This is the last in our six part series on the Australian Royal Commission interim report and looks at the quality of the Australian regulatory regime and the accountability of the regulators – the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

A theme of the Commission's findings is that much of the misconduct went undetected and, even when it was detected, it was often not properly investigated, prosecuted or punished.


ASIC comes in for strong criticism for its failure to take appropriate action, with the Commissioner saying it rarely went to court and that:

"Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable 'concerns' about the entity's conduct. Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a 'community benefit payment', but the amount was far less than the penalty that ASIC could properly have asked a court to impose".

The report notes that in the last 10 years, ASIC has collected less than $1.3 million in infringement notices from the major banks – an amount some 7,000 times lower than the largest bank's profit for just one year.

ASIC had preferred negotiation over punishment and settlement over litigation but these had not had the desired deterrent effect. Its starting point when confronted with misconduct appeared to have been: How can this be resolved by agreement?

A more appropriate stance, where there was a reasonable prospect of proving contravention, was to have the matter decided by a court, unless it would not be in the public interest to bring proceedings.

The Commissioner accepted that ASIC may be seeking to change its approach but was doubtful as to whether it could or would make the changes needed; its remit was so large and its current negotiations-based enforcement culture so deeply entrenched.


The Commissioner thought that APRA's relative inaction "may, perhaps, be more readily understood" given that its mandate was to look at issues of proper governance and risk culture through the lens of financial system stability.

But he still called out APRA's failure to take prosecutions and the fact that it had only taken one prudential inquiry – last year into the Commonwealth Bank of Australia and then only, on APRA's own admission, after there had been so many incidents that the bank's reputation and public standing were compromised.

The Commissioner on Australia's regulatory regime

Despite these criticisms, the Commissioner seems to think that the problems can be solved through more diligent enforcement rather than requiring legislative or structural reform and he has indicated a desire to simplify the existing framework rather than add new layers of regulation.

"The law already requires entities to 'do all things necessary to ensure' that the services they are licensed to provide are provided 'efficiently, honestly and fairly'. Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, 'Do not do that', would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?"

The Commissioner points out that the existing regulations could be pared down to a number of "very simple" premises that underpin the basic standards of fairness and honesty that financial services entities should abide by:

  • obey the law
  • do not mislead or deceive
  • be fair
  • provide services that are fit for purpose
  • deliver services with reasonable care and skill, and
  • when acting for another, act in the interests of that other.

Chapman Tripp comments

The interim report will very likely galvanise ASIC and APRA into a greater preparedness to take court proceedings in future.

ASIC Chair James Shipton has said they are digesting the Commissioner's "serious and important observations of ASIC's role as a regulator" and would be doing some extensive self-reflection with the benefit of the Commissioner's findings. This includes the need to have a constructive conversation about the powers, positioning and right-sizing of ASIC.

Responding to concerns raised in the report of regulatory capture or favouritism towards regulated entities, Shipton said, "I will do everything in my power to not let this happen. I am a firm believer in the institutional credibility of a financial regulator – one that needs to live by and display absolute strength and robust independence."

In addition, we note that former Financial Markets Authority (FMA) CEO Sean Hughes is about to start as an ASIC Commissioner, and he is known to be uncompromising having led the ASIC/Centro litigation when last with ASIC. ASIC's other new Commissioner is a QC with a fearsome reputation.

APRA has come back with a 20-page submission to the Commission acknowledging that while there are areas for improvement, its responses to misconduct were broadly appropriate. It warns that taking legal action on every occasion may adversely affect innovation, limiting access to, and increasing the costs of, all financial services.

Questions the Commissioner has posed are:

  • Should the existing law be administered or enforced differently?
  • Would stronger enforcement result in adherence to the basic standards of fairness and honesty that ought to apply?
  • Given the basic ideas that sit behind these standards are very simple, should the law be simplified to reflect those ideas better?

We expect the final report will devote considerable energy to the regulation of the financial services industry and to ASIC and APRA. Providing them with the necessary tools to do their job (or ensuring they use them) appears to be a priority area for the Commissioner.

Report on New Zealand Banking Conduct and Culture

The Financial Services Conduct and Culture Review currently being undertaken by the FMA and the Reserve Bank (RBNZ) is due to be published on 5 November next week with their report on the life insurance sector to follow later.

The findings of the Hayne Commission will have an impact here, but possibly not a large impact in relation the financial sector enforcement culture.

The FMA, for example, recently used this year's annual report to warn that, while it would continue to be "open and collaborative, with a preference for encouraging and facilitating good conduct", its response would be "proportionate to the risk of harm" where it saw poor behaviour or non-compliance.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.