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| Asic head tells royal commission banking CEOs 'have forgotten they're dealing with people's money' – live | |
| (35 minutes later) | |
| So far, the line of questioning has been centred on whether or not Asic, as the regulator, risks being too buddy buddy with the groups and people it is meant to be regulating. | |
| Now, Rowena Orr moves on to transparency. | |
| Commissioner head Kenneth Hayne pops up during this line of questioning. | |
| He also wants to know why there isn’t records of these meetings. | |
| Hayne: Would not having a note-taker at these meetings ensure that there was a method of preserving the corporate memory within the organisation of what has been said, when it has been said, and what was said? | |
| Shipton: Yes. I agree with that, Commissioner, and I think, in part, that was the intent behind having one of our senior executives for the first time attend these meetings in recent times. | |
| Hayne: But the preservation of corporate memory of contacts of this kind is itself, surely, a matter of very considerable importance to the proper governance of ASIC? | |
| Shipton: I certainly agree with that. I most certainly agree with that. And that is - that is, in part, why I initiated having a senior executive leader accompany us on these types of engagements. | |
| Hayne: Yes. As I recall your answer to one of the questions, it was that he or she would take a note of matters of significance. What I’m talking about is a note-taker as more generally understood, a note-taker who took a note of all that was said at the meeting? | |
| Shipton: Yes, it’s a suggestion that I think is very worthy and I am minded now to ensure that this happens from here on. | |
| Shipton says he does most of the talking during these meetings: | |
| These board meetings - these liaisons with the board, to be frank, the ones that I’ve attended to, I’ve done most of the talking, to be frank. | |
| To be frank, I’ve been passing on the messages, my expectations, and it has been a bit of a one-way dialogue. So no matters of significance, at least coming from a financial institution has been raised because I have been very forthright in using these platforms and forums to tell these people what I think. “ | |
| James Shipton admits that he does not take formal minutes or record of these meetings with the banks – because the conversation should be “free flowing”. | |
| “Formal minutes are not taken but my practice in relation to meetings, whether they be a board – meeting with a board or meeting with another senior leader, if there is a matter of significance, particularly a matter relating to an enforcement matter, for me to take a note and to brief my colleagues involved directly on that as soon as possible.” | |
| Orr: “Wouldn’t it be better, Mr Shipton, for the sake of transparency, for there to be a formal record of the meetings that you and the commissioners have with the leaders of these organisations?” | |
| Shipton: | |
| It may very well be. These meetings were designed originally and have been – have been pursuing along these lines where they are meant to be a free-flowing dialogue between the board members and the commissioners of Asic. I believe that the reason why there is no formal minutes, at least from our side, is to enable that dialogue to be free-flowing. | |
| But I will make one amendment to that, because I, after attending one or two of these board meetings, I thought it entirely appropriate to have somebody there who was not a commissioner, who is in – in the cases that we’ve had in recent times – a senior executive leader, who observes the meeting and is not a commissioner but observes the meeting, in many respects to ensure that we have a record and a witness to those discussions. | |
| And this is something that I’ve instituted in recent times. | |
| And it is also now correlated to the senior executive leaders who are involved in our close and continuous monitoring program. | |
| Back to Rowena Orr’s questioning – we are getting to the nub of the issue – is James Shipton, and therefore Asic and the other commissioners, too close to the banking heads because of these meetings? | |
| Orr: “Do you think, Mr Shipton, that there are any risks associated with frequent personal contact between regulators and the leaders of the entities that they regulate?” | |
| Shipton: “I do, and that is why I personally exercise the highest degree I can possibly apply of professional judgment when I have these interactions, when I have these meetings.” | |
| Orr: “What are the risks that you’re aware of, Mr Shipton?” | |
| Shipton: “For – I think I’ve alluded to it with my clarifications earlier, that somehow this would be seen by the other side as too familial, too friendly, too social, and ensuring that these remain, as they are in my mind, professional and very much anchored in the purpose in which I do them, which is, as I said, information – information accumulation, regulatory messaging, and baseline assessment as to the – to be brutally honest and blunt, their performance as regards compliance with our laws and regulations.” | |
| Orr: “It’s the commissioners who have the ultimate responsibility for making decisions about whether to take enforcement action against these entities, isn’t it?” | |
| Shipton: “Ultimately that – the commission is the – the ultimate decision-making body in matters like that, yes.” | |
| Orr: “But through these frequent meetings with the leaders of these entities, you and the other commissioners necessarily develop a relationship with the boards and the senior executives of the organisations?” | |
| Shipton: “A professional relationship and a professional engagement, yes.” | |
| Orr: “Well, it’s part of human nature, isn’t it, Mr Shipton, that when we have a relationship with someone, it’s usually harder for us to do something that might harm that person’s interests?” | |
| Shipton: “That’s why I am emphasising the importance of having a professional relationship and, as I emphasised earlier, exercising the highest degree of professional judgment in relation to these interactions.” | |
| Orr: “And what about the professional judgment of your fellow commissioners; what do you do to oversee how they exercise their professional judgment?” | |
| Shipton: “I have mentioned to my colleagues the importance of treating carefully and with a healthy dose of scepticism some of our interactions with the regulated population. In my interactions and feedback from my colleagues, it’s very clear that they share that, that mindset, as well.” | |
| Just a reminder. | |
| In this year’s budget, the Turnbull government – with Scott Morrison as treasurer – decided to cut Asic’s permanent funding from $346m to $320m by 2020-21. | |
| It also budgeted for Asic’s staff numbers to be slashed by 30 in 12 months, from 1,749 to 1,719. | |
| That was in May, after the royal commission had already exposed some appalling behaviour by the banks. | |
| The Coalition and Labor argue constantly about job and funding cuts at Asic, with both parties trying to blame the other for the regulator’s failings. | |
| One thing is for certain – Asic has had to deal with a very uncertain funding environment. | |
| Just two years ago, Morrison gave Asic an extra $121 million to try to boost its resources and ward off the royal commission. But the royal commission happened anyway, so a few months later the government cut Asic’s long-term funding. But this month, the government announced it was boosting Asic’s funding again by $70m over two years to help it deal with the royal commission. | |
| Shipton argued in his submission to the royal commission how difficult it was dealing with such up-an-down funding. | |
| He said Asic was woefully underfunded compared with its international peers. | |
| In 2016–17, Asic’s actual total budgeted resources were $402.393 million. | |
| In 2017–18, its actual total budgeted resources were $431.969 million. | |
| In 2018–19, its total budgeted resources are $380.434 million. | |
| The 2020–21 forward estimate-based total budgeted resources figure is substantially lower at $349.509 million. | |
| Shipton said Asic’s staff numbers and budget have increased only modestly since 1991 (FTEs 1,492 then and 1,698 now) but there have been frequent increases in its mandate – that is, the government wants it to do more and more. | |
| He asked: “A central question is: what level of funding and resources best enables a re-balancing of priorities, alteration of practices and implementation of decisions weighted more heavily towards litigation-based enforcement or a ‘deterrence strategy’, taking into account the real resource impacts and real resourcing risks of that those approaches?” | |
| Shipton doesn’t say he has a “good” relationship with the banking CEOs, instead describing it as: | |
| I would say we have an open working relationship and a professional working relationship. | |
| Orr is now trying to get to the bottom of why he is holding these meetings, given that the law states the banks are required to report breaches. | |
| Because 912D imposes a legal obligation on these financial services entities to report information about significant breaches or potential significant breaches of their legal obligations to Asic in a timely way? | |
| Which is the lead into Orr asking, given the banks are required by law to report misconduct, why are these meetings happening. Shipton replies: | |
| Meetings are not held for that purpose. These meetings are not breach reporting meetings. They are not a substitute for breach reporting. I’m not aware that they ever have been, nor should they ever be so into the future. | |
| Rowena Orr is asking James Shipton about some of Commonwealth CEO Matt Comyn’s testimony from earlier in the week, where he described his contact with Asic as getting together. | |
| Shipton doesn’t like that descriptor. | |
| “I would not clarify them as get-togethers,” he says. | |
| Asked why, he replies: “Well, just in my own interpretation – and maybe I’m being pedantic, so apologies. I took get-together – I personally interpret it and maybe it’s my own interpretation – as a more familiar or more social gathering. And I just wanted to clarify, at least in my own mind, that I have very structured – I aim to have very structured – formal meetings with people like Mr Comyn.” | |
| As for the “less structured way” Comyn described other chats as, Shipton says: | |
| Well, less structured way – my take of the less structured communication with Mr Comyn is that we often speak by phone. | |
| Often pre-market, as I said, because Mr Comyn is giving us, as a markets regulator, the heads-up of a – a market announcement which is coming the next day. | |
| That’s important for us as a market regulator but it’s also very important for us to be aware of business developments inside a financial institution as important as the Commonwealth Bank. | |
| Shipton says he has similar interactions with the other CEOs of the major banks. | |
| Shipton says he also gets involved, by contacting leaders’ directly, if they are taking too long to respond to Asic over any concerns it may have. He says he doesn’t get involved with the matter itself, but strives to get them moving faster: | |
| They have been receptive to my approach, and it has had a operational impact to speed up the response. | |
| And it speaks to a broader point that I firmly believe that CEOs, chairs and other leaders of these financial institutions should be more engaged and more aware of some of these issues that are taking place between their organisations and our agency. | |
| James Shipton says part of his job is to stay in touch with banking CEOs. Here is some of what he has said to them: | |
| I’ve called CEOs to express dissatisfaction on a number of occasions as regards the handling of particular matters that are being handled by our – our enforcement teams. | |
| I have called CEOs and spoken at meetings about my dissatisfaction about what I call legal trench warfare. | |
| I have also expressed my dissatisfaction to these leaders about the lack of professionalism in the Australian financial sector, and I have also spoken to these leaders, to a man and a woman, about the fact that I believe that they have forgotten that they are dealing with other people’s money. | |
| James Shipton is asked about Asic’s funding. | James Shipton is asked about Asic’s funding. |
| Orr: “How do you think that Asic’s resourcing compares with that of conduct regulators in other jurisdictions?” | |
| Shipton: “In my own experience, I believe that Asic is under-resourced compared to some of our peers globally.” | |
| Orr: “And how does the level of resourcing that you have affect the way that you perform your functions and exercise your powers?” | |
| Shipton: “Well, it weighs very heavily on the regulatory choices that we have to make, because it means that we are restricted in our ability to take on matters or to pursue matters in a way that, perhaps, we would like to.” | |
| Orr: “And could you explain further how that plays out, Mr Shipton? Does it mean that you are not able to investigate matters that you would like to investigate?” | |
| Shipton: “It means – it would be across the – the full spectrum of our regulatory activity. We are constrained in probably every aspect of our regulatory work. It’s certainly in investigations, certainly in other matters relating to enforcement, but I would also make the case that we are constrained in our surveillance, our supervision, our important work on financial capability, and – and other work that we undertake. | |
| Senior counsel assisting Rowena Orr QC has taken over questioning here. | Senior counsel assisting Rowena Orr QC has taken over questioning here. |
| She has begun by establishing what exactly Asic sees its role as, and what tools it believes it has at its disposal. | She has begun by establishing what exactly Asic sees its role as, and what tools it believes it has at its disposal. |
| We’re back, with James Shipton, the chair of Asic, in the hot seat. | We’re back, with James Shipton, the chair of Asic, in the hot seat. |
| Towards the end of Nicholas Moore’s evidence, Hodge asked him what would happen to Macquarie’s profits if it was prohibited from paying commissions to mortgage brokers and brokers were only able to get paid by charging customers fees for service. | Towards the end of Nicholas Moore’s evidence, Hodge asked him what would happen to Macquarie’s profits if it was prohibited from paying commissions to mortgage brokers and brokers were only able to get paid by charging customers fees for service. |
| Moore said he’s wasn’t sure. But, speculating, “it doesn’t sound as attractive as the current structure.” | Moore said he’s wasn’t sure. But, speculating, “it doesn’t sound as attractive as the current structure.” |
| Hayne then interjected: “Attractive to whom?” | Hayne then interjected: “Attractive to whom?” |
| Moore said: “I think the expression used is the ‘stick of shock’ of actually seeing the upfront fee. | Moore said: “I think the expression used is the ‘stick of shock’ of actually seeing the upfront fee. |
| “One of the other issues discussed is whether the fee should be upfront or over the life. And our position is, we would like it … to reflect the value of [the service] being delivered, which is over the life of the loan. | “One of the other issues discussed is whether the fee should be upfront or over the life. And our position is, we would like it … to reflect the value of [the service] being delivered, which is over the life of the loan. |
| “So there is an issue, obviously, for – if you have an offer without a broking fee versus with a broking fee – that makes a difference in the mind of the consumer. | “So there is an issue, obviously, for – if you have an offer without a broking fee versus with a broking fee – that makes a difference in the mind of the consumer. |
| “Economically, of course, the fee is being borne.” | “Economically, of course, the fee is being borne.” |
| So, the customer will bear the cost of the fee regardless, but Macquarie doesn’t particularly want the customer to see that fee written on a piece of paper at the point of sale, because they may lose business. | So, the customer will bear the cost of the fee regardless, but Macquarie doesn’t particularly want the customer to see that fee written on a piece of paper at the point of sale, because they may lose business. |
| Unremarkable, I guess. That’s what all businesses do. But it’s nice to see the admission sometimes. | Unremarkable, I guess. That’s what all businesses do. But it’s nice to see the admission sometimes. |
| We are done with Nicholas Moore now. We’ll recap the last part of that for you in this next break (the commission is now adjourned until 2pm) but it was about mortgage brokers, the products they are incentivised to sell, and what would happen if they no longer received those incentives. | We are done with Nicholas Moore now. We’ll recap the last part of that for you in this next break (the commission is now adjourned until 2pm) but it was about mortgage brokers, the products they are incentivised to sell, and what would happen if they no longer received those incentives. |
| James Shipton from Asic is up next. | James Shipton from Asic is up next. |
| We will see you at 2pm. | We will see you at 2pm. |
| It has to be said that out of all the executives I have seen sit in the grilling seat, Nicholas Moore looks the most relaxed. Some could even say well-rested. | It has to be said that out of all the executives I have seen sit in the grilling seat, Nicholas Moore looks the most relaxed. Some could even say well-rested. |
| But he did make more than $18m in the past financial year and he is finishing up next week, so I guess there is not a huge amount to lose sleep over. | But he did make more than $18m in the past financial year and he is finishing up next week, so I guess there is not a huge amount to lose sleep over. |