Finance Finance News ASIC wanted to let off NAB with a slap on the wrist over fraud
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ASIC wanted to let off NAB with a slap on the wrist over fraud

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The Australian Securities and Investments Commission wanted to let NAB escape an inquiry and prosecution over fraudulent activities in a $50 million introducer scandal, the financial services royal commission has heard.

The scandal involved NAB employees and associates earning commissions on falsified mortgage applications.

ASIC chair James Shipton was quizzed on the issue by counsel assisting Rowena Orr on Thursday afternoon.

She asked Mr Shipton why it was that no action had been taken against NAB “more than two years after the first breach report” had been lodged with ASIC.

Ms Orr produced an internal NAB report that included a recommendation by chair of ASIC’s enforcement committee Cathie Armour that NAB be asked to make “an enforceable undertaking with a community benefit payment. What do we have to lose?”

Ms Orr asked why ASIC had not asked the question “Why not investigate this issue?”

Mr Shipton responded that the regulator had discussed a number of options in the meeting and had since “decided to investigate; it’s under way.”

The meeting where Ms Armour recommended an enforceable undertaking to remediate customers rather than a prosecution took place in July this year, three months after the issue had emerged at the royal commission.

Ms Orr asked Mr Shipton whether evidence from the commission demonstrated that ASIC had “failed to commence formal investigations against large financial institutions when it ought to have done so”.

“I wouldn’t agree with the word ‘fail’,” he said.

Mr Shipton said resources made it simply impossible to investigate every single complaint.

“We have to make very difficult choices,” he said.

That prompted an intervention from Commissioner Kenneth Hayne, who described Mr Shipton’s claim of no failure as “a very ordinary conclusion”.

ASIC has seen a dramatic expansion of its remit and responsibilities but its funding has only increased “modestly”, Mr Shipton said.

“We are constrained in probably every aspect of our regulatory work.”

“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 other work that we undertake,” Mr Shipton said.

He compared ASIC’s 240 enforcement staff to police numbers in the ACT, which he said were three times larger. Commissioner Hayne characterised the logic of the comparison as “very odd”.

Ms Orr raised questions about relationship between banks and Mr Shipton and other ASIC commissioners, suggesting it was too cosy and that the regulator gives banks advance warning of its findings against them.

Mr Shipton denied saying meetings were very formal and involved him giving his opinions to the bank executives and boards.

“I’ve done most of the talking; it’s a one-way dialogue,” Mr Shipton said.

“I was surprised such senior people spoke so little.”

There were some recurring themes in his conversations with bankers.

“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 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,” Mr Shipton said.

Ms Orr also questioned why when ASIC does reports into industry misconduct it fails to identify which insitutions have behaved badly.

Mr Shipton said on his watch this had changed but Ms Orr brought up a recent example where the practice continued.

Mr Shipton said “the main purpose was to talk about systems and processes in financial institutions on a relative basis. That was the main purpose”.

“You don’t think that purpose would have been well served by naming names throughout the report?” Ms Orr asked.

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