Royal Commission: ASIC rethinks negotiation tactics

ASIC chair James Shipton has admitted the corporate regulator was too reliant on negotiating resolutions with financial services firms and flagged litigation could take precedence, the Royal Commission heard.

Shipton told counsel assisting Rowena Orr that ASIC has "over-utilised" negotiating outcomes for financial misconduct and in hindsight should have run remediation programs in parallel with tougher enforcement investigations.

Since July 2011, ASIC has negotiated customer remediation programs on 20 occasions. Last year, 10 community benefits were paid out typically to financial counsellors and advocates.

Shipton couldn't quantify the average size of the payments other than stating they range from hundreds of thousands to millions of dollars.

A recent example was the Superannuation Consumers' Centre benefitting from a $1.25 million payment as a result of an Enforceable Undertaking (EU) ASIC entered into with CBA and ANZ following an investigation that found they missold super products.

Shipton said the payments aim to "ameliorate" or deter future misconduct and in that case, boost consumer engagement in the superannuation sector.

Shipton denied the payments were an "exchange" for taking further action against the entity, rather a "consequence" of entering into an enforceable undertaking.

A negotiated resolution would be appropriate if there wasn't a need to pursue court-based enforcement outcomes, he said. But this approach has changed as of late.

"We now, as of today, have a process that we will first look at a matter and say, 'why not litigate?'"

Yesterday, the Commission found ASIC does not formally record its meetings with the board and executives of financial services firms.

For the sake of transparency, Orr asked if it would be better to keep formal records.

Shipton agreed, but pointed out dialogue between board members and executives intended to be "free-flowing."

Commissioner Kenneth Hayne pushed for a note-taker to be present at these meetings.

"The preservation of corporate memory of contacts of this kind is itself, surely, a matter of very considerable importance to the proper governance of ASIC?" Hayne asked.

"I most certainly agree with that," Shipton said.

Read more: ASICRoyal CommissionEnforceable UndertakingJames ShiptonKenneth HayneRowena Orr
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