Finance Finance News ASIC penalties for CBA were so soft they embarrassed the bank

ASIC penalties for CBA were so soft they embarrassed the bank

ASIC commission
ASIC chief James Shipton came under fire at the royal commission. Photo: AAP
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Commonwealth Bank executives thought penalties levied by the Australian Securities and Investments Commission over scandals at its Comminsure subsidiary were so weak, they made the bank look bad.

The financial services royal commission heard an email detailing CBA’s embarrassment at making only a $300,000 community benefit payment over the offences, without any other form of penalty or undertaking.

The scandal saw insurance payouts denied to ill and dying policy holders.

Counsel assisting Rowena Orr QC asked ASIC chair James Shipton “How do you respond to that concern expressed by one of your regulated population that by making a community benefit payment, CBA would look as though it was paying off ASIC to avoid action?”

Mr Shipton said he found it “extremely concerning,” Mr Shipton answers.

While the scandal emerged in 2016 following media reports, ASIC did not consider taking more stringent action on it until the sixth round of the royal commission in September which dealt with life insurance.

Ms Orr asked whether ASIC knew the details of the case before that round.

“I would imagine the gravity of the situation was known to us, and that is why , as I’ve said before, it was a mistake to not act quicker, swifter and earlier,” Mr Shipton  responded.

The commission also heard that ASIC negotiated on enforceable undertakings with financial institutions before they were enforced to see if the bank would actually pay up on penalties. Mr Shipton said that was done to gauge the attitude of the bank to the proposed penalty.

“The parking inspector doesn’t seek an indication from the person he’s giving a parking fine to as to whether they will accept and pay it. Why don’t you just do that?” Ms Orr asked

Mr Shipton said that if the offending institution did not pay up ASIC would take it to court.

Prosecutions of big banks have been very rare for ASIC. Since 2008 ASIC has only taken 10 actions against major banks out of more than 169 civil proceedings pursued by the regulator.

In another example of ASIC being late the the party the commission heard that Clearview group had told ASIC by May 2017 that it had breached anti-hawking provisions 303,000 times with each being a criminal offence.

“And despite that [information], ASIC did not seriously revisit its view that it had earlier formed that this was not a criminal matter?” Ms Orr asked.

“And this is unfortunate and I think a mistake not to pursue the anti-hawking aspects of this matter,” Mr Shipton said.

ASIC’s practice of workshopping press releases detailing enforceable undertakings with the institutions being punished was also brought up as evidence of a weak approach to enforcement. Negotiations with NAB over foreign exchange breaches and CBA over Comminsure were raised as cases in point.

Mr Shipton said negotiations were held to ensure the details of the case were correct because mistakes could have share market implications.

However Commissioner Kenneth Hayne rejected that explanation saying the factual details of the case were what ASIC’s actions were built on.

“Those are the matters which are at the core of what ASIC alleges? …And ASIC should know what it alleges…. And it should know what the entity admits… And there should be no controversy about either what is alleged or what is admitted,” Commissioner Hayne said.

Mr Shipton said the government had given ASIC $8 million in extra funding to help with enforcement. However he said the regulator was still under powered and resourced.

“We don’t have sufficient penalties and we don’t have sufficient powers,” Mr Shipton said.