ASIC’s Regulatory Methods

There is a relationship between banks and their regulators that, although unspoken, has always been clear; when a regulator wants to take any regulatory action, the bank expects to be given prior warning, and is usually always given a chance to settle and negotiate outside of court.

However, last year when the Australian Transaction Reports and Analysis Centre (AUSTRAC) decided to pursue legal action against the Commonwealth Bank of Australia (CBA) for anti-money laundering (AML) violations, CBA felt completely blindsided due to the fact that they did not receive a notice or warning from AUSTRAC.  In addition, Scott Morrison, Federal Treasurer, stated that the government had knowledge of every detail of the violations and misconduct that had occurred.  Despite the government denying the claims, it was later discovered that the violations had been documented and found in both the files of the Australian Securities and Investments Commission (ASIC) and the institutions involved which the banking royal commission itself obtained, with a little persuasion, from the institutions and ASIC.

While it was expected that all the commission would do was expose the past violations that the institutions had committed, it was also brought to light those individuals that were affected by the misconduct.  In order to avoid a royal commission, banks have taken matters into their own hands and are acknowledging their violations and introducing multiple self regulatory measures.  In addition, the government had also implemented new regulations that would threaten banks with liabilities and a large tax surcharge.

ASIC’s actions to deal with the violations were seen as inappropriate and unfair by some because they involved large “donations” to ASIC’s fund for the purposes of promoting financial literacy, restitution for the affected customers, and payment towards ASIC’s costs.  ASIC also pardoned some institutions of their accountability without much of a punishment, and those who did not turn to ASIC for help were simply banned or met with legal action in court.  On the other hand, ASIC’s actions can be seen as justified because they ensure that the same violation does not occur again by issuing court-enforceable changes to an institution’s systems and policies that will improve and strengthen their risk management and compliance programs.  In doing so, ASIC hopes to encourage and increase the self reporting of institutions which results in a cheaper and quicker method to handling violations because the litigation and appeal processes in court can be avoided.

However, some institutions have taken advantage of this, and will self report violations only to make deals and outcomes beneficial to them.  While there are fines and penalties associated with some regulatory actions, large banks have access to enough funds and high-end legal representation that allow them to not be concerned with the extra costs incurred by these fines.  Although ASIC has the authority to take further legal action such as issuing harsher jail sentences, it is rarely used and is seen as a last resort.

Whether or not there will be a royal commission remains to be seen but the government intends on making all of the violations that were hidden by ASIC evident, and those individuals and institutions involved can expect to be met with punishments.


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