Australian Securities & Investments Commission chairman James Shipton.
Australian Securities & Investments Commission chairman James Shipton.

We must do better, says banking’s top watchdog

Australia's top corporate cop says he is "disturbed" at the time it took for regulators to investigate a National Australia Bank scheme used by rogue bankers to commit fraud.

James Shipton, who chairs the Australian Securities and Investments Commission, said he was disappointed the watchdog only launched an investigation into the incentive scheme after the fraud was publicly exposed at the banking royal commission.

Counsel assisting the commission Rowena Orr, QC, on Thursday turned up the heat on ASIC, presenting emails in which investigators mulled a softer "enforceable undertaking" as a penalty - with a fine and admission of wrongdoing - rather than a full-blooded investigation.

Australian Securities & Investments Commission chairman James Shipton.
Australian Securities & Investments Commission chairman James Shipton.

In March, the royal commission revealed a cabal of NAB employees in western Sydney had falsified documents to secure loans for customers, who handed white envelopes stuffed with thousands of dollars across the counter at some branches.

The fraud was linked to the troubled NAB "Introducer" program, where the bank paid commissions to businesses - which ended up including gym owners and hairdressers - that referred customers who then took out a mortgage.

Mr Shipton revealed an investigation into the scheme was only launched in the "last couple of months" despite the bank handing the regulator breach reports highlighting the frauds in 2016.

Because of resourcing issues, ASIC had two years ago decided to focus on the "wrongdoing of the individuals" involved, he said, but had now expanded its investigation to include NAB and the Introducer scheme.

Ms Orr said a second breach report in August 2016 made it clear the conduct was even more extensive than that covered by the first breach report.

Mr Shipton said: "I do not disagree with the facts and I am disturbed and disappointed by the facts. That is why you are right".

Counsel assisting the commission Rowena Orr, QC.
Counsel assisting the commission Rowena Orr, QC.

ASIC needed to "do better" on processes and decision making, he said. "When I came and took up this role, that was a key part of my reform agenda, because I cannot make every single decision, so (I'm asking) how can I look at a case study like this and do my level best to ensure that it doesn't happen again," he said.

Mr Shipton started as ASIC chair in February.

Ms Orr showed him an email from July this year in which ASIC seemed to be going soft on NAB, with the regulator's head of enforcement, Cathie Armour, seemingly suggesting a weaker course of action.

"Cathie (the enforcement committee chair) was of the view that we should seek an enforceable undertaking from NAB with a community benefit payment. What do we have to lose from doing this," the internal ASIC email, dated July 16, said.

The email said ASIC had penalised other lenders, including ANZ's Esanda unit, for loan fraud. Another ASIC leader "tempered the discussion with comments that taking no further action might be the right decision, we just need the right narrative", it said.

Ms Orr ridiculed the attitude ASIC workers took in the email, saying it was the "antithesis" of how a regulator should act.

Mr Shipton said: "All I can say is that there were, from my recollection … (there were) a range of different views which were thrown around, views which were explored and tested, but ultimately we decided to pursue an investigation and an investigation has commenced".

In an attempt to illustrate how short-staffed he is, Mr Shipton pointed out ASIC had 240 employees in enforcement and deals, and received about 2000 breach reports a year.

"And to put that number (in context) … there are nearly three times as many sworn police officers in the Australian Capital Territory than we have staff members in enforcement," he said.

Also on Thursday, Westpac chief Brian Hartzer told the commission that banks' moves into wealth management in recent decades had "clearly not" been good for consumers.

Mr Hartzer said he did not think banks had "fully thought through" how making and selling wealth and insurance products would affect long-term customer relationships.



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