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No comfort for retirees in Senate’s scathing indictment of ASIC’s failings

A lengthy inquiry into the regulator has exposed a ‘toothless tiger’. Investors in the defunct Dixon Advisory, who are still waiting for compensation and criminal charges to be laid, would only agree.

Retirees wanting a good night’s sleep should do themselves a big favour – don’t read the Senate Economics References Committee’s detailed report into ASIC.

The highly critical report, which recommends a complete overhaul of the regulator, details a litany of failings that will give retirees with investments – especially those held outside superannuation – cold comfort that ASIC will either protect their investment or adequately punish any guilty party if they fall foul of malevolent behaviour.

As NSW Liberal Senator Andrew Bragg (pictured), who chaired the inquiry, said after the report was handed down last week, “(ASIC) takes too long to respond to complaints, it takes too long to finish investigations and it doesn’t get very many prosecutions.

  • “There’s a lot of people who’ve been wronged out there. There’s a lot of angry people who have been done over by companies and by financial services businesses. There’s a lot of whistleblowers that (are) known about, and I think most people believe that in Australia, if you commit a white-collar crime, there’s a good chance you will not have the book thrown at you.”

    In the report’s executive summary, it added: “Concerns regarding ASIC’s effectiveness in protecting consumers have been raised in many other parliamentary inquiries, government reports, academic works and in public discourse.

    “At various times, ASIC has been labelled a ‘toothless tiger’ for failing to hold those who break Australia’s corporate laws to account. While ASIC tries to deflect criticism that it is a weak corporate regulator by promoting its recent enforcement actions, the reality remains that corporate law is under-enforced in Australia.”

    Like all parliamentary reports, its conclusions – and recommendations of which this report had 11 – are open to debate. Certainly, ASIC took issue with its findings, saying it had a strong enforcement record, launching about 180 new investigations in the past year.

    That may well be true. But for retirees who were investors in the now-defunct Dixon Advisory and Superannuation Services (Dixon Advisory) would not be convinced.

    To quote the executive summary, “ASIC’s enforcement actions in response to Dixon Advisory are illustrative of its enforcement woes. In September 2020, ASIC began civil proceedings against Dixon for, among other things, significant failures to act in its clients’ best interests. It took ASIC two years to settle its case against Dixon, and the company was penalised $7.2 million.”

    No matter how the regulator tries to spin the Dixon Advisory implosion (the consequence of Dixon Advisory investing client funds in its US Residential Masters Property Fund and charging exorbitant fees for the privilege), it highlights all the failings the Senate report has documented – a tardy response, paltry penalties and aggrieved investors.

    Indeed, as the executive summary notes, the fine is unlikely to ever be paid, and no criminal charges have been brought in relation to Dixon Advisory, despite total claims in the case exceeding $386 million.

    “In September 2023, three years after its initial enforcement action, ASIC brought civil proceedings against a former director of Dixon Advisory for alleged breaches of directors’ duties. This trial had its first hearing on June 17, 2024, and is ongoing.

    “As a comparison, the enforcement action taken in the US against Samuel Bankman-Fried for securities fraud that led to the collapse of his $US32 billion ($47.5 billion) crypto trading firm FTX took 18 months and resulted in a 25-year prison sentence.”

    The financial advisory firm Wattle Partners principal, Drew Meredith, said the Senate report clearly highlighted the need for the regulator to have more resources and a broader mandate.

    “For instance, there are any number of issues that were obvious to many in the industry, but unfortunately weren’t necessarily illegal at the time and nothing could be done. So perhaps a broader mandate to put more pressure, more quickly, on businesses when complaints are received is worth pursuing.”

    Few would query the need for more resources for the regulator. What will be contentious is where the funding comes from. The report noted that the industry funding model contributed a “significant proportion” of ASIC’s budget, estimated to be about 83 per cent or $422 million of its appropriation for 2021–22, via levies on 52 financial industry sub-sectors.

    As the report makes abundantly clear, it’s difficult to make a case for extra funding when the current spending is not exactly delivering the necessary results. So, the industry can be expected to push back hard at any Government attempt to extract higher levies to fund the regulator. Indeed, the report has already sparked industry calls to revisit this funding model.

    Meredith puts it succinctly. “The fact that advisers must fund the regulator and pay increasing costs due to the misdemeanours of others seems inequitable, at least at a time when adviser numbers have halved.”

    The Financial Advice Association Australia concurs, as does the Senate report, with recommendation 11 calling for an overhaul of this funding model. Considering that cost to financial advisers ultimately flows to retirees, indeed, all consumers, is a compelling argument to at least discuss the merits of this funding model. Just don’t hold your breath waiting for it to happen.

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