, governments will listen to us and if they see we are running on close to empty in the [budget] tank [they will respond] but my view as a regulator is you should run close to empty 90 per cent of the time."
"We are under-resourced," Mr Hughes said. "We are grateful for the $70 million we were given in August and the $50.1 million given to both the DPP and Federal Court but we do think there is a case to be made for additional resources," he said.
Mr Hughes, who is also determined to work in a more co-ordinated approach with other key regulators, said while his focus will be on the banks and insurance sectors, the new enforcement approach will be adopted across the board rather than reacting to the latest news.
Ms Chester, an economist, has also promised to make much greater use of data analytics to target problem sectors and companies.
The new strategy comes as ASIC provide the Financial Review with new figures that reveal a 15 per cent increase in public complaints, an 82 per cent increase in breach reports and a 93 per cent increase in breach reports by the financial services sector, in the wake of the royal commission. Mr Hughes is also promising to push harder for breach reports to be made given the regulator has previously never taken a case to court for failure to report a breach.
"The royal commission process has generated a vast increase in the number of breach reports and complaints," Mr Hughes said. "There is an absolute deluge of breach reports and complaints coming in the door. There is an absolute desire by boards and senior management to cleanse themselves of things they think the regulator should know about," he said.
