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Economics References Committee
Performance of the Australian Securities and Investments Commission

ARMOUR, Ms Cathie, Commissioner, Australian Securities and Investments Commission

BIRD, Ms Joanna, Senior Executive Leader, Financial Advisers, Australian Securities and Investments Commission

BROWN, Mr Adrian, Senior Executive Leader, Insolvency Practitioners and Liquidators

DAY, Mr Warren, Senior Executive Leader, Stakeholder Services, Australian Securities and Investments Commission

KELL, Mr Peter, Deputy Chairman, Australian Securities and Investments Commission

KIRK, Mr Greg, Senior Executive Leader, Deposit Takers, Credit and Insurance Providers

MEDCRAFT, Mr Greg, Chairman, Australian Securities and Investments Commission

MULLALY, Mr Tim, Senior Executive Leader, Financial Services Enforcement, Australian Securities and Investments Commission

PRICE, Mr John, Commissioner, Australian Securities and Investments Commission

SAVUNDRA, Mr Chris, Senior Executive Leader, Markets Enforcement, Australian Securities and Investments Commission

TANZER, Mr Greg, Commissioner, Australian Securities and Investments Commission

CHAIR: Welcome. We will accept the document you have tabled. Mr Medcraft, if you want to speak to the document briefly, you may do so; I think it will take too long to read the full document. For the information of you and your commissioners, we are going to do this session between now and 9 pm in three discrete blocks. Firstly, we are going to address issues arising out of the evidence from Commonwealth Financial Planning; secondly, we are going to do essentially a mop-up addressing all of the issues that have been raised in evidence so far and ask you questions on that material; and, thirdly, we are going to go through, in what we believe to be the appropriate order of priority, the 25 submissions that we gave you notice of and ask questions about we think are the important issues in those individual submissions. Mr Medcraft, do you want to briefly speak to your tabling speech?

Mr Medcraft : If I may, Chair. I just have a brief summary of that document. Thanks for the opportunity once again to address the committee. With me are ASIC commissioners. They are Deputy Chair Peter Kell, on my right; Cathie Armour, on my left; and then John Price and Greg Tanzer. Also with me are senior executive leaders Joanna Bird, Adrian Brown, Warren Day, Greg Kirk, Tim Mullaly and Chris Savundra.

I have, as I said, a detailed statement, which I have lodged. The statement covers six issues, which are (1) how ASIC identifies emerging risks, (2) the timeliness of our enforcement action, (3) misperceptions that we only take on small entities or the big end of town and (4) the high quality of our staff. The fifth issue we want to address is an update on the CFP bannings: there are now eight, following the banning of Mr Zaicew last week. The sixth issue is the initiatives we have put in place to improve our processes and services in response to this inquiry.

One issue in particular that I wanted to address was the testimony last week of Mr James Wheeldon. Mr Wheeldon made serious allegations in front of this committee about ASIC relief granted in 2005 in relation to superannuation calculators. He alleged that the process was tainted with corruption and named a number of current and former ASIC staff, particularly our senior executive leader, Mr Mark Adams. Chair, let me be absolutely clear: ASIC completely and unreservedly rejects the allegations made by Mr Wheeldon.

Online super fund calculators have long been a popular tool for ordinary Australian super fund members, who use them to get an indication of the money they will need on retirement. Without the legal relief granted by ASIC, there was a significant risk that super funds, including both industry and retail funds, would have been unable to provide this useful tool to ordinary Australians. This was the unintended result of broader reforms to financial services laws implemented in 2002, and these reforms, which meant that the generic super calculators could be caught under the personal advice requirements, needed to be fixed. Instead of being free and accessible, which they were, consumers wanting to use these online calculators would have had to have seen a financial planner for personal advice, and that of course can be expensive and time consuming. Clearly, it was not a sensible or desirable situation.

ASIC provided guidance to industry in May 2004 to help with the provision of these calculators. However, significant uncertainty remained, and the government publicly recognised this in a 2005 consultation paper. The government actually noted that ASIC would provide guidance or legal relief on the provision of online calculators 'to promote their use'. In May 2005, ASIC announced that we would grant legal relief to the whole industry—what we call class order relief—and, in June that year, we issued this relief for super calculators, following consultation with a range of super industry bodies. We extended this relief to other investment calculators later that year, following public consultation.

Chair, let me be clear: there was no special treatment of any parties involved in this matter. I cannot emphasise strongly enough that every single super fund, irrespective of which industry association their trustee belongs to, irrespective of whether they are big or small, can use this legal relief to provide these calculators to members. Furthermore, the conditions we attached to this relief apply to all funds in exactly the same way. The conditions are designed to ensure that online calculators benefit all consumers and that they include requirements that the assumptions underpinning the calculators are reasonable and that the limitations on the calculators are spelt out. The conditions also mean that online calculators cannot be used as marketing devices for financial products. I also want to note that there is no legal relief for super funds from the law against misleading conduct, and ASIC have taken action and will take action if we see misleading online calculators. In other words, ASIC made a relief decision that was completely proper and in response to unintended consequences arising from changes to the law, and they are the sorts of decisions we make on a regular basis.

No fee was required to be paid in this case as the relief we provided was class order relief and it applies to all online calculators. Fees are payable only where an individual firm applies to have the law modified for their particular circumstances. Our decision showed no favouritism and it was very clearly in the public interest. ASIC had a person involved in the relief team who was on secondment from a financial services firm, but that person—let me emphasis this—was not a decision maker. They were involved only in assisting policy work that concerned the whole industry, rather than considering matters involving individual firms. ASIC has robust procedure for managing conflicts, and these procedures were applied in the case of this secondee.

Basically, and more broadly, we stand 100 per cent behind our decision on granting relief, in 2005, for online super calculators. If we had our time again I have no doubt that we would make the same decision.

For the record, Mr Wheeldon was a junior lawyer who worked for ASIC for just nine months, in 2004 and 2005. As senior executive leader, Mr Mark Adams is a long-standing ASIC officer who has been involved in some of our organisation's major projects over the past two decades. He is respected internationally, having recently returned from secondment at the senior executive level in the Ontario Securities Commission. Mr Adams is a hard-working diligent public servant of the utmost integrity. Mr Wheeldon's attack on ASIC staff and Mr Adams has no foundation. That decision he criticises was one that applied equally to all industry participants and was properly made. Most importantly, ASIC's decision was unambiguously positive for millions of ordinary Australian super fund members. As a result of the decision they can access free, simple online super and investment calculators.

As I said at our last hearing, we welcome the inquiry into ASIC's performance. This has been a rigorous inquiry and it has allowed many Australians to have their say. It is an inquiry that ASIC has taken very seriously, and it is one to which we have devoted substantial resources. We are grateful that so many people have provided submissions to the inquiry, and we have closely considered all of the submissions in an effort, most importantly, to learn as much as we can from them. We are happy to take your questions.

CHAIR: Thank you for your statement. As I said at the outset I want to go through the matters relating firstly to Commonwealth Financial Planning, and then we will go to the remainder of the agenda. ASIC's initial submission refers to the surveillance project undertaken in relation to CFP that commenced back in February 2007. The submission suggests that this project, along with surveillance projects undertaken in relation to AMP and Professional Investment Services 'ultimately led to enforceable undertakings with all three firms'. So, enforceable undertakings were the outcome of those three surveillance projects.

Given that the surveillance project commenced in February 2007 and was finalised in early 2008, and given that the enforceable undertaking with CFP was not implemented until 26 October 2011, how accurate is it to characterise that project as leading to the EU with Commonwealth Financial Planning?

Mr Kirk : I think we did say that it ultimately led to that. I think that in the CFP matter the process by which we got to the eventual enforceable undertaking was too long. The intervening step was really to put the onus on CFP to do something about it—that is also in our submission. We confronted them in February and met with them in April and they agreed to establish the Continuous Improvement Compliance Program, the CICP. We put that in place and it was a documented program. That did not prove effective. It was not proving effective over time, and whilst it possibly was reasonable to try that initially, we should have cut that short earlier. We should have monitored it more closely and put tougher time limits on it and tougher testing of the monitoring all along the way and made a decision earlier to give up on that process and move to the tougher enforceable undertaking process.

CHAIR: That was my second question on that issue. It was to go to lessons learnt. So you say to us that you should have paid more attention to the implementation post early 2008.

Mr Kell : That is correct. With the benefit of hindsight we feel we should not have placed as much reliance on Commonwealth Financial Planning's ability to identify and rectify all of the problems that started to emerge. It is not uncommon for us to take an approach to provide the firm with the opportunity to rectify and explain how they are going to improve their practices, which were frankly of an unacceptably poor quality, but it took us too long to move to the next step when it became apparent that that was not working in the way that it should have been working. That is one of the lessons that ASIC are talking about.

CHAIR: We are all wiser with hindsight, but is it useful for the future? Given that the surveillance project was concluded in early 2008, you had a pretty good assessment then of the material facts for going forward and you decided to give them fair time to implement, when do you now think you should have gone back to Commonwealth Financial Planning and said: 'This is not good enough. We're now going to do it our way'?

Mr Kell : I would make two observations around that. The first is that, if we undertook such an exercise now, it would be, for a start, a more public program. That was one of the other learnings. At the time, there was not sufficient public transparency around the continuous improvement compliance program, and the concerns that ASIC had at that time around CFP's advice were not announced publicly. As a matter of course, that would now be a public announcement with all the implications of that in terms of putting on additional pressure and public expectations, allowing committees like this to ask how things are going. So that is one aspect of an action today that would help to ensure that it progressed more effectively.

The second is that it is hard to make an exact call as to exactly when it might have been appropriate to step in; but, when it became apparent that ASIC was having to raise matters again and again without getting a satisfactory response, I think that is a sign that you need to take an additional step.

CHAIR: All right.

Senator WILLIAMS: Mr Kell, you received the four-page fax from the whistleblower Mr Morris in October 2008. Why didn't you pay more attention to that? You are talking about time and acting quickly. It was 16 months before you actually addressed the whistleblower's concerns. Isn't that dragging the whole program out longer by not making contact with the whistleblowers and acting on their information?

Mr Kirk : Maybe to the acknowledgement first. When we got that contact from the whistleblowers, we should have been back in contact with them, seeking more information straight away.

Senator WILLIAMS: I think we would all agree with that.

Mr Kirk : We acknowledge in our submission that that should have been done and did not happen. We have taken steps subsequently to make sure that in future a different approach will be taken.

Senator WILLIAMS: If you combine that information from the whistleblower with your surveillance, it would have been the end of 2008 that you had it all together.

Mr Kirk : The material from the whistleblowers was to some extent a subset of what we already knew. Their main focus was on one particular adviser: Nguyen. We had concluded back in February 2008 that there were widespread problems—not just with one adviser—within CFP with the quality of advice that needed to be addressed. So to some extent the Nguyen example as presented to us by the whistleblowers was a particular case of a broader problem that we already had a process—admittedly a process that did not end up working adequately—in place to address. The other thing they raised was their concern about a potential cover-up of the problems with Nguyen within CFP.

CHAIR: You have just converted in your response to Senator Williams a very particular and exact problem to a general proposition—that is, Mr Morris and the other people were complaining of the particular behaviour of Mr Nguyen. You in due course examined it. You came to the view that, yes, that complaint probably stands up, but you also observed a whole range of other practices within CFP which were almost as bad. That is the conversion I am talking about—from the particular to the general. It was your attention to the general on an ongoing basis that appears to us to have caused the delays which Senator Williams is critical of. How is that process internally to be remedied going forward? If I come and complain about how I am being ripped off, I am not interested in a four-year inquiry about the other 200 people even though they may be being ripped off.

Mr Kirk : In relation to the particular—what was said about Nguyen—we within a month confronted Commonwealth Financial Planning about Nguyen and asked for documents and various materials on Nguyen. We were given information on Nguyen and told that Nguyen was being addressed and that there was a program to look at the complaints that had been made and compensate people if necessary. Again, within the broader program that is the sort of thing that we were expecting them to do. Again, we put too much faith in them to do that well, and they did not do that as well as they should have. I think on their own evidence they would acknowledge that.

CHAIR: On their own evidence they acknowledge it as 'inappropriate'.

Mr Kell : Which has a particular legal term, but I think colloquially there would be a lot of other descriptions for it.

CHAIR: We got that in spades this morning.

Mr Medcraft : Can we answer the chair's question on it would be dealt with now? I think you were asking that question.

CHAIR: I am. You are drawing general principles from a particular case.

Mr Kirk : Under current ASIC operations we would not be in the very awkward position of having a non-public broad program in place that we could not discuss with whistleblowers when they contacted us because we had not made it public. So we would not have been carrying that baggage to begin with. We would now go back to those whistleblowers very quickly, get more information from them and focus in on that issue.

Senator WILLIAMS: Why didn't you do it then?

Mr Kirk : I think we have tried to explain in our submission that we had the broad program in place. We had uncovered what we thought were widespread problems with the quality of advice and that Nguyen was seen as a particular example of those problems. Whilst raising him particularly with CFP to make sure that was addressed, we decided to treat that as part of the broader project.

Mr Kell : We fully acknowledge, as we have said, that it should have been acted upon earlier. That is one of the lessons.

Senator WILLIAMS: I wish you had told me that at Senate estimates last year.

Mr Kell : It was a different question.

Mr Medcraft : I think you have mea culpa.

CHAIR: What I wanted to hear you say is that the particular complaint of an individual will no longer be a reason in the future for doing a long, general inquiry no matter how warranted and how important.

Mr Medcraft : I think it has been pretty clear under my chairmanship that we have sought to be much more transparent, and I think that will continue.

Senator FAWCETT: Whilst mea culpas are fine, I am far more concerned about ensuring that the organisation has learned and that what you have in place now will not replicate the mistakes of the past. In that regard I would like to come to a couple of comments. You have made the comment that you became aware or it became apparent that the oversight improvement plan was not working. Can you explain what you mean by that, because that is in some contrast to your written submission?

Mr Kirk : That is the oversight of the CICP program?

Senator FAWCETT: Yes.

Mr Kirk : There were monthly meetings with CFP in relation to the program and what was going on in it. There were also a series of more formal reports—I think three from the independent reviewer and one from the firm itself. Through that period we started to get breach reports from them, but they were breach reports that had not been made early enough. They related to old conduct we thought they should have provided to us earlier. It was through those processes that we reached that conclusion.

Senator FAWCETT: Does that imply that your processes do not give adequate visibility of either trends or suitably scaled thresholds to make a judgement as to the rate of progress that is being made? Correct me if I am wrong, but this program ran for well over 12 months.

Mr Kirk : That is true. In relation to your question, it is true that the program did not have enough clear delineation of what need to be done by what time in order to satisfy ASIC's requirements. That process was not rigorous enough in that program. I think ASIC has learned from that. For example, the end EU had a very different approach to those things.

Senator FAWCETT: In terms of being a learning organisation, I am concerned by your statement to us that you placed too much reliance on Commonwealth Financial Planning and that that trust in them was misplaced. When I look at the program, what you have said in your submission is that it had a very senior project management steering committee that was reporting directly to the board of CBA and that there was an independent expert appointed. Almost all of those control mechanisms seem to map directly onto what you have put in place for the EU. If your relationship and trust was misplaced in 2008 with those control mechanisms in place, there appears to be very little difference with what is in place now for the EU. So what have you learned and why should we—why should the public—have any more confidence that that is going to be effective?

Mr Kirk : There are probably some process answers to that as well, but it may be taking you to the heart of why I think it did not work and why the subsequent process has worked. It is that the CICP process did not involve a commitment to change the remuneration structures. The underlying drivers of the bad culture and the bad advice were not removed. At that stage it would have been a difficult thing to require as part of a less formal, non-enforcement agreement for those things to change, because they were the structures that were throughout the industry. They were driving the culture of the entire industry. For an informal agreement to say this firm rather than any other has to change its remuneration when we did not have any backing from the law in terms of bans on commissions or anything would have been a very difficult thing. I think that, by the time we got to the EU with the serious threat of investigation and legal action, that pushed them that extra step to start changing those remuneration structures. I think that, in terms of really changing things going forward, changing the culture and what drives the planners within the firm was the big difference.

Senator FAWCETT: I accept the fact that, with regard to this particular company, that was a trigger. What I am more concerned about is whether, from a systems perspective, your general approach not just to this company but to companies A, B, C, D and E for audit and enforcing compliance is adequate for you to understand what is occurring internally in the companies. Clearly it was not then, and you have identified that one of those factors was perhaps the fact that the whole program was not in the public space. I recognise that now the EU is in the public space in terms of what the agreement is. But what is not particularly transparent—and feel free to point it out to me if it is transparent somewhere—is the reporting back to ASIC from the independent expert who has been appointed under the EU on progress in achieving the aims of the EU. That does not appear to be transparent, and it would strike me that that is probably the best protection that the public and the government would have in terms of understanding the progress that is actually being made, because that gives the opportunity for people working at the line level within the organisation to indicate, 'That's different to lived reality.' We have heard witnesses here today and at previous hearings very clearly articulate that a number of enforceable undertakings at a management and systems level appear to be making progress when there is no change at the line level.

Mr Kirk : I think you make a very good point, and we have been having similar thoughts ourselves about trying to make that process more transparent—the reporting back on the implementation of the EU by the independent expert. Really the EU is a replacement for a court enforcement process, and a court enforcement process would be transparent and public. I think that, if we are expecting the general public to accept this alternative—which we think in many cases can get a lot more change and be more effective if it is done well—and have confidence in that, we need to consider how to make that more transparent and how we can not only have it working well but have it seen to be working well and have the public understand that.

Mr Medcraft : I must say I think it is a very good idea. Greg Tanzer, do you have a view on this?

Mr Tanzer : In terms of transparency, I can see the value. I think it would be something that we would need to think about at the very start of the process, obviously, because we need to get the agreement of the entity involved, but we have been considering this sort of approach as a way of giving some further confidence to that.

Mr Medcraft : I agree; I think it is a very good idea. The only thing about it is that obviously it may make companies more reluctant to enter into an EU, but that is about public accountability. So I think it is certainly a very good suggestion and something I would support.

Senator FAWCETT: Mr Medcraft, at the end of the day, accountability for both the regulator and the company will come when you end up getting to the pressure point where a whistleblower has to actually go to the media. It appears to be no small coincidence that it was only when that media report came out that the company attitude changed and ASIC's level of activity stepped up to the point of actually intervening and seizing documents. So transparency and public exposure appear to be the best way to apply an anaesthetic to an ill situation.

Mr Medcraft : I agree with you. I agree with the proposal. Full agreement.

Mr Medcraft : I am in full agreement with the proposal.

CHAIR: I will take it one step further, Mr Medcraft.

Mr Medcraft : I agree on being transparent. I do think it is the best disinfectant.

CHAIR: I will take it one step further: if companies are going to be reluctant, after gross malfeasance, to enter into enforceable undertakings and have them appropriately checked on an ad hoc basis from time to time either by you or by an ad hoc independent reviewer, I can tell you here and now that this committee would not have any hesitation in recommending to government that such a process be mandated in law. Who cares whether malfeasant companies do not want to cooperate?

Mr Medcraft : I agree.

Mr Kell : Just to conclude on that, I should note that our enforceable undertakings themselves are currently public. What we are talking about here, and what I fully agree with, is having the milestones about how those firms are complying with and implementing the requirements that come with that to be public as well, and the reports that come with that. I think that is what we are aiming for. That would be a good outcome.

Mr Medcraft : That is correct.

Senator FAWCETT: Can I just address one point, and then we will flip to Senator Williams. My concern with that statement, Mr Kell, is that, if we go back to the start of your involvement, you did what I would consider a line audit—you had some 496 pieces of advice from 51 advisers that you audited—and that clearly showed that there was a range of malpractice. What appears to be the case, from evidence from different witnesses, is that that exercise has not been repeated. If you do a purely systems-level audit, and if that systems-level audit then informs reports, even if they are made public, that still does not provide the confidence. So one of the other things that has to change is the approach to auditing, whether it is done by ASIC or whether it is mandated upon the independent expert—but to actually look at the line level and make sure that what the system, the process, is saying should happen is actually happening at the working level. If it is not, it is ineffective.

Mr Medcraft : I agree, Senator.

Senator WILLIAMS: On the breach report that Senator Fawcett touched on, is it not the case that a company, even if it says that there is a likely breach report, must report within 10 days?

Mr Kirk : They have to report breaches—

Senator WILLIAMS: Or a likely breach?

Mr Kirk : within 10 days.

Mr Day : Yes, Senator, or a likely breach.

Mr Kirk : Yes. In terms of enforcing that requirement, there is a difficult question. How much do they need to know about something? To what degree do they need to be satisfied that they have the proof, both of the conduct and that it is a breach of the law, before they are under that obligation?

Senator WILLIAMS: As Mr Day just said, even if there is a likely breach they should report it within 10 days full stop.

Mr Day : But, Senator, I think the point Mr Kirk is trying to make is that, in some circumstances, whether there is a likely breach is actually something that may be difficult to ascertain. But if the company believes there is a likely breach and they have sufficient knowledge, sure, they are required within 10 days to tell us that in writing.

Mr Kirk : I should say also that we have had difficulty with this provision with a number of entities in terms of the timeliness of their breach reporting and whether it is done, and it is something we are working on to try to get improvements across the board. Breach reporting is a very important and useful tool in terms of us knowing what the problems are and addressing them quickly—getting those breach reports.

Mr Kell : Just one more point on that, Senator. At the moment, a failure to properly breach report is obviously potentially quite important. If we wish to take action against a firm for their failure to breach report, it is a criminal action—in other words, a criminal standard of proof—but it is still a relatively low penalty. This is the perfect area where an infringement notice that would allow us to act quickly and step in and send a message to the market as well as the individual firm that failing to breach report properly is unacceptable would be an excellent addition to our armoury.

Senator WILLIAMS: It is an important issue for the committee to take on board in its recommendations, Mr Kell. Thank you.

Mr Day : Senator, just to clarify, the requirement to breach report is about a significant breach or a likely significant breach, so it is not about any minor, inconsequential breach; it is a significant breach. Again, as Mr Kirk was pointing out, there are potentially some difficulties there with some licensees about what actually constitutes a significant breach. Part of that is the difficulty in the legislation itself, but those are things that we work with licensees about. To give you some further comfort, in line with what Mr Kirk was saying, we are doing a review of what has been the past conduct in terms of breach reporting and looking at that year on year and comparing like businesses to see if breach reporting frequency is more or less than it is for peer industry players. Is it good or bad? Sometimes it might be good; sometimes it might be bad. We are doing that level as well. You would expect a large player would have a lot of breach reports, potentially, because it is a large institution—or it might not. That might show a good compliance culture; it might show a bad compliance culture. Those are the levels of checks we are also going to do.

Senator WILLIAMS: Mr Day, you said a 'significant breach'. How do you define 'significant'?

CHAIR: That is the problem.

Mr Kirk : That is the problem, Senator, and we have had debates with many entities about whether they should have reported something, where they are saying, 'Well, we did not think it was significant.'

CHAIR: Maybe you are going to have to prosecute a couple instead of having talks and find out what the cause is.

Mr Medcraft, can ASIC provide the committee with a copy of the letter it sent to Commonwealth Financial Planning in February 2008 outlining its findings and concerns from its surveillance project? Similarly, can you provide the committee with a copy of the 2008 report from its surveillance project undertaken in relation to CFP?

Mr Medcraft : Yes.

CHAIR: In his first submission, Mr Morris suggested that when he joined CFP back in March 2008 he was told that ASIC had given CFP a clean bill of health. This, he speculated to us, referred to ASIC's surveillance project of CFP. Did ASIC give CFP any cause to believe that it had been given a clean bill of health following the surveillance project?

Mr Kirk : No, and I think once you see that letter you will be assured that that was not the case. It is probably always the case in these things that large firms—and there are a lot of Chinese whispers, rumours and people saying things that they do not really—

CHAIR: Yes, there are. You have answered the question. The exhibits in due course will answer the question. That is fine.

Senator WHISH-WILSON: In terms of talking about past conduct, I just wanted to get some general information about complaints and investigations and even issuances of breach reports over the last 10 years, to get an idea of how peculiar this example is with Commonwealth Financial Planning. Pre and post the GFC, could you just give us a rough breakdown of how usual or unusual this type of situation is for ASIC?

Mr Day : I think we would have to take that on notice.

Senator WHISH-WILSON: I am trying to gauge the experience of the organisation in dealing with a situation like this. Have you had anything as substantive as this situation we are dealing with with Commonwealth Financial Planning previously?

Mr Medcraft : It may be useful to comment on what we do on breach reports, and significant ones, if somebody would like to comment.

Mr Day : I think that is a difficult question to answer, certainly if you are asking to go to, say, 10 years worth of experience.

Senator WHISH-WILSON: Sure. I am, yes.

Mr Day : I can take that part on notice, but I can assist you with what our general process is, if that assists.

Senator WHISH-WILSON: Obviously the financial crisis impacted every financial planning organisation right around the country and internationally. I would like to know, post the GFC—let's say after 2008—what levels of complaints or breach notices you received from other financial planning organisations.

Mr Kirk : We can do that—and I think we have to take it on notice—but in broad terms I think the financial planning industry had problems with the quality of advice, and that goes back a long way. We did a number of shadow shopping exercises that revealed that possibly 20 per cent of advice was of very poor quality. On a market that was continually rising, that was much less likely to be exposed than it was when the GFC came along.

Senator WHISH-WILSON: When did you do that? Was that pre-GFC?

Mr Kirk : There was shadow shopping in about 1998, 2003, 2006 and one subsequently.

Mr Kell : And post GFC. We would be very happy to provide the committee with our shadow shopping reports. We did have a series of other major enforceable undertakings against large firms that we have mentioned in the material that we provided, where there were again significant issues around the quality of advice provided within some of the larger players in the industry.

Senator WHISH-WILSON: You mentioned larger players. I was looking for any differentiation you could provide within the industry between those who provide a fee-for-service model and the vertically integrated sales based models we are seeing—as, for example, Commonwealth Financial Planning used to be.

Mr Kell : At that stage, there were no large entities that had fee-for-service models.

Senator WHISH-WILSON: Correct, but there were smaller entities. They were a number of smaller financial planners that had been doing fee-for-service for some years. I would be interested in terms of the quality and what impact that had on the number of complaints you have had.

Mr Kirk : There are certainly conclusions in at least one of our shadow shopping reports, which we will provide you with, about the greater likelihood of getting poor advice if you are dealing with someone who had some sort of conflict of interest from the way they were remunerated.

Mr Medcraft : Just as a general comment, we actually see the trend of our breach reports each month at commission, and it is quite a useful indicator to us as to where there is, perhaps, a growing activity in the economy. Do you want to comment on that, Mr Day?

Mr Day : Within ASIC we provide, across the organisation, a trend report on the general reports of alleged misconduct that we get from the public as well as the breach reports we get from licensees. We also look at general phone call rates and inquiries that we get through our call centre. Those trends are broken down by portfolio or industry sectors and, within that, in relation to keywords. Those reports are provided across the commission. We have been able to do that for probably the last five years because we have had more enhanced keyword labelling of those matters for the last five years. We identify that and use that to assist us to see if there are changes in the market.

Mr Medcraft : Is that something along the lines of interest to you?

Senator WHISH-WILSON: Yes, it would be.

Mr Medcraft : It is actually quite good risk analysis for us as a tool.

Senator WHISH-WILSON: Lastly, in terms of this line of questioning, we have only recently seen markets return to their pre-GFC levels. Do you think the fact that asset prices coming off so much around the world and in Australia may have been one of the reasons you did not react as quickly, because you thought this was fairly common and that it may not have been a systemic issue, in terms of what people were complaining about? We had witnesses today talking about the loss of their life's investments, or at least the halving of their investments over a short period of time, which led to their complaints and looking more closely at was going on at Commonwealth Financial Planning. Do you think everyone was a bit lax because you felt that perhaps this was the lay of the land at the time and that things would recover?

Mr Tanzer : My reflection on this—and the submission points this out—is that I do not think that was part of the consideration. I think it is reasonable to say that there were other significant collapses that we were investigating at that time. The misconduct was quite serious and widespread, but I would not say that there was a general masking of concern just because of reductions in asset prices.

Senator WHISH-WILSON: And that misconduct would have related to—

Mr Tanzer : I am referring specifically to Storm, Westpoint and some other matters that we were dealing with at that time.

Mr Kell : In other words it had an impact on workload, but I do not think it caused us to regard those losses with any less degree of seriousness than we would otherwise.

Senator WHISH-WILSON: Thank you.

CHAIR: I have a final question on this section. In her submission, Mrs Swan wrote:

ASIC knew in February 2008 that CFP investors were receiving appalling financial advice and services and were at great risk. ASIC had the opportunity to warn investors of this grave situation but ignored the public interest and chose to conceal this information.

That is what Mrs Swan asserts to us in her written submission. Could you respond to the suggestion that, at that time, ASIC neglected the public interest by not releasing the report?

Mr Kirk : It is certainly the case that we did not release that report and we did not reveal that we had the CICP in place. If that were to happen today, with the commission's line on transparency those things would have been revealed.

Mr Medcraft : Maybe I could ask a question. Prior to 2008, did we often enter into these sorts of arrangements without disclosing them publicly?

Mr Kirk : It certainly was much more likely. I do not think that was the universal approach, but that certainly was done.

Mr Medcraft : It is not the first time we have done this, whereas now our policy is that it has to be public.

Mr Kirk : Yes. Some of the considerations in the approach at the time included the belief that, if it was not made public, there was more chance of negotiating a good outcome from the entity involved; that, once they knew it was going to be made public, they might choose not to negotiate and will drag it out into a legal fight. That was one consideration.

In the financial planning area another consideration was the fact that we knew from our shadow shopping that, as I said, possibly 20 per cent of advice was of a poor quality across the market. We knew there was a problem with the quality of advice in CFP not only from our shadow shopping but from our surveillance. But to single them out in a market where we thought generally there were problems with the quality of advice and say, 'You need to steer clear of this firm because they have poor quality advice,' may well have been singling them out unfairly.

Mr Kell : I do not think we agree with that.

Mr Kirk : We do not agree with that. I am just saying that was a consideration at the time.

Mr Medcraft : Senator, let us be clear: it should have been made public. There is no debate. It should have been made public. It should always be made public.

CHAIR: It struck me from the remarks that Mr Kirk was making that you were almost, in a negotiation sense, putting yourself in the position of the other side and anticipating their response.

Mr Medcraft : I think he was going back to try to explain what occurred in 2008 and why.

Mr Kell : I do not think they are Mr Kirk's personal views.

CHAIR: If their behaviour was so egregious—

Mr Medcraft : It should be public. It should have been made public.

Unidentified speaker: And if you are wrong, let them sue.

Mr Medcraft : There is no disagreement. It should have been public. In future, it will be public. With respect to Senator Fawcett's comment, the follow-up report should be public also.

CHAIR: Are you on that point, Senator Williams? I am asking you whether you are on that point.

Senator WILLIAMS: No, not on that point.

CHAIR: I will come to you in due course. We are here for a long time on CFP. No-one is going to ignore you.

Mr Tanzer : If I could just add one thing about that. There are a number of other submissions to the inquiry that suggest that ASIC has acted precipitously—

CHAIR: There are.

Mr Tanzer : to state in the public arena certain things that might be happening. Obviously, we need to take into account the reasonable balance that needs to be struck.

CHAIR: We had Dr Fysh saying that, I think, last week.

Mr Tanzer : Exactly. I take the point that we have been discussing being that a point has been reached at which a public statement can be made as opposed to some sort of precipitous statement. Otherwise, we would be off to court.

CHAIR: Yes. It gets to the stage where, on balance, you just put it out there in the public domain and let the clients choose whether they go to that firm or go elsewhere.

Mr Medcraft : I think the position is clear.

Mr Tanzer : I am saying the obvious: it is not just for ASIC to state something like that as 'maybe it is supposition.'

CHAIR: No. We are going to come to that issue in due course.

Mr Medcraft : An EU should be made public.

CHAIR: Did the CBA's breach report to ASIC about Mr Nguyen on 27 July 2009 at any point note that several of Mr Nguyen's former clients, including Mrs Braund, who gave evidence this morning, had written to the CBA alleging forgery by Mr Nguyen, and, if not, should it have?

Mr Kirk : No, it did not. To answer the second part of your question within the context of the uncertain breach reporting requirements that we were talking about earlier, it would depend on knowing what the state of CFP's understanding of the strength of those allegations and the evidence for them were at the time. I do not know that.

CHAIR: If I come to you, Mr Kirk, and say to you: 'On six, nine or 12 occasions my signature has been affixed to documents. I was not aware of that affixing, I did not authorise it and I do not do so now and the consequences of that is that I have lost serious value in a range of assets.' What more do you need to put that in the breach report? I come to you and I say: 'That's not my signature, I didn't sign it, I didn't authorise it and I have lost half a million dollars.'

Mr Kirk : Certainly, we do not expect that the breach-reporting process will involve passing on every allegation made against a firm or an individual within that firm by any of their customers. If people breached reported on that basis we would be overwhelmed. It would be like looking for a needle in a haystack finding out which are the significant ones, which ones have merit and which ones have real evidence.

CHAIR: Why would you not say that any affixing of a signature not that of the signatory gives rise to untoward consequences? The halving of the value of the investment is just not on and is rebuttable fraud. Why does it have to be tested and examined? If I say to you, 'That ain't my signature,' what more can a citizen do?

Mr Kirk : Particularly in the context that we were already dealing with them about problems in the firm of a widespread nature, it would have been a much better thing—it would have been appropriate—for them to tell us more about the details of the problems with Nguyen.


Mr Kirk : Whether legally they were obliged to do that under the breach reporting rules is a different question.

CHAIR: Who is 'they'? Is it CFP?

Mr Kirk : CFP.

Senator WHISH-WILSON: Can I just get a point of clarification? It was mentioned earlier by Commonwealth Bank that they referred the situation you were describing to the police. Could ASIC make a comment about that; were they aware of anything that was referred to the fraud squad?

Mr Kirk : My understanding is that they referred at least one matter to the police—not Mr Nguyen but a Mr Awkar—that involved forgery. Mr Awkar was banned by us, in part using the evidence about the forgery. I think the police determined not to take the case further because they did not think they could prove that to a criminal standard in a court.

CHAIR: Your recollection is correct. If I come to you and I say, 'Those 12 signatures are not mine. I didn't sign it. They're on a bit of paper; I didn't put them there. I didn't authorise it. I've lost half a million dollars,' when does that become enough, without turning a particular complaint into a general inquiry?

Mr Day : Just to clarify your scenario, are you playing the role of an investor who comes to ASIC and says, 'That's my circumstance.'

CHAIR: I am.

Mr Day : In those circumstances we would look at the whole situation and we would assess the information. More likely, in those circumstances, in the first instance we would probably say to the person, 'Have you spoken to the licensee about that?' So, to continue the analogy with the Commonwealth Bank, we would ask, 'Have you been to the Commonwealth Bank and said you have a problem with this? What has been the response?' More often than not we find that the people have not even done that. So we would ask them to go and do that. That is not to say we would stop there and say, 'Thanks; off you go'—end of story. We would take that information and assess it. We would also look at any other antecedent material that we have about, say, the particular person who has been their adviser or their broker.

We would also look at other, similar issues that have been raised about that particular licensee. Then we would consider whether there is a wider issue that we may want to look at right at that time. In relation to the instance itself, we would want, under the way the internal disputes resolution and external disputes resolution programs work, the licensee to be given the opportunity to rectify that problem. Part of that might be that they go back to the licensee and the licensee says, 'Yes, we see what you say. That person shouldn't be working for us anymore.' They would let us know what they have done and compensate the person.

Senator WILLIAMS: What about the criminal side of it?

Mr Day : The criminal side of it, as indicated just before by Mr Kirk and also by Senator Bishop, might be that it is more appropriately referred, in the case of fraud—that is, someone forging someone's signature—to the police, as the Commonwealth Bank said earlier today. We have seen that before. We have seen it in a lot of other cases as well. There is the known case in Victoria where, I think, one of the major banks referred the broker who was forging signatures to the Victoria Police and—

Senator WILLIAMS: Mr Day, wouldn't you do a referral to the DPP if you saw that Senator Bishop's forged signature has been put on these documents and he has lost half a million dollars, the planner who has done that has got more commissions, and that is why it was done? Surely ASIC would have to do a referral to the DPP on that?

Mr Day : That would require us to do an investigation. That would require us to do a full-blown brief and refer it to the DPP. The point I am making is not that we would just dismiss it and not do anything. We might refer that matter directly to Victoria Police—or Queensland Police or New South Wales Police as appropriate.

As we have always said, and as we have made clear in the submission, we look at the wider systemic issues. If we take every case we would exhaust our resources overnight if every one of those circumstances was investigated to the extent that you have just mentioned.

Mr Kell : I would like to add an additional response, if I understand you correctly. You have raised a couple of issues there. One of them goes to, as I understand it, the adequacy of CFP's breach reporting. Are they capturing the information they should when they are providing those breach reports to us? I think as Mr Kirk—

CHAIR: And also the adequacy of your response at first instance to what appears to have been a pretty black-and-white allegation of fraud.

Mr Kell : From the consumer. But I just wanted to comment on the aspect around the adequacy of the breach reporting and whether more information should have been there. As I think Mr Kirk has indicated, given the circumstances, yes, we believe that to be the case and it would have been highly desirable. I just wanted to note that one of the core problems that we had with CFP was the adequacy of their breach reporting. Indeed, it remains an ongoing issue. While most elements of the enforceable undertaking have been carried out and implemented to our satisfaction, we are still requiring CFP to test the effectiveness of their breach reporting procedures. We still have concerns in that area, and that is an area where we are following up with them. We do take that very seriously. It has not been an area where we have been happy with the standard of the reporting.

Senator WHISH-WILSON: Could I ask the question in a different way. Would things be different today? If you had another Don case today, would things be different? What have you learned from this?

Mr Kell : There are a lot of false document cases that we have taken. For example, in the credit space we have had about nine in the past six months or so. We have had a range of both bannings and criminal convictions. So it is an area that we take very seriously. But, again, establishing something to the criminal level of proof is not particularly straightforward when it comes to forgeries.

CHAIR: We are going to have to give consideration to that.

Mr Medcraft : Can I say more broadly—and it has been touched on by others—that I think the one thing that comes through from CFP is that culture matters. I think if you are a regulator—and I do think we are much more focused these days on culture—you have to be sceptical and connect the dots. If you are dealing with a large financial services firm and you know the compliance culture is perhaps not right, then I think that is a really important lesson. If you know that that is their culture, you probably even have to be extra vigilant in dealing with that entity.

I think that is really important, because certainly what I have observed in the five years I have been at ASIC is that you have very large financial services players and, if I had to rank them from 0 to 10, some of them I would put at four and some of them I would put at nine in terms of their compliance culture. If you know that a particular entity is a four, then you should be managing accordingly in how you deal with them. There is a wide range. If you want to think about it more globally, it is really important to as quickly as possible identify what the compliance culture is in an organisation.

Senator WHISH-WILSON: In terms of how you can influence that, are you happy with Mr Nguyen being banned for seven years? Did you think that penalty was fair, given the considerations and your investigations into this matter?

Mr Kell : I think the best way to respond to that is not to comment in relation to one individual planner but the overall outcomes: the compensation program, the eight—it is now up to eight—planners who have been banned in one sense or another, the tens of millions of dollars that the Commonwealth Bank has had to expend fixing its procedures, the entire new leadership and so on and so forth. If you put all that together, we think it is a very important outcome, allowing for the fact of those lessons that we have been talking about in some detail that we could have done better.

Senator WHISH-WILSON: So you are happy with what the Commonwealth Bank said to us today, that they have changed their culture? Have you seen any evidence of that and are you comfortable with that assertion?

Mr Kell : We have seen a lot of progress in that respect. There is an entirely new management and leadership team. There are different remuneration structures, different management structures and so on and so forth. But it is, we recognise, a work in progress. As I have said, in one area, breach reporting, we think we still have some work to do. It is one of the major firms in the industry. We would be continuing to watch it very closely.

Mr Medcraft : I think there is positive progress.

Senator WILLIAMS: Just on that breach reporting, Mr Kell, what I get from you is that you think CFP needs to lift its standards on its breach reporting. That is what you are saying—yes or no?

Mr Kell : It is part of the ongoing requirements that we still have with CFP—some independent testing on a range of matters. One of them is breach reporting; that is right. The game does need to be lifted.

Senator WILLIAMS: Isn't it true that in June 2009 Mr Cohen from the Commonwealth Bank took a breach report to you on one Ricky Gillespie and you lost it?

Mr Kell : Absolutely, and we have been very clear about that. That was a failure on our part.

Senator WILLIAMS: So you are telling us that CFP need to lift their game at breach reporting but, when they give one to you, you lose it.

Mr Kell : Yes.

Senator WILLIAMS: A touch of irony there, isn't there?

Mr Medcraft : Mea culpa!

CHAIR: We move on to this issue of file sanitation.

Mr Medcraft : Sorry?

CHAIR: File cleansing. What investigations, if any, has ASIC carried out into claims that CFP was engaged in a deliberate and systemic attempt to defraud clients of now-banned CFP advisers out of proper compensation? In that context in particular, what investigations have you done with regard to allegations made by Mr Morris of incriminating client files being sanitised by CBA to achieve this result?

Mr Kirk : Generally that is not an issue that we have pursued. I think we gave an answer in our answers to questions on notice that were asked before the inquiry.

CHAIR: Why is that? A lot of the discussion this morning was about material omissions from files, material matters being doctored and material matters not being available to clients or being available to clients only if they provided the same back to CBA.

Mr Kirk : In broad terms, we have not had very specific allegations of file sanitisation. There has been a general claim that there was file sanitisation going on. There was talk—again, within the Chinese whispers within the CFP—that there was a team cleaning up files.

CHAIR: I was not so much suggesting a team cleaning up files. I was really more putting the proposition that a lot of files were simply incomplete because they had never had all of the relevant documentation put into them.

Mr Kirk : That is the deeper problem: that the files were not adequate to begin with.

Mr Kell : Or that they did not even exist.

Mr Kirk : Record keeping was very poor. Again, because they were not adequate, there was a process of trying to reconstruct files, and CFP were telling us they were doing that. They were very open. That needed to be done to try to find out what had happened and regenerate from their system some of the documents.

Mr Kell : To facilitate compensation, at a minimum.

Mr Kirk : Yes, and I think there is some chance that, internally within CFP, people observing that going on may have interpreted that as an illegitimate process whereas it was a process that we understood was entered into for proper purposes and was openly advised to us.

CHAIR: We do not assert to you the file reconstruction was an illegitimate process.

Mr Kirk : No, I certainly was not thinking the committee had reached that conclusion, but certainly some of the suggestions we were getting from the whistleblowers was that they saw that as an illegitimate process. They had observed this process of file reconstruction going on and interpreted it, not surprisingly, as something that was illegitimate.

CHAIR: Yes. My problem is that the determination of the end value of compensation to be given to clients based upon inadequate file reconstruction, which derives from inadequate file maintenance in the first instance, does not lead to a proper outcome. In that context, my question is this: are you comfortable with the Commonwealth Bank not writing to all of its clients and asking them to provide any material that might be relevant to assist in the reconstruction of the files?

Mr Kirk : We were certainly conscious of that as a problem and we tried to put some measures in place in the compensation scheme to address it. Generally, with clients subject to the review, they were all notified that they were part of the review. They were not sent their file.

CHAIR: That is the point.

Mr Kirk : In a second phase, CFP had to go through the file and analyse whether it contained full records of the client's position. Again, this is set out in our supplementary submission, at paragraphs 27 and following. There was a process whereby they had to check whether the file was adequate or whether there were gaps in it. Where there were problems, they then made contact with the client and tried to reconcile what the client understood the history and instructions to have been with what was in the file. That contact was initially by phone, to check whether there was any disparity between the client's understanding and what was in the file. If that showed up any problems at all, the next step was a full interview with the client. It is a difficult issue to address when the files are inadequate. There was a process to try and do that. I guess the final step in that process was to have access, for the people getting compensation offers, to an adviser and that paid for, so there could be a test at that point and some push-back against what had been offered to them, some questioning of whether the records were accurate and consistent with what the client was telling that adviser.

CHAIR: We all understand the process, because we had it in exhaustive detail this morning, but our questioning queries the utility of that process, when CBA did not seek every person to provide any relevant supplementary material to help in the reconstruction of the file. That is the first point. The second complaint this morning was the inadequacy of the $5,000 ceiling. We had evidence from the lawyers from Maurice Blackburn, who handled 30 or 40 clients, to the satisfaction of all of their clients, that their costs per file were something like an average of $35,000. What I am putting to you, Mr Kirk, is that the process of review, remediation, reconstruction of files, was in and of itself inadequate and necessarily led to poor outcomes. That is what I am asking you to address. Why were you satisfied with that process?

Mr Kirk : I think in the circumstances, where there was this problem with record keeping and inadequate files, the process put in place, in terms of a large, mass-scale thing, where 7,000 clients were looked at, had appropriate steps to try and address that problem. I am not saying that that is going to be perfect in every file. When documents do not exist, the situation is very difficult, no matter what process you adopt.

CHAIR: Yes, but, if the problem derives from the fact that the officers of Commonwealth Financial Planning at first instance, with any or all of the 7,000 clients, did not do their job properly, did not maintain records, falsified records, falsified signatures, so that nothing could be reconstructed properly, in terms of outcomes, bad luck for the Commonwealth Bank. It should have been instructed to do the job properly, as was done by this law firm in Melbourne, Maurice Blackburn. If that cost $35,000 or $40,000 per client, well, that is the penalty for not operating properly in the marketplace at first instance.

Mr Kirk : But doing that for 7,000 clients, at $35,000 or $40,000, would be a few hundred million dollars.

CHAIR: It would. That is not your concern. It is the concern of the shareholders of Commonwealth Bank, the concern of the directors of Commonwealth Bank. Let the directors go to the meeting and explain that the dividend has been reduced by 10c this year because of the incompetence that was allowed by the senior managers. It is not your concern. That is the point I am trying to make. Who cares?

Mr Kell : One factor we have not mentioned here is that both phases of the compensation program also had an independent reviewer who randomly selected files to ensure that appropriate procedures were in place, looked at calculation methodologies for compensation offers. So, for the first phase it was Ernst and Young; for the second phase it was PricewaterhouseCoopers. They undertook a substantial review. They did not review every single one; they were not employed to do that. In a range of cases, ASIC also looked at processes, especially if there were matters that seemed to involve a high level of disputation towards the end of the process. So there were a range of, if you like, review processes and oversight built into the process.

Mr Medcraft : Sorry, Senator. I was just wondering, to answer the senator's question, why at the time did they reject writing to them asking them for missing documents—I guess the heart of the question.

Mr Kirk : To be honest, I would have to go and talk to the staff involved. When there are missing documents, to write to someone, send them a copy of this file and ask them, 'Please tell us what is missing from this,' may not elicit a very useful response, especially if you are doing that to 7,000 people in terms of delays to the whole process whilst they try and ponder, looking at this file, what documents maybe should be there that are not—

CHAIR: It may not.

Mr Kirk : I do not think it would be a useful step.

CHAIR: You might be right—it may not. But my response again to that is: so what? At least you try.

Mr Medcraft : Senator, perhaps we should go back. I would be interested to get the answer to your question—at the time, why that did not occur.

CHAIR: I will take it one step further. We have to sit through this for days and days on end. Okay, we are public officials—that is our duty. But so what if the Commonwealth Bank has to spend an extra $500 million?

Mr Medcraft : Senator, I actually concede what you are saying and I think we should find out why it did not happen.

CHAIR: Okay, that is fair enough.

Senator FAWCETT: Can I go to the point of reconstructing files. Whilst you have made the point that, in your view, with Commonwealth Financial Planning that was a legitimate activity, the context of how and when that is done can still make it a fraudulent activity. We have had a number of witnesses talk to us—this is outside of CPA—about where an audit is coming up. Where there has been a random selection of files, sometimes they have had a week or two weeks notice to get their files in order; and other times, where there has been less notice, it has been a self-select: you choose which files you put up for audit. So, in the case where they are given notice of a couple of weeks and they choose to reconstruct the files, whilst that might be a legitimate activity in that context, what that then provides is the information to the senior management and to ASIC that all is well, when, in actual fact, the raw dataset is quite deficient. So it goes back to my question about how you plan and conduct your own audits and how you require your independent experts to do their audits such that you remove the opportunity for that malpractice to apply what may be a legitimate process in an inappropriate way.

Mr Kirk : I think we take a number of different approaches. One is to try to get a random cross-section of files that are not chosen by the entity but are chosen by us. We might get a list of all of their clients for a certain period and then we would choose from that list ones where we wanted to see the files and ask for those files.

Senator FAWCETT: What time frame do you give them? Do you give them a week or a day to deliver them? The evidence we are getting is that there is a degree of reconstruction occurring before those are given to you.

Mr Kirk : For practical purposes it is not an approach we can adopt all the time, but where we have reason to have doubt that they may change the files, add to them, whatever, we turn up with a notice. We turn up in person with a notice saying: 'give us these files now'.

Senator FAWCETT: How frequently does that occur?

Mr Kirk : That is not done in the majority of cases. In the majority of cases there is an element of trust there, because if all of our work was done on the basis of turning up on the doorstep and seeing the file straightaway, we would get a lot less done and we would review a lot less material.

Senator FAWCETT: But, Mr Kirk, I draw you back to the discussion we had earlier, where you made the comment that you felt your trust had been misplaced, yet this is the same process you now have in place for your enforceable undertakings. And the evidence we have been receiving from other witnesses is that your trust may still be misplaced. So my question is: what are you learning as an organisation in terms of having spot checks to ensure that your trust is well placed?

Mr Kirk : My comment earlier that our trust was misplaced was not intending to suggest it was misplaced in the sense that we now think that CFP had a program for changing or doctoring files. We do not think that is the case. We have not seen evidence that that is the case. I just wanted to clear that up. We trusted them that they would be able to uncover all of their own problems and fix them and change their culture, and that trust was misplaced—not a trust about honesty about files.

Senator FAWCETT: That is the context in which I am making my remarks.

Mr Kirk : In terms of making the judgements that we have to make about the extent to which we can rely on people, we have to make them based on experience. What was our experience with the entity before? We then do spot checks within that process. Sometimes within file reviews we would ask the firm to do an initial review of a selection of files and report to us on that, and then we would spot-check individual ones of those to make sure that had been done properly. There are all sorts of cross-checks and processes like that, but at the end of the day there is a degree of trust of the majority of entities that they will not fraudulently doctor the files.

Mr Medcraft : I will let Jo Bird, who runs the advisory area, comment. I think it is one of the attractions of the shadow-shop program as well, in that if you shadow-shop you actually know the file and you know the result too. If you think about it, we have a number of, if you want, layers of audit that we undertake in order to try and ensure the resilience of the financial advice system. It is pretty hard to game the shadow shop in particular, in terms of the outcome, frankly, but it is a quite expensive process. I will pass over to Joanna.

Ms Bird : I will give you a brief summary of how we would do some of these things. We have different techniques available to us. We could do a shadow-shop or something like that, where it is entirely random, people do not know who is coming to see them, we would recruit real clients and then we would get the advice and look at it. If for some reason we want to look at a particular adviser because we have had some complaints, we would not ask them to just randomly select files for us; we would usually first of all serve a notice getting a list of all of their clients and particular features of those, and then we would go through those and choose who we want. We might choose randomly because we think there is a problem across the board or we might be looking for particular risk factors. If we have had a tipoff that there is a problem with SMSF advice or something like that, we would only choose those files that are SMSF files, or where we think that there is not sufficient diversification we would look for files that have that sort of thing, and then we would ask for those particular files.

You are right that the licensee then has a period of time to comply with the notice. That would normally be two weeks. We do get complaints that that is not sufficient time. Having a notice served is not moneymaking business for the financial advice industry and we understand that it can be difficult for them. On the whole we would expect them to give us the files that we had asked for without them doctoring them in any way. If we had any suspicion that they were doctored, we may speak to the clients and we might speak to individual advisers. If in advance we had a suspicion that they may be doctored, as Greg has said, we could turn up and just serve a forthwith notice, although that is an extremely resource-intensive thing to do and it is not really the usual practice that we would adopt.

Senator FAWCETT: Ms Bird, I just make the comment that, by using the word 'doctored' you imply a process that is improper, inappropriate, to use the word—

Ms Bird : I thought that is what you were suggesting that they may be.

Senator FAWCETT: But what I am saying is that there is a process that has been called by ASIC quite appropriate and legitimate, which is reconstituting a file. The evidence has been given to this committee that, in that two-week period, quite proactively and with the full knowledge of people at the line in their management, they pull the relevant files and get them up to date with information that should have been there previously before they deliver them. That clearly, whilst it may be a legitimate activity in that context, is a fraudulent activity because it misleads the whole point of the audit.

Ms Bird : Generally what will happen in that situation is the licensee will tell us that they have gone to the file, that it is incomplete and that they will give us what they have, and then we will ask them to reconstruct the file so that we can figure out what should have been in there. It would be something that we would know about. I am not sure what we are supposed to do. You are right: if an adviser keeps incredibly poor records, it is a frustrating experience for us, because it makes it more difficult for us to take appropriate enforcement action, because we do not have the evidence there in black and white. That is correct. That makes our job more difficult.

Senator FAWCETT: If you have a company that is already under an enforceable undertaking, is that a significant threshold for you to apply a greater rigour in your inspection of those records?

Ms Bird : Yes. I should say that in the CFP EU there was spot-checking them advice that was coming out at the end of the process, so we would spot check. Like all regulators, we have a finite amount of resources. We have large numbers of complaints about misconduct coming to us, so we will often take a spot-checking approach to things. We may, if we have complaints about a particular adviser in a licensee—to conserve our finite resources so we can put them elsewhere—say to the licensee, 'We want you to do a review of these files of this particular adviser and send us a report and we will have a look at it.' In those circumstances, we would generally do a spot check. Then, having got their review, we would ask to see the underlying files of a random number, a random selection, and we would do a spot check ourselves. If we formed a different view from the licensee, then that is a bigger issue for us and we would go further and we would take that up with them.

Senator FAWCETT: In a situation where you had an enforceable undertaking in place with a firm, in a six-month period would you expect at some point in that six-month period to proactively go in and do a spot check yourselves as opposed to relying on them to pull a package together that you may then retrospectively spot check?

Ms Bird : In an enforceable undertaking, we would rely on the independent expert that the licensee is paying for.

Senator FAWCETT: And yet we have just canvassed the fact that in 2008 you had an independent expert, and the combination of the independent expert plus the regular reports to ASIC and the direct reporting of senior management to the board did not achieve the outcomes that ASIC, or any other reasonable person, thought were reasonable. And yet what I am hearing is that your fundamental approach has not changed.

Mr Kirk : I think I have conceded that there was not enough rigour around the monitoring and testing in that process.

Mr Kell : There were not enough benchmarks, it was not public and so on.

Mr Medcraft : Just to Senator Fawcett's comment, though: today, if we had an enforceable undertaking, would we have established procedures in terms of—I guess the issue is, if we have an independent expert who is supposed to be auditing the compliance with the EU, would we go one step further and still go and do spot checks or not?

Mr Kirk : That depends on whether we are satisfied with the quality of the work by the independent expert. There have been occasions where we have not been satisfied with that and we have gone back in and done checking ourselves, but generally—and it is not universal—the work of the independent experts is quite good.

Senator FAWCETT: But I assume you are comfortable generally with the standard of your own work, and yet, if what Ms Bird has described was applied by the independent expert, the same single-point failures in that system of oversight still exist, and yet you would argue that their work is satisfactory because it matches the way you do it. What I am saying is: we are hearing evidence to this inquiry that there are single-point failures in that system. That is something I think the report will draw out that you need to fix, because they exist.

Mr Medcraft : Sorry; the single-point failures? I am not clear.

Senator FAWCETT: You have a system, but that system has a linkage where, if the dots are not joined, if the appropriate scrutiny is not applied directly, without warning, on a random basis, then a company or their lower levels of management or indeed the people at the line level—any single part of that link—can game the system and break the efficacy of your audit process. There is not a closed-loop system. There is not a check and control. Any single point can make that system fail. That is what I mean by single-point failure.

Mr Medcraft : The system that we have today is that you have the company checking that it is done; you have the independent expert checking on the company—that is done properly; and then, if we have doubts about the expert, we would do then go and do checks ourselves. So my view is there actually is that control.

Mr Kell : It is a public process. You would also expect that, if there was meaningful failure, you would continue to receive complaints, for a start, which is often a generator of rechecking—if there is an indicator that that sort of problem emerges. So there are a range of ways in which failures to adequately deal with the sorts of issues you are talking about will be revealed, will emerge through further complaints or will be reported to us by advisers and so on and so forth, or the people that have spoken to you today.

Senator FAWCETT: Well, Mr Kell, I just repeat the point that we have had witnesses before this committee telling us that there are corporations where you already have an enforceable undertaking in place with the same control mechanisms and where, with the conditions that are placed on them—that is, they have up to two weeks—the files are being amended prior to audit, which then skews the outcome. So the visibility that you and senior management get is that all is well, but the reality is not so, and that says that your system has weaknesses that can be gamed.

Mr Medcraft : Is that where there is also an independent expert auditing the result?

Senator FAWCETT: Correct.

Mr Kirk : So there is an allegation by some people that the system is being gamed and that we are not uncovering it?

Senator FAWCETT: Yes, that is right.

Mr Kirk : It is difficult to respond to that allegation without knowing specifically what it is.

Mr Kell : Without any information about it, without knowing the case. It is a little tricky to respond to that in the absence of any hard information.

Senator FAWCETT: When we go in camera later, you will know a lot more.

Mr Medcraft : As a former auditor, if there is an issue with the system of internal control, I am very open to looking at it.

CHAIR: We will adjourn that discussion until the in-camera session.

Mr Medcraft : That is fine. We need to have a some evidence. If there is a breakdown, I am very happy to look at it.

Senator WILLIAMS: Ms Bird, about the files: we had evidence this morning from Mrs Swan—who is still in the room—that additions were put in her parents' files, and she tabled her files. She had kept the originals. She had asked CFP for an update of the file. They sent in all these additions to the original plan. So we are talking about files and Senator Fawcett is talking about filing. We have had evidence put in front of us today of file tampering and additions to files. I just want to make that clear to you.

Mr Kirk : Perhaps I should take that question. As I think Mrs Swan said to you this morning, she refrained from giving us that material, so it was not something we could look back on at the time we were dealing with Nguyen. Subsequently, I think towards the end of last year, we saw some of it. We know the file was to some degree reconstructed. Essentially, it was not clear to us from looking at the material that there was evidence that it had been doctored in some way to try and benefit CFP subsequent to its original generation, beyond the general reconstruction.

Senator WILLIAMS: You had numerous requests from Financial Resolutions Australia to talk about files and meet with you; is that correct?

Mr Kirk : We have had a lot of interaction with Financial Resolutions Australia and, to the extent that they have given us material, we have looked at it.

Senator WILLIAMS: Perhaps you might look at some more with them. Chair, while we are going through this issue on the files et cetera, I just want to raise a point, Mr Medcraft, about evidence I took through the CFP today about those forged signatures in relation to Ricky Gillespie. There was a compliance officer who did some research within CFP, and I hope you take a close look at that because in my opinion it is clear, on 14 files, that signatures were forged. I hope you take a close look at that and look at Mrs Braund's case as well—the signatures—and find the evidence necessary, and I hope you do, for a referral to the DPP, especially in relation to Mr Gillespie, because you did ban him for life, for fraud and forgery.

Mr Kell : Thank you, Senator Williams. All I will say at this stage is that our investigation around Mr Gillespie is ongoing, so yes.

Senator WILLIAMS: I am pleased to hear that.

CHAIR: Is Ms Swan correct in claiming that ASIC rejected her offer to provide evidence regarding Mr Nguyen during the 2012 Administrative Appeals Tribunal process?

Mr Kirk : Her evidence was not used before the ASIC delegate in terms of the banning. We had sufficient material, but it was put before the Administrative Appeals Tribunal, as I understand it.

CHAIR: Can you check that? Ms Swan told us—

Mr Kirk : We are happy to take that on notice. I think it is something we actually addressed in one of the previous questions on notice, but I will dig that out.

CHAIR: All right. Is Ms Swan correct in claiming that ASIC never raised evidence of forgery or fraud against Mr Nguyen during his AAT appeal?

Mr Kirk : That is correct. We did not have cogent enough evidence of those matters that we could put before that.

CHAIR: Cogent enough evidence. But you had some.

Mr Kirk : We certainly had allegations, yes.

CHAIR: Allegations from Ms Swan and from others.

Mr Kirk : Yes. Again in the questions on notice we have set out the particular allegations we got in relation to Nguyen in relation to fraud and forgery and why we did not proceed with them. If you wanted to go further on that material, that would involve discussing our assessment of the strength of the evidence that we can expect from particular witnesses, and I think that would be better done in camera.

Mr Medcraft : So we can go into what we mean by a cogent evidence.

CHAIR: Are you really saying to the committee that when a complainant comes to you and provides what appears to us to be relatively strong evidence of fraud or forgery, a precondition to using that in a court setting is corroboration of that fraud or forgery, that the word of the witness herself or himself is insufficient?

Mr Kirk : No, it is not a matter of that corroboration.

Mr Medcraft : Chairman, I would like to ask Mr Mullaly, who runs our deterrence in financial services, enforcement in financial services, to comment on that, because it is quite an important point.

CHAIR: Yes, it is.

Mr Mullaly : It would be unlikely that we would take it simply on the word of a complainant to the DPP.

CHAIR: Why is that? If I come to you and I say, 'Listen, I gave them $1 million, I gave them instructions to put it in low-risk product, they put it in high-risk product and not only did they put it in high-risk product but they forged my signature a dozen times and those 12 bits of paper with my signature that is not mine I did not authorise to be attached. Why is that not sufficient?

Mr Mullaly : Because we would have to show who actually put the signature on the document or those 12 documents and we would need to get expert handwriting evidence in to show that it is not the person's signature.

Senator WILLIAMS: $6,000 is the quote to get it.

Mr Mullaly : It might be quite clear that it is not the complainant's signature. However, proving who actually did put the signature on it is another question and we need to prove that beyond reasonable doubt. So it is not as simple as taking it straight to the DPP or indeed taking it to the court.

CHAIR: I got that. Thank you, Mr Mullaly.

Senator WHISH-WILSON: When we had Mr Morris giving evidence earlier he was talking about Commonwealth Financial Planning having migrated over to an electronic system of keeping files and client records. Will this make things different in the future in terms of the issues that we have been discussing with files and the timeliness of providing them et cetera?

Mr Kirk : As a general matter it would make a difference both to the quality of their monitoring of the quality of advice provided by their representatives and also to our ability to come in after the event and check the accuracy of that.

Senator WHISH-WILSON: Could I then ask if this is something that you are seeing rolled out right across the industry? Or were Commonwealth Financial Planning an anomaly in the sense that they did not keep electronic records?

Mr Kell : The short answer would be it is uneven. We are seeing these new technologies for file maintenance and whatnot rolled out, but I could not tell you that every firm has them as yet.

Ms Bird : They are not required to keep electronic records, but more and more advising firms are keeping electronic records. They use electronic compliance systems which record everything.

Senator WHISH-WILSON: Is this something ASIC would be interested in trying to get voluntary if not compulsory compliance on in the future? If it is going to make this sort of thing a lot easier for compliance and risk management, shouldn't it be something that is given consideration?

Ms Bird : As a general principle, record keeping is extremely important to us, and good, reliable record keeping which we can trust will make our job a lot easier. How that is put in place is really a policy matter for government. At the moment we just deal with the law that we have and the records that we find. Where we think that they are not appropriate or something has happened to them, then we will take whatever action we can to try and deal with that particular problem.

CHAIR: That is a policy question, so I will ask the policy question. Do you seek that the committee make a recommendation in due course that firms maintain modern, up-to-date electronic records maintenance systems and that it be done by regulation? Do you want to take that on notice?

Mr Kell : A recommendation that looked at how we could improve record keeping would be very good. My only hesitation is the cost for quite small firms and whether that would need to be taken into account, but otherwise—

Mr Medcraft : The phrase 'red tape' comes to mind. Do the industry associations like the FPA have a best practice standard on this?

Ms Bird : I actually do not know.

Mr Medcraft : Can we perhaps come back, because it would be interesting to hear whether the industry has a best practice standard on record keeping.

CHAIR: We might be interested in more of a considered response.

Mr Medcraft : We will come back with a considered response, including perhaps the current industry best practice, whether it is the FPA or others. Let's face it: from a business perspective it is a much better idea to keep records electronically in terms of overseeing your business anyway. So it makes a lot of commercial sense.

CHAIR: Take it on notice.

Mr Medcraft : We will take it on notice.

CHAIR: Does ASIC still maintain that an enforceable undertaking was the best mechanism to address CFP's conduct, and are you satisfied that the EU has achieved what it was intended to achieve?

Mr Kell : We do believe the enforceable undertaking allowed us to make much more wide-ranging changes at CFP than a more formal court based process would have allowed for, including major changes to their compliance systems and record keeping along the lines that we have just indicated. It is also worth remembering that the penalties available to apply through a more formal court process against CFP at the time this occurred were around $170,000. We are not sure that that really would have—

CHAIR: Per client or in aggregate?

Mr Kell : Per piece of inappropriate advice that was proved for individuals. The key issue here is: have we in fact required or forced CFP to make the sorts of changes that mean that it offers much higher quality advice to its clients? That is really what we needed to achieve at the end of the day to lift its game very dramatically. We think in many of those areas that it has happened, and in some areas where we still have concerns there is ongoing work. But that has been occurring within the framework of the EU, and I mentioned earlier breach reporting is one of those ongoing areas.

CHAIR: You stated in your third supplementary submission that ASIC is regularly seeking updates regarding those former clients of CFP who are yet to agree to the level of compensation owed by the Commonwealth Bank. Does ASIC seek these updates from the CBA, and does it also seek updates from the claimants themselves?

Mr Kirk : As a general matter, our most regular contact is with the CFP but we have also had contact with some of the representatives of the complainants.

CHAIR: But, as a general proposition, you do not have contact with each of the claimants or their representatives?

Mr Kirk : We respond to them rather than contact them all.

CHAIR: On one side, you initiate contact on an ongoing basis with either CFP or CBA; but, on the other side, you react to contact from the claimants themselves only.

Mr Kirk : Or their representatives. That covers a fair few of the claimants where we in fact have had that sort of contact because we have had contact from their representatives.

Mr Kell : I should also make one small point. We also continue to track quite closely any disputes that are going through the financial ombudsman system as well, as a part of the process.

Mr Kirk : In terms of the contact with CFP, it is not only getting reports from them on progress but getting copies from them of correspondence sent to the clients and knowing the content of that material and stipulating what needs to be in some of that. One of the things we did towards the end of last year was to make sure that they made it unambiguously clear to the remaining people with contested claims that not only could they go to FOS to have it resolved but CFP would waive any jurisdictional limits in that process. Some of those problems about limited jurisdiction or disputes about where there had been a previous agreement and there was already a binding deed of release and such—we got them to clarify for all of those customers that they were willing to waive those things.

CHAIR: How many of these unresolved matters are there?

Mr Kirk : I can give you information on that. Both across the Nguyen clients and across the broader compensation program there are 57 former clients with potentially remaining issues and for 45 of them the problem is that they are uncontactable.

Mr Kell : We should add on that note that it was one of the tasks of the independent reviewer to make sure that CFP undertook a rigorous process to try and chase down clients. That was one of the issues reviewed.

Mr Medcraft : To be clear, there are only 12.

Mr Kirk : There are 12 that are contactable and where there is an ongoing—

Mr Kell : Twelve out of 7,000.

Mr Kirk : Yes, that is right. There have been 12 out of 7,000 reviewed and something over 1,100 have been made compensation offers.

CHAIR: Let me get this clear: there are still 70 live, unresolved claims of the 70,000, which is one per cent, and of those 70—

Mr Kirk : The figure is 57.

CHAIR: 57 are not contactable—

Mr Kirk : There are 57 in total that are unresolved, and of those 45 are uncontactable. There are 12 with communication and live issues.

CHAIR: Have you been in contact with all of those 12?

Mr Kirk : Can I take that on notice just to make sure that I do not mislead you. It is partly because we have been in contact with the representatives who represent groups of claimants.

CHAIR: When I say 'them' I mean all their representatives.

Mr Kirk : But I am not sure that the representatives cover every single one of them, so I would want to check that.

CHAIR: If there are no further questions on CFP, we are done. We will go to in-confidence stuff.

Senator WHISH-WILSON: Chair, I am not sure what the distinction is—

CHAIR: What I just said, Senator Whish-Wilson, was that, unless there are further questions from you or Senator Williams, we are done on CFP and we are going to go to in-confidence discussions.

Senator WHISH-WILSON: I have one quick question on CFP in relation to the type of breach that it is and the amount of work that has gone into it. Do ASIC have regular briefings with ministers on situations like this? We have just talked about, for example, potential policy on electronic files. Do you have that level of representation to the minister directly?

Mr Medcraft : We have regular catch-up with ministers where we see issues in sectors or where we think there are issues that they perhaps should address. There is a very good ongoing dialogue and it happens between me, our commissioners and sometimes senior executive leaders.

Mr Kell : I would also add that CFP was one of a number of examples that we have talked about of very poor practices in the financial planning sector that led us to make a series of public submissions to a range of inquiries about the need for reform more generally in this industry, some of which contributed towards the future of financial advice reforms. In terms of dealing with ministers and also more generally, we have been on the record around the need for changes to this sector.

Mr Medcraft : We are proactive where we see real issues in sectors that need to be solved by policy change. We do proactively engage with Treasury and the ministers.

Senator WHISH-WILSON: Just in relation to your comment about your contribution towards the FoFA reforms, which have now happened, are you confident that commission and sale structures are over or are heading for redundancy in the financial planning unit of, for example, the big four—the big financial services companies?

Mr Kell : As you may be aware, Senator, the changes to the remuneration structures are not retrospective, so we expect that we will see the sorts of cultural changes come in over a period of time. It is relatively early days, but we are already seeing changes in the industry in terms of some of those issues around how they approach advice and the remuneration around investment.

Senator WHISH-WILSON: In relation to the very real issues we are discussing here this evening, are you concerned that there is the potential to water down these FoFA reforms and the potential consequences that will have for situations such as Commonwealth Financial Planning?

Mr Kell : The changes to the FoFA reforms are very much a policy matter for government, and we have been very clear about that:

Mr Medcraft : A broader comment than the one I made last time is that I would really hope that the financial advice sector takes it upon itself to win the trust and confidence of Australians. The majority, I believe, do want to win that trust and confidence. The fact that only one in five Australians sees a financial adviser is, I think, an issue and, at the end of the day, there is a lot of potential business out there for them. What we would hope is that they do win that trust and confidence and that more Australians feel confident to go and get advice—advice they can trust. That is really what we all want.

Senator WHISH-WILSON: Obviously, you cannot go into any details tonight, but will you be directly speaking to the minister and the government about your experiences with issues such as commission based products and providing that advice directly to them in relation to the current amendment on FoFA that we have in front of us?

Mr Kell : Could I trouble you to repeat that question, Senator. I missed the first part of it.

Senator WHISH-WILSON: Sure. I know you cannot give us any details this evening, but will you be providing direct advice to the minister and to the government about the current amendment in front of us on the FoFA reforms based on your experiences with issues such as the ones we are discussing tonight?

Mr Kell : We regularly discuss issues around financial services reform through Treasury, with the government.

Mr Medcraft : We will obviously continue to undertake surveillance and enforcement in the sector. We will continue to report publicly on what we are seeing in the sector, and often that will shape government and perhaps your response, frankly—and, again, that is transparent.

Senator WHISH-WILSON: I was just interested in your comments earlier about cultural change and how important it was. I understand regulations will play a big part in that.

Mr Medcraft : Cultural change is critical; I totally agree.

CHAIR: We have now concluded our discussions on Commonwealth Financial Planning, and we are going to head into the more general areas.

Senator WHISH-WILSON: I have questions whenever it is my turn.

CHAIR: Okay. We are going to work through a range of issues. I will ask some questions, and it would be appreciated if we could get a relatively concise response. The Institute of Chartered Accountants noted in its submission that, in more recent enforceable undertakings, 'it is apparent that ASIC has taken steps to ensure that there is clear admission of fault by the relevant parties'.' What steps has ASIC taken?

Mr Tanzer : I guess it is fair to say that, in recent undertakings, the intention is to be much clearer and transparent, and we spell out the issues of concern. Mr Kirk and Mr Kell referred a little earlier to improvements that have been made in more recent EUs to improve their transparency and clarity. That is very much around making very clear what the allegations are that we see. There are other approaches around the world. The USSEC, in particular, is adopting an approach of requiring admissions as part of enforceable undertakings. That is an interesting development in their case but not something we have yet adopted.

CHAIR: Professor O'Brien and Dr Gilligan analysed ASIC's use of enforceable undertakings from 1998 to 2013 and suggest that ASIC has been soft on the big end of town. Have you reviewed that submission, and what is your response to this assertion?

Mr Tanzer : Yes, we have reviewed that submission. There are a number of us that might like to respond to that. I think it is also the case that you have received submissions that say we are soft on the small end of town and only go after the big fish. The record itself is much more balanced and nuanced. The basic proposition is that we look to take action in appropriate cases, whether big or small, and depending on the nature of the materials put before us and our own evidence—

Mr Medcraft : If you have a look at page 5 of our expanded opening statement, it shows the percentage of investigations commenced per market sector. That really does provide statistical evidence in terms of the broadness of what we do in enforcement. Hopefully, that responds to you question in terms of the scope of what we do. Greg, you want to comment on this particular table?

Mr Tanzer : Yes. It also gives you information about the types of action we have taken at the big end of town and some examples of the types of action we have taken at the so-called small end of town.

CHAIR: So your response to the assertion by Professor O'Brien and Dr Gilligan is table 1 in Mr Medcraft's statement?

Mr Medcraft : Yes.

Mr Tanzer : And there is some commentary that precedes that that also explains the approach.

Mr Medcraft : It is quite an interesting break-up of micro, small, medium and large. It shows the broadness of how we approach investigations.

CHAIR: Do you have a standard way of monitoring compliance with the conditions of enforceable undertakings, or is it different for every case?

Mr Tanzer : Do you have specific examples in mind?

CHAIR: no. It is just that I heard Mr Kell say earlier that your practices in respect of ensuring compliance with enforceable undertakings are more rigorous now than they were five or seven years ago, that the operation has been on a learning curve and that you are applying a lot of principles that are in the public domain that we are discussing now. So my question now is—

Mr Tanzer : There are a number of specific steps that we have taken. Firstly, we have modified our internal processes and procedures in relation to when enforceable undertakings are accepted and how they are drafted, as I mentioned before. The office of our chief legal officer, which is a specialist legal unit within ASIC, oversees and coordinates our practice on the use of enforceable undertakings across the board so that we are consistent across the various stakeholder teams and enforcement teams. We have specialist litigation counsel that check and approve every EU entered into to ensure consistency with policy before it is submitted to the commission. We have also implemented a new internal system to improve the supervision of enforceable undertakings, and that is largely around ensuring that the undertakings included prompts for when particular events need to take place, such as the delivery of a particular report by an independent expert. The implementation of this internal system ensures that both short- and long-term milestones are met. So it prompts our team to go back and check on those milestones as they come.

CHAIR: So are you putting to us the general proposition that it is now normal practice within the various teams that the implementation of enforceable undertakings is routinely checked on an ongoing basis?

Mr Tanzer : Yes, and that the enforceable undertakings themselves are being drafted with an eye to making sure it is quite clear what needs to be done, and when, and to provide those regular prompts.

Mr Kell : Clearer time frames, clearer markers in terms of what we expect. We also have some more intensive engagement with some of the experts that we use to help monitor enforceable undertakings. We did have occasions in the past where we did not think they were doing an adequate job. So we have had a series of meetings with the leading practitioners in that area as well to say, 'We expect more of you in terms of your role in this as well.'

CHAIR: Have we got to the stage where we have recidivist offenders who simply do not adhere to the detail of the enforced undertakings? When do you start dealing with that so that you do not have to go through this rigmarole of talk, talk, talk, talk, talk?

Mr Medcraft : Good question.

Mr Kell : We have taken action to enforce them.

Mr Tanzer : Yes, we have. It really depends on the facts of the particular case. The enforceable undertaking also is not a given in any particular matter. It depends on the facts of the case as to whether we would accept an enforceable undertaking, or even the form of that enforceable undertaking, as I mentioned—whether it is something that would effectively require an admission, or be in response to the settlement of a civil claim, or be something that is—

Mr Medcraft : Just to be clear: we have taken action on those who have not been satisfactorily performing under enforceable undertakings. I think that goes to the heart of the question.

CHAIR: Yes. I am not asking about those that do not have enforceable undertakings; I am asking about those that do have them.

Mr Medcraft : We have taken action. We have said, 'It is not working. We are taking legal action.'

Mr Kell : Undertaking legal action or imposing further and more rigorous conditions on them to improve what they are doing. We have had some recent examples of that. It is of no benefit to anyone to have these things kick on forever.

Mr Medcraft : We have imposed licensing conditions and we have even gone further than that. So there is no tolerance. Particularly if we have set time lines and benchmarks and they are not meeting them, then basically we have got to take action. That is it, frankly.

CHAIR: Professor O'Brien and Dr Gilligan suggested that, because ASIC often requires reports by independent experts as part of enforceable undertakings, it should draw up a code of conduct for those experts, with particular reference to the management of conflicts of interest. Have you done that?

Mr Tanzer : No, we have not done that; but it is one of the things we are considering.

CHAIR: You have given that internal consideration?

Mr Medcraft : I think it is a very good idea; we will do it.

Senator WILLIAMS: This is the point I made to the Commonwealth Bank. PricewaterhouseCoopers are their auditors, yet they went in as the independent expert. You were talking about Anderson Young doing their job earlier on. Well, Anderson Young did the inspection of financial planners at Macquarie Private Wealth, and 80 per cent failed the test and Anderson Young ticked them off. You have got to look at these conflicts. Should it be the case that ASIC appoints the independent oversight of the enforceable undertaking? Why should you let the company pick who is going to be the independent watchdog?

Mr Tanzer : In many of these cases ASIC is heavily involved in the selection of the independent expert.

Mr Kell : Power of veto.

Mr Tanzer : We take into account our experience with the expertise of that firm and what potential conflicts there may be.

Mr Medcraft : I think we should always have the right of veto.

Senator WILLIAMS: Yes, I think you should have it, too. Do you have that right?

Mr Medcraft : These days, yes.

Mr Kell : Senator Williams, your point is a good one. It goes back to my earlier comment that we have had some experience with some of those firms that operate in this area that, frankly, we did not think were up to scratch. We have had some fairly vigorous communication with them because we still need to rely on them in many of these cases to do an important job.

CHAIR: Were you heavily involved in the selection of PwC as the independent reviewer in the CFP matters?

Mr Kirk : In the CFP matter there were three tenderers, there was a choice by CFP, and we had the right of veto over that.

Mr Medcraft : We did have a right of veto.

CHAIR: And you did not exercise it?

Mr Kirk : We did not; we were satisfied. All the tenderers had to address issues around whether there were conflicts and how they would be handled.

Mr Medcraft : Again, I think it is important to closely monitor the culture of the independent experts. You have got to be a little sceptical—if you are hearing things in the market that perhaps that independent expert is not doing a good job, as Mr Kell was saying. I think that is part of this; you cannot go into this blind; you have got to make sure you are comfortable; you have got to keep a close eye on your independent expert; you have got to be sceptical in dealing with an independent expert.

Senator WHISH-WILSON: I would have thought it was black and white that, if your independent expert was also the auditor for the entire organisation—and who knows how many millions that would be worth to them per year—you would have a very definite conflict of interest. We saw this during the GFC with ratings agencies, research houses and bonds and products. These were things that were really obvious but skipped the net.

Mr Medcraft : I would rather not go there at the moment. But you make a good point. I will last Mr Kirk to comment on that.

Mr Kirk : There is a difficulty with organisations as big as the Commonwealth Bank finding a major reputable professional services firms that does not otherwise do work for them. Given the size of the market and the size of those institutions, that is a real issue.

Mr Medcraft : But I think you make a good point, Senator; if somebody is the auditor and they want them to be the independent expert, essentially you should have a sceptical presumption about how they are going to manage the independence issue, the potential conflicts of interest. There should always be a presumption and questioning on this particular issue. I think that is an important point.

Mr Kell : And I suspect that we would take a different approach today compared to the approach we took back then.

Senator WILLIAMS: Yes, so you would have a KPMG and not the auditor of the Commonwealth Bank.

CHAIR: There are five or six big firms that could do an independent review for a firm they do not have a major contract with.

Mr Medcraft : I think it is very clear that many lessons have been learnt—and we have adopted those lessons we have learnt into our processes.

CHAIR: Let's talk about your governance process, Mr Medcraft. The problem is that I am talking to Caesar, about Caesar's role, as Caesar carries out Caesar's duties as determined and instructed by Caesar! That is the real problem.

Mr Medcraft : There is actually something called an act of parliament, and there is something called the Financial Management Accountability Act, that I actually have to sign off on. And I have to appear in front of this Senate committee, the Senate estimates and the parliamentary joint committee, and report to the minister. So there is fairly broad accountability. And there is also something called the media.

CHAIR: I accept that you have all of those constraints. And I accept that the parliament has created the legislative framework that you work under, that you have been hired under, and you have to act consistently with the law. I accept all those constraints

Mr Medcraft : And the annual report, of course.

CHAIR: We know. We have all been around a long time and we know the list of constraints. The question is about having a full-time commission type structure that both oversees and does the regulatory work—you know the issue. Some submitters have suggested that ASIC needs to be better able to tap into the knowledge, know-how and understanding of experienced business people and to benefit from outside independent and objective sources. The suggestion is for the equivalent of an executive and a non-executive board to oversight your work. What is your response to that?

Mr Medcraft : I come from 30 years in investment banking, so I think I can claim that I have got a reasonable—

CHAIR: You have had a lot of exposure to that.

Mr Medcraft : Yes, from around the world; I am not from a public service background. And Cathie Armour and colleagues have had a similar period of experience. Most importantly, we have an external advisory panel, which I have actually strengthened during my term as chair. I have introduced a rotation of those panel members so we keep refreshing it. We use that external advisory panel as a key reference body. We tell them what we are doing, but we also get their views. The external advisory panel are people taken from across the sectors that we regulate. For example, one member is the current CEO of Google because I was keen that we have somebody in technology. We can provide you a list of the external advisory panel members. They include people such as David Gonski. We have established an arrangement with the Business Council of Australia that whoever is the chairman—it was Tony Shepherd—is a continuing member of the external advisory panel so that we have that strong connection with the Business Council. We are basically across the sectors. We essentially have very senior people and it includes key consumer representatives as well. That external advisory panel is actually quite important. In addition to all the other governance mechanisms we have, that is quite important.

Mr Tanzer : I would also add—and perhaps this is delving back into history—that the sort of structure that you are suggesting is the structure that the Australian Prudential Regulation Authority used to have. That structure was removed and replaced with the executive board structure, similar but not identical to what ASIC currently has, following the HIH collapse. One of the learnings of that was that that particular structure did not necessarily ensure the type of governance that was appropriate or necessary. That is not to say that that structure would not work. There are various regulators around the world that have this type of structure. But it is by no means clear that it has always been successful. For example, the UK financial services authority also had a non-executive advisory board, and yet it has been subject to significant criticism over its performance through the global financial crisis and more recently with some of the significant mis-selling scandals. The point that you have raised is really much more around the implementation of regulatory policy.

CHAIR: It is.

Mr Medcraft : In addition to the external advisory panel we have a number of other advisory boards. We have a directors advisory panel, a consumer advisory panel and a markets advisory panel.

Mr Price : We have a financial literacy board. We have a market disciplinary panel, a market supervisory panel and the registry licensing and business advisory committee.

Mr Medcraft : So, if you think about it, in each of the key sectors we have essentially senior people who are advising us on the approaches we are taking. Mark Johnson is currently the chairman of the external advisory panel. As you know, he is a very appropriate person. He is chair of the Australian Financial Services Centre. Allan Moss is the deputy chair. There is Jo-Anne Bloch, who used to be the head of the Financial Planning Association; Maile Carnegie, current CEO of Google in Australia; Melinda Cilento, who is a board director on various boards; Paula Dwyer, who is chair of Tabcorp; Stephen Fitzgerald, who is ex-head of Goldman Sachs Australia and is a member of the Future Fund; Tony Gill, who is the chair of AFG group, the largest mortgage broker in Australia—

CHAIR: All right. I have got the point. What has this got to do with the price of eggs?

Mr Medcraft : The point was the advisory skills we have from the market to ASIC. We meet with this group of people every quarter to talk about what is happening in the market and get their input. It is quite important and that is why—

CHAIR: Do each of those groups you have just identified meet separately with the entire set of commissioners or do they report to the commissioners through a particular commissioner?

Mr Medcraft : The external advisory panel meets with all the commissioners.

Mr Price : The other groups.

Mr Medcraft : The other groups, depending on—if it is markets, it would meet with John and Cathie; if it is consumer, with Greg and with Peter; and then I will try and move between different ones.

CHAIR: So the external advisory panel meets with the full set of commissioners?

Mr Medcraft : Correct.

CHAIR: How often does it meet?

Mr Medcraft : Every quarter.

CHAIR: Once a quarter?

Mr Medcraft : Yes.

Mr Kell : And there is overlap between that external advisory panel and some of the other committees.

Mr Medcraft : For example, Ian Silk, the head of AustralianSuper, is a member of our advisory panel. Andrew Mohl, the ex-head of AMP, is on the panel. Andrew Love, who is an insolvency expert, is on the panel. Jennifer Hill, Professor of Law at Sydney university, is a member.

CHAIR: So you say to us that you are widely tapped into the various subsectors of the market?

Mr Medcraft : Yes, and I think it is important. As I say, I have expanded it, but it is also important to make sure that you rotate it and keep making sure that it is fresh. In addition to that, when the members roll off the panel, we bring them in once a year—those that have been on—to keep the connection. The people that are on the panel advise us, but they are also ambassadors for ASIC because they actually understand what we do and they reach out to the broader business community. It is a really important panel, in addition to the other panels we have that are more specialised.

CHAIR: There have been many complaints made to the committee about ASIC's failure to act on reports of wrongdoing, or slowness in responding. We had that discussion last time you were here. Does ASIC now have a strategic intelligence function at an organisational level?

Mr Medcraft : We do. It is something that was created under my chairmanship. We have a strategic intelligence unit that is run by Mark Adams. He is currently seconded to the financial system inquiry, but normally it is run by Mark Adams.

Mr Kell : We have an emerging risk committee.

Mr Medcraft : We have an emerging risk committee, if you want to have us talk about that.

Mr Price : The idea of the emerging risk committee is to provide an extra degree of, I suppose, overlay and certainty around the commission that we are picking up key risks, very important risks—for example, systemic risks—that might go to the normal operation of the financial system, or indeed risks that would broadly affect particular products or particular sectors. That is an overlay, because the senior executive leaders who lead the various industry based teams at ASIC have a direct responsibility for managing risk within their particular sector. But this group is meant to look right across all the regulatory activities that ASIC does. We use a range of information to try and draw out any emerging risks that might be on the horizon. To give you an example: we get reports on macro-economic and financial developments overseas so we can consider what impact that might have on the Australian market. We get regular information about regulatory issues that are occurring internationally, because in some ways Australia is actually a follower of some of these trends. That means we can learn and adapt from what has happened overseas, and perhaps high-frequency trading and dark pools are a good example on that point.

CHAIR: Let's stop there. Are you satisfied that that combination of the revamped strategic intelligence function and the risk analysis committee would alert you pretty quick smart to the sorts of problems that became major problems in Commonwealth Financial Planning, for example?

Mr Medcraft : I think that type of problem probably comes from a combination. I think you have to make sure your strategic intelligence unit may identify a sectoral problem, but equally it is important that your strategic intelligence is connecting the dots back to your stakeholders, surveillance and enforcement. So the two come together and you go: 'Right, we've got a problem here. We've got to pursue it.' I think you have to make sure the two are working together well. That is why, if you want, sometimes the combination of the strategic intelligence, the risk committee and the specific stakeholder team is actually quite important, the central point being the emerging risk group that we have. It is really critical for making sure that it is all working together. That is why one of the things I was very keen to do as chairman was to get the emerging risk committee working. It basically makes sure the dots are connected.

CHAIR: Are you satisfied that it is now achieving your purpose?

Mr Medcraft : Yes—

Senator WILLIAMS: Or will it achieve your purpose?

Mr Medcraft : It is a very important control to see what is on the horizon. Mr Price, do you want to comment?

Mr Price : To unfortunately borrow from Donald Rumsfeld, there are always unknown unknowns that you will look back at with the benefit of hindsight and think, 'Perhaps we could have done things differently.' I think the important point with the emerging risk committee is that it provides an added level of assurance and an added level of connection of various useful information across the agency to try to pick trends that may not be as obvious if you are particularly focused on one area. In my own opinion it does make a difference. Is it going to stop all collapses in the market? No, it is not.

Mr Tanzer : I am not sure it is directly to your point but, with reference to CFP, we also have heightened and much more immediate reporting of whistleblower complaints and larger volume complaints where they relate to a particular entity.

Mr Medcraft : It is important to foster a culture where you are looking on the horizon to see what is coming down at you. I think that a really important culture if you are a regulator is trying to look and see, perhaps overseas or domestically, what is on the horizon, what is coming down at you.

CHAIR: I was not really talking about emerging trends of behaviour. If you go back to CFP, Mr Nguyen and the other clowns who were playing around there, that was just out and out fraud.

Mr Medcraft : Sorry, what I am saying is it is not just about emerging trends; it is actually identifying where there is something going wrong and being able to jump on it.

CHAIR: That is what I was talking about, yes.

Mr Medcraft : I am talking about the same thing. We are on the same page. If it is not being reported to you by misconduct and breach reporting then, essentially, you have to try as much as possible to detect inappropriate behaviour in the system that you are actually running. So I completely agree.

CHAIR: All right. And you are satisfied that that combination of committees and their interconnection would alert you to that gross fraud going on at a systemic level in particular companies?

Mr Tanzer : Together with the heightened awareness around whistleblowing complaints and analysis of the reports we receive.

Mr Medcraft : The issue is that, with the resources we have, we believe the level of resilience we have is the best we can achieve. That is a level of resilience in the system.

CHAIR: All right.

Senator WHISH-WILSON: Mr Medcraft, I have a few quick questions about Mr Wheeldon's evidence. I do not want to get in a situation where we have he said, she said, because you both clearly said fairly different things. I was wondering if you agreed with his assertion that the financial calculators were used as marketing tools for the sale of products by financial institutions.

Mr Kell : Online calculators? No, it is a condition of the class order relief provided to superannuation funds that the calculators are not used to market particular products and that they must spell out the assumptions that are underpinning the calculations and the clear limitations of the calculators are also set out. We take that very seriously. It is also the case that firms providing these calculators to their fund members have to satisfy the ASIC Act requirements not to mislead or deceive. So we do not believe they are being used as marketing tools in that way. In fact, how we see them being used generally is as very useful tools to help consumers provide a guide for themselves about the sort of amount they will end up with in retirement.

Senator WHISH-WILSON: Was there lobbying by financial IFSA, as it was called at the time, to issue a class order that would amend the Corporations Act so that IFSA's members could offer online calculators that did not comply with the act's reasonable basis for advice standards, including that members did not have the obligation to include fees in their online calculators?

Mr Kell : There were certainly concerns raised by what was then called IFSA, as there were by other members of the superannuation industry about this issue. To reiterate: this was an unforeseen and unintended consequence of law reform that was introduced in 2001 and implemented in 2002. It clearly applied to all super funds, not just members of IFSA, and our relief was universally applied to every single superannuation fund right across the sector—big, small, whichever industry association they happened to be a member of, whether they were an industry fund, retail fund or whatever. So that is the first point to make.

With regard to your second point about fees: ASIC was not completely directive in terms of how the calculators should be constructed, so we did not require fees to be set out in a particular way. In some cases there may be a separate field for fees or calculators might present, say, a rate for investment earnings that is net of fees. The calculators that I see generally do include a provision for fees; but, if they do not, that has to be very clearly spelt out as well. But, again, that applies to IFSA members, non-IFSA members—to every superannuation fund across the industry in terms of the calculators they want to present and use.

Senator WHISH-WILSON: Are the calculators designed to allow people to understand how the fees operate in terms of the products that are being sold to them?

Mr Kell : The calculators do not generally relate to a particular product. That is one of the key issues here. They are generic calculators to give people a sense of how much they might end up with in retirement. Are they on track? What would happen if they started to contribute, say, an extra $20 a week more or something like that? But we do require them to set out very clearly what the elements of the calculations are. We find that that is generally done in a way that it does help people to understand the different factors that come into play: the return that they are getting, how their wages might grow over time, the fees that might be applied, and so on and so forth.

Senator WHISH-WILSON: I understand that Mr Wheeldon made representations internally about concerns over conflicts of interest in relation to this matter, which of course are on record and you have addressed that. Are you aware that any of those are on file currently with ASIC? Could you produce them for the committee?

Mr Kell : I am not quite sure what you are referring—

Mr Tanzer : Senator, if what you are referring to is, 'Do we have on file an agreement with the relevant officer, the secondee, and does it include an acknowledgement that he will not do any work that relates to his employ,' yes, we have that.

Senator WHISH-WILSON: In relation to the issue that Mr Wheeldon raised while he was working at ASIC about potential conflicts of interest, do you have records of the concerns that he raised?

Mr Medcraft : We will take it on notice.

Senator WHISH-WILSON: Could you take that on notice, because—

Mr Kell : Could I just make a point about the conflict of interest? It is difficult to have a conflict of interest when the decision applies universally to every entity in the industry. The conflict was about applying some sort of special deal or special favour to a particular part of the industry vis-a-vis the rest of the industry. That was not the case with this decision. It applied to every single fund in the industry equally.

Senator WHISH-WILSON: In relation to the explanatory statement to the class order that ASIC issued in relation to this being a disallowable instrument, which is another thing that Mr Wheeldon raised with the committee, could you provide a copy of that for the committee as well, please? And could you tell us who signed off on that?

Mr Kell : It is a public document. We are happy to provide that. It was a document that was flagged at the time by the then government as something that ASIC would be looking at, that ASIC should be ensuring that these online calculators could continue to be provided to ordinary superannuation fund members, and that ASIC would potentially provide legal relief to do so. We executed a class order to allow that to happen. It was a very necessarily public process following normal procedure.

Mr Medcraft : To assist millions of Australians.

Senator WHISH-WILSON: Do you think the way that financial calculators were set up and the way they operate now, the generic ones we discussed, effectively captures the reforms that have happened since these calculators were set up? There was a class order in 2005. Is that correct?

Mr Kell : Yes. They can still be provided to consumers. The FoFA reforms did not affect the ability of super funds to provide calculators. That was an inadvertent element of the law reforms that were introduced back in the early 2000s.

Senator WHISH-WILSON: To put it a different way: are the calculators now exempt from FoFA? Would that be another way I could ask the question?

Mr Price : They are not covered by FoFA.

Mr Kell : Calculators are not captured by the personal advice rule.

Mr Medcraft : Allowing the calculators to be offered was helping a better consumer outcome, so that people could actually calculate their projected super. That was the fundamental reason that we—

CHAIR: The issue with the calculator is the inclusion or the exclusion of the fees when you are working out the calculation. Isn't that it?

Senator WHISH-WILSON: I think the main issue that was raised was the lobbying that occurred to make it easy to remove or not disclose fees in these indexed projections. I will hand over to the other committee members if they want to—

Mr Medcraft : The requirement by the relief was that they have to do state all their assumptions and keep their calculator correct.

Mr Kell : That is right.

CHAIR: So, if an online calculator discloses, in readable font size, that it excludes issues relating to fees from all calculations, it has satisfied the regulation?

Mr Kell : It has satisfied the relief—that is correct; if it is spelt out very clearly—

CHAIR: And that was the intention of the regulation—

Mr Kell : There is nothing that says, for example, that any particular calculator has to include an assumption about someone's growth in wages or an assumption about a particular fee level or an assumption about the returns over time. These are the things that need to be spelt out as to how the calculators work in practice to give that general estimate of how people are going to end up in their retirement, and the limitations as well must be set out in relation to the calculator.

Mr Medcraft : And most importantly, Mr Chairman—

Mr Kell : It cannot be misleading and deceptive.

Mr Medcraft : it cannot be misleading and deceptive. I suppose one other point: if someone were to consider purchasing a product, the law requires that product issuers clearly disclose the fees and charges that the consumer pays in that respect.

CHAIR: The point here is that those calculators that do not disclose that level of fees and the other matters you mention—(1) they are permitted; (2) it was intended that they be permitted; and (3) they are characterised as marketing tools as opposed to calculators.

Mr Kell : Not marketing tools. If you go, for example, to choose a website, a super fund, at random, but a rather large one, rest. Front page, front and centre, top of the front page: 'consumer tools and resources'. You tap on that and it takes you immediately to a set of calculators to help you understand how you are going to end up in retirement in broad terms. So they are educational tools rather than devices to give you a precise estimate, to give you a rough guide to help you start thinking about planning for your retirement.

Mr Medcraft : Yes. I have used them; I think they are a good idea.

Senator WHISH-WILSON: Could you remind me again: what was the issue around the lobbying from the IFSA at the time relating to how this was going to be structured?

Mr Kell : The issue of the lobbying was that there was a concern by that association and a range of other superannuation funds and industry associations that they would not be able to provide the calculators full stop because they were unintentionally caught under the personal advice requirements of the law as a result of the law changes. What that would have meant is that, instead of being able to use a calculator, go online to your super fund, get an estimate of what you might end up with given your current calculations in a free and easily accessible form, you would have to go and see a financial adviser and pay for personal advice. That is not a particularly sensible outcome.

Mr Tanzer : You would have to get a statement of advice; you would have to give a full fact find, thereby negating the purpose of the calculator. The calculator itself—in fact I think Mr Wheeldon referred to the AMP calculator as being a calculator that he thought was very useful, which calculator would not exist today were it not for the relief.

Mr Medcraft : This was aimed at helping millions of Australians.

CHAIR: Yes, we—

Mr Medcraft : This was a consumer driven outcome.

Senator WHISH-WILSON: Sorry, gentlemen, I am having trouble hearing all the different responses. Could one person please speak at a time?

CHAIR: I beg your pardon?

Senator WHISH-WILSON: I am sorry—I am hearing multiple voices.

CHAIR: That is unfortunate that you are down in Tasmania; that is a consequence of being in Tasmania.

Senator WHISH-WILSON: It is not the only consequence, Chair.

CHAIR: I am afraid it is the major one. You know as well as we do, Senator, how committees operate, and senators and witnesses interrupt each other.

Senator WHISH-WILSON: Yes.

CHAIR: You have been in enough committees to understand that. Now, do you have further questions on this issue?

Senator WHISH-WILSON: What is your point, Chair?

CHAIR: Do you have further questions on this issue, because if you don't, we don't.

Senator WHISH-WILSON: You do not have any further questions on this issue?

CHAIR: No. So I am asking: do you have further questions on this issue?

Senator WHISH-WILSON: No, not for now.

CHAIR: No, not for now, not forever. We have come to a conclusion on the Wheeldon matter, unless you have further questions.

Senator WHISH-WILSON: I will put them on notice, Chair.

CHAIR: That is fine.

Senator WHISH-WILSON: But I do not appreciate your smart-arse comment about me being in Tasmania, either.

CHAIR: Bad luck: you chose not to make yourself available.

Senator WHISH-WILSON: No, I am making myself available but cutting my emissions and—

CHAIR: And you understand how these committees work because you come to enough of them.

Senator WHISH-WILSON: my taxpayer costs. Thank you.

CHAIR: I beg your pardon?

Senator WHISH-WILSON: I am cutting my emissions and my taxpayer costs, Chair.

CHAIR: Yes, we noticed your seven per cent vote down in Tasmania.

Mr Tanzer : Subject to any questions that Senator Whish-Wilson wants to put on notice, I understand that the committee has come to the end of what evidence it would like to hear from ASIC about this particular matter. However, I did want to make the point that, firstly, if it would assist the committee we are very happy to provide any material in writing to confirm what it is we have said today—indeed, any evidence in whatever form you would like, because the allegations that were made here were especially strident. A witness referred to the issuance of the class order being 'tainted by corruption' and the explanatory statement of the class order being 'deliberately misleading and contemptuous of parliament'. He referred to a number of ASIC officers by name in that context. That claim has been made under parliamentary privilege and, as a result, has also been published nationally following on from that.

That is obviously regrettable, particularly if the committee were to form the view, as I have, that there is very little or no evidence to support those core allegations of corruption or deliberate misleading activity or contemptuous activity. It is not just unfortunate for the officers concerned or for ASIC, but I think it really causes a problem for the accountability that this whole process is about. It troubles me greatly.

CHAIR: Mr Tanzer, if you are requesting advice, my advice as chair of the committee is for you to go through Mr Wheeldon's evidence and submission, line by line, and if there are any matters that you disagree with or that come within the broader description you just outlined to the committee then you or the organisation should respond in detail so that we have Mr Wheeldon's full set of assertions and your full response. Only when we have your full written response can we come to a valid conclusion. That would be my advice.

Mr Tanzer : We are very happy to do that. That was in fact the first thing I wanted to say: that we can provide that sort of written material. My question—

Senator WILLIAMS: Get it off Hansard and go through it.

Mr Tanzer : That is what we have endeavoured to do today but—

CHAIR: We appreciate Mr Medcraft's couple of pages of comments in his opening statements, but I am now suggesting, Mr Tanzer, that a full line by line commentary or rebuttal of Mr Wheeldon's comments in their entirety from your organisation's perspective would be of value because then we would have a full set of arguments on both sides, we can weigh that and come to a conclusion.

Mr Tanzer : Certainly, and that is very useful. If that would help the inquiry come to a view—

Mr Medcraft : I think we have got—

CHAIR: Have you got the point yet?

Mr Tanzer : But, equally, you also mentioned the idea of some sort of independent review. If that was what you—

CHAIR: Mr Tanzer, I have given you advice.

Mr Medcraft : Sure. We will take your advice or your requests.

Senator WHISH-WILSON: That was certainly something you mentioned—presuming you were chairing last week's evidence—that the committee might consider. I thought it was important to ask about the underlying facets of what was being asserted rather than the individual aspects of it and that was relating to the calculators and why there were lobbied for et cetera.

Mr Kell : That is all clear. We know what you want.

CHAIR: Thank you, Senator Whish-Wilson.

Senator WILLIAMS: I want to ask some questions on Macquarie Private Wealth. I do not want three people to answer where one starts to answer, another tosses a bit in and another tosses a bit in. I will think you are filibustering and the next thing we know—

Mr Medcraft : We are not filibustering.

Senator WILLIAMS: In ASIC's view, what was the largest failing of Macquarie Private Wealth?

Mr Medcraft : Ms Bird, would you like to answer that?

Senator WILLIAMS: The question is: in relation to the enforced undertaking it put on Macquarie Private Wealth, in ASIC's view what was the largest failing of Macquarie Private Wealth?

Ms Bird : It had systemic failings of compliance and it had a poor compliance culture.

Senator WILLIAMS: Did these failings result in widespread incidents of clients receiving inappropriate advice?

Ms Bird : Yes. Well, actually, it is unlikely that many clients are worse off financially because of what happened. This is more a case of a lot of poor record keeping. But the process of determining whether the advice was inappropriate and whether people lost money is underway.

Senator WILLIAMS: How many clients were impacted by this bad advice et cetera?

Ms Bird : I would have to take that on notice. I suspect that is a matter that is still being determined.

Senator WILLIAMS: So do you have that number, or would Macquarie Bank be volunteering the number of how many clients would be affected?

Mr Kell : It is part of a process.

Ms Bird : It would be part of a process in finding out how far they have to go back. They have been told to go to a certain date but if their advisers have problems in that period they have to go back even further. So it is a process that is still ongoing.

Senator WILLIAMS: Who in ASIC has the oversight of this? Is it you, Ms Bird? Are you representing ASIC and keeping an eye on this whole Macquarie Private Wealth revamp?

Ms Bird : I job share my role with someone else. That person has the primary responsibility for this.

Senator WILLIAMS: Is it the case, since 2006, that you are supposed to have a statement of advice when seeking financial advice?

Ms Bird : Yes, if you are seeking personal advice. I will just clarify: for personal advice to retail clients you would need a statement of advice. There are some limited exemptions to that requirement.

Senator WILLIAMS: I put it to you that 95 per cent of the retail clients at Macquarie Private Wealth did not have a statement of advice. Will you check that out?

Ms Bird : Certainly. It is clearly one of the failings. As to a percentage, I would need to check that.

Senator WILLIAMS: Those who did have it received a two-page short-form document based on falsified or zero information. The point I am making here is that we have certainly taken a stick to CFP, and they have shed some bark. I think Macquarie Bank is as bad or worse than Commonwealth Financial Planning, but they seem to be dodging a bullet around here. That is my attitude. When we take in camera evidence you will understand more why.

Mr Medcraft : I refer to my comment earlier that culture counts. Culture is important, but we can go into private session.

Senator WILLIAMS: There is something else that I want you to look at in this whole thing. I want this on the public record. To be a wholesale investor you have to have $10-plus million?

Ms Bird : There are a number of different tests that would determine whether you are a wholesale investor. There are tests around the value of the assets you are buying, tests that relate to the person's income and assets, and tests that relate to whether somebody is sophisticated and knowledgeable and whether they understand the market. There is, in fact, recognised legal uncertainty, I suspect, about—

Senator WILLIAMS: There is something I want you to look at. I am of the belief that the Macquarie put many of their investors into wholesale in order to dodge FOFA regulations.

Ms Bird : I am aware of the issue and I would really much rather talk about it in camera.

Senator WILLIAMS: That would be fine. Do you have a review, about every 12 months, of Macquarie Private Wealth?

Ms Bird : Do you mean as part of the EU process or prior to the EU process?

Senator WILLIAMS: Prior to the EU process.

Ms Bird : No. The market participants team might have gone into Macquarie Private Wealth on a regular basis but—

Mr Medcraft : We deal with Macquarie across a number of different stakeholder groups and undertake surveillance across a number of different stakeholder groups. You are talking simply about Macquarie Private Wealth—is that right?

Senator WILLIAMS: I am talking specifically about Macquarie Private Wealth.

Mr Medcraft : Macquarie Private Wealth would be basically—

Ms Bird : We do not—

Mr Kell : It would be different at the moment because as part of the EU the independent expert has to report formally to ASIC at least five times over the two-year period. Those reports are due at least every six months, and we have more regular dialogue with the entity around how that EU is progressing.

Mr Medcraft : I think the question was about pre the EU.

Senator WILLIAMS: Yes.

Mr Medcraft : Pre the EU they would have fallen under our general surveillance program, which would have been both reactive and proactive.

Ms Bird : Yes. We do not have a program of going into any particular licensee on a mandated basis. We do proactive thematic work around a particular issue or we do reactive surveillance in response to complaints and market intelligence that we have received. Quite frankly, we do not have the resources to go and see everybody all the time.

Mr Medcraft : But, on that question, we possibly could come back pre the EU to give some indication of the sort of surveillance we did on Macquarie Private Wealth. Joanna?

Ms Bird : We could certainly find the records for that.

Mr Medcraft : Yes. So we could take that on notice. I think, pre the EU, they would have come within our proactive surveillance.

Senator WILLIAMS: But super funds have to have a minimum of $10 million to be wholesale; is that correct?

Ms Bird : No.

Senator WILLIAMS: It is not?

Ms Bird : That is an issue on which there is significant legal uncertainty. That legal uncertainty has been publicly recognised by the government in the options paper that they put out about the wholesale-retail distinction. That was a policy paper which set out where that line should be drawn, but at the end it recognised that there was significant legal uncertainty about the particular issue that you have raised.

Mr Kell : But, Senator, the point you are making, which I think is the point you made a few minutes ago about firms who inappropriately seek to categorise clients as wholesale rather than retail and therefore those clients are not offered the same level of protection, is, as I think Ms Bird indicated, one we are aware of but would prefer not to discuss publicly at this point.

Senator WILLIAMS: I just got a message—someone is watching! 'Super funds have to have $10 million to be wholesale. It's black and white.' That is from a financial planner. But, anyway, I will not go on. You might take it on notice.

Mr Medcraft : Just to clarify, because I know this particular issue myself—John, do you want to comment? Because there is a particular issue with it.

Mr Price : Treasury put out a paper on reforming the distinction between wholesale and retail clients, and it specifically acknowledged that there was real legal uncertainty around this question.

Mr Medcraft : There is an issue with the self-managed super fund, about whether the fund is a wholesale investor or not. Isn't there an issue there, as I understand it?

Ms Bird : Yes.

Mr Medcraft : What is that issue?

Senator WILLIAMS: What is the story with self-managed super funds—wholesale or retail?

Mr Medcraft : Yes, that is the issue.

Ms Bird : There is a significant legal debate as to whether the threshold is the $10 million one that you have referred to, Senator Williams; and, as John just said, in January 2011 the government chose to publicly recognise that significant legal uncertainty.

Senator WILLIAMS: Right.

Mr Medcraft : So it is a bit unclear whether it is $10 million or it is the normal or wholesale jurisdiction.

Ms Bird : With the lower option.

Mr Medcraft : That is unclear.

Senator WILLIAMS: I have a couple of questions. I will have more in camera. Was ASIC aware that Macquarie Private Wealth had audited their own advisers?

Ms Bird : Had audited?

Senator WILLIAMS: Yes—their own advisers.

Ms Bird : I would have to take that on notice.

Mr Kell : In the lead-up to this? Yes.

Senator WILLIAMS: Yes. I have been informed of fail rates of over 80 per cent in 2008-09, where advisers self-selected their files to be audited; fail rates of over 66 per cent in 2010-11 for compliance selected files; and fail rates of over 90 per cent in 2012-13 for compliance selected files. This is Macquarie's self-auditing. Should these findings have been reported to ASIC?

Mr Kell : Without going into a lot of detail, those were some of the matters that contributed to us entering this enforceable undertaking with Macquarie.

Senator WILLIAMS: Good. I will ask more questions in camera on that issue, Chair.

CHAIR: We will have a short break for a private discussion.

Proceedings suspended from 18:18 to 18:36

CHAIR: Senator Xenophon, you want to ask some questions about what is known as the boiler room scam. Is that correct?

Senator XENOPHON: That is correct. Thank you to ASIC for appearing. Firstly, does ASIC have any estimates of the amount of losses by Australians each year to overseas cold calling or investment scams?

Mr Day : It is a very difficult question to answer, but the only data in the last little while was on the back of a piece of work that was done through what was called Task Force Galilee, which was a multiagency piece of work with ourselves, the Australian Crime Commission and others. In that report, which was released in 2011, there was an advisedly conservative estimate by the Crime Commission that they believed it was potentially a type of scam that related to about $110 million.

Mr Kell : It tends to vary widely from year to year. The major losses were incurred in the cold calling scams in the late 1990s up until about 2000. Our estimate at that stage was that that was a very widespread scam, involving about $400 million. There has not been anything of that scale subsequent to that, but occasionally major outbreaks will occur that generate losses in the tens of millions of dollars. We have found in more recent years that some of the more significant losses have occurred outside of the investment space, in areas that are unrelated to financial scams.

Senator XENOPHON: Just further to that, is there scope to be more accurate or to monitor these scams? There seems to be a certain vagueness as to the extent of these scams. Is there scope to pinpoint how much is lost to a greater degree than we do now?

Mr Day : As the Crime Commission pointed out in its report of 2011, one of the reasons why it is difficult is that there is a view—and it is one we agree with—that there is a high level of underreporting, because the people who become victims of these scams become quite embarrassed. That said, when a scam has been identified, we now work very quickly and very closely, with the benefit of information from AUSTRAC, with ADIs in Australia. We alert them to the nature of that scam and the bank accounts involved so that it prevents further losses.

We have also asked ADIs to inform us of what level of customer deposits or transfers have been involved in that. They are under no compulsion to do that. Some of them have indicated to us that, in fact, collecting that data is difficult for them, so we have had some trouble with that. But the workings of Task Force Galilee and other work with the Crime Commission have seen us try to develop a process so that we could get better reporting.

Senator XENOPHON: I have a number of other questions, so I will move on. In relation to the level of underreporting, has ASIC given consideration to publicity campaigns and advertising campaigns to let people know that they should not be embarrassed and to encourage them to come forward?

Mr Day : Again, in 2011, when the report was released by the Crime Commission, in fact the Crime Commission, with the assistance of Australia Post, sent letter out to virtually every Australian household about that issue, and the reality is that that had no impact at all on increased reporting to us or to other law enforcement agencies about cold-calling. There was a very large media push at the time. Thankfully, victims came forward to give their own personal stories. Those personal stories are also reproduced on our website MoneySmart, and even despite all of that the level of reporting remains relatively low. Again, it really depends. If there is a new scam operating, we will get a very minor amount of reporting.

Mr Kell : We do regularly issue media releases alerting people when there are current scams. For example, we have recently seen a scam involving offers of loans that are actually fraudulent. We put out a warning about that. When the major cold-calling scams happened back in the late 1990s, we put out 18 releases in the space of about two or three years and attended investment expos, seniors groups and whatnot. So it is something where we aim to get out and inform the community, and we also work with a wide range of other agencies in this area, such as the ACCC and state and territory fair trading departments.

Senator XENOPHON: If I could get on notice some further details on that, that would be useful. In relation to funds lost to what I think are called boiler room scams, how much has ASIC actually recovered for investors who have been defrauded? I am happy for you to take that on notice if that would help.

Mr Kell : The short answer is very, very little, because typically the money gets sent offshore, but we can take that on notice.

Mr Day : Just to give you some more information about that, we have done some very close monitoring in the past of a targeted account where money was being sent, and what we could see was that that money was being cleared on an hourly basis and forwarded to other accounts in other jurisdictions and then forwarded again. The money moves exceptionally quickly, so being able to even trace where those funds go is virtually impossible.

Mr Medcraft : But it will come back to the extent to which we have recovered.

Senator XENOPHON: To what degree, if at all, does ASIC use AUSTRAC to help identify potential boiler room scams and limit the potential losses by Australians?

Mr Day : We use AUSTRAC extensively. In fact, AUSTRAC itself has typologies and certain forms it uses to identify potential transfers to boiler room accounts offshore, so it is doing active monitoring itself and then will provide that information to us.

Mr Medcraft : As we said earlier, there is also very good cross-agency support with the Crime Commission.

Mr Day : Absolutely. The Crime Commission also has worked with AUSTRAC about that. AUSTRAC and we speak regularly to deposit-taking institutions right across this area and have run and facilitated a number of forums, and so has the Crime Commission. We use AUSTRAC again once we are aware of an account to try to identify that and then inform ADIs of the problematic account. There is a real tension there, though. We want to prevent further losses, because, as you are probably aware, the longer that scam and that bank account are live and not declared, the more money will flow through that account. So our first step is to identify that problematic account. We identify it on our website. We know that the scammers watch our website, and so it has been quite effective for us. The minute we put the details of the bank account on our black list on our website, that bank account is effectively not used again and they move on very quickly.

Senator XENOPHON: I have had a constituent who has come to see me about the Brinton scam back as far as 1999. I note that there have been a number of submissions on these boiler room scams—I think submissions No. 91, No. 95 and No. 167. My understanding is that ASIC knew of the Brinton scam back as far as 1999. Would that be right?

Mr Kell : That is correct.

Senator XENOPHON: What my constituent tells me is that no action was taken until 2001 by ASIC against the operators of the Brinton Group scam. Is that a fair comment?

Mr Kell : No. Let me just outline some of the actions we took in relation to Brinton and a range of other boiler room scams that were occurring at that point in time. When we became aware, in early 1999, of a sudden increase in complaints and losses in relation to these boiler room scams, we immediately started to alert the public. We issued a range of media releases and sought publicity around warning people about these scams. That was one thing that we immediately sought to do—as I said, attending investment expos and senior organisations. We released 18 media releases and subsequent publicity between then and early 2002.

We also started to work closely with overseas authorities—in Thailand, in Hong Kong, in North America—to encourage them to take action and to assist them. We worked with other law enforcement agencies in Australia so that, when the well-known raids were conducted on Brinton and Benson DuPont Capital Management in Thailand, the Thai authorities publicly stated: 'The raids were conducted as a result of investigations following complaints from the Australian Securities and Investments Commission'. So we undertook a range of quite active cooperation with those organisations.

We also obtained statements from Australian victims to assist the Thai authorities to take the actions that they did. We took action also at that stage in relation to a range of other jurisdictions where boiler rooms were targeting Australians at the same time, including Singapore, the Philippines, Indonesia and Hong Kong, and there were raids carried out in those countries. While it was very difficult for us to do anything domestically, we did in one instance manage to take action against someone involved with these scams who visited Australia briefly. I am sure Senator Williams would like this, but we actually ripped him off the plane as he was on his way out of the country, and he was subsequently charged and sentenced for various offences.

We also shut down part of this very sophisticated scam which was local referees, for want of a better phrase, whose only presence in Australia was a virtual office. Part of the scam was saying, 'If you don't quite trust us, ring this other person locally who's made a lot of money.' That would go through this virtual office and then be redirected back to the scammers overseas, without the investor's knowledge. We shut down some of those operations. Those are a range of things we undertook at the time. What we could not do, broadly, was take action to obtain money back. I might ask my colleague Tim Mullaly to just comment on that.

Senator XENOPHON: My question was: when did those raids take place? The complaint put to me by my constituent was that, from his point of view, no action was taken until 2001. That may be defined as raids taking place. When were those raids in Thailand?

Mr Kell : The raids took place in mid-2001. As I am sure you appreciate, Senator, we cannot conduct raids in another jurisdiction. Those raids were conducted by the Thai authorities. We worked as hard as we could over a period of time, as part of a set of actions that we were engaged in, to help, assist, encourage—whatever word you want to use—the Thai authorities to shut down these operations. We were working assiduously from well before that to encourage the Thai authorities—the Thai Securities and Exchange Commission and the Royal Thai Police—to take those actions which they did in mid-2001.

Senator XENOPHON: I appreciate your answers. It would be helpful to me, on behalf of my constituent, to establish a time line of when you began investigating it, which I take it would have been early 1999, and when you consider you had enough evidence to be able to pursue the perpetrators further and what the delay would have been between you giving that information to the Thai authorities and the Thai authorities actually acting. If you could take that on notice, I would be very grateful.

Mr Day : We can. Something that needs to be cautioned here is again, as you can see, these are things from 10 years ago. In a way, those investigations were the start of a learning process for us about the appropriate way to tackle what are invariably called cold-calling scams or boiler room fraud.

In fact, Brinton was slightly different because for once there was someone in this jurisdiction, as Commissioner Kell has pointed out. More often than not, in fact in most cases, there is no-one in this jurisdiction at all. They are invariably, as the Crime Commission report says, in countries in Asia. They are operating on voice over internet protocol phone calls—virtually impossible to track—and these things move very quickly.

What we have learnt, and this has been endorsed by the Crime Commission, is that the best approach is at the earliest point to disrupt these scams, and we do that by publishing the details of the website, the details of the players as best we know and their bank account. What we know is that this is extremely successful in preventing further harm, further losses to Australian investors—and overseas investors, because often these things will be retold through the IOSCO fraud alert portal as well. Other countries will pick that up and retell that as well. Scammers, as I say, are watching that portal and it will stop that activity straightaway. That causes significant disruption. So our timeliness in this space is extremely quick. What we do know, though, is prosecution is invariably impossible in this space.

Mr Medcraft : We will come back to your question on notice.

Senator XENOPHON: Sure. My constituent's grievance was that he sought assistance from ASIC for recovery of these funds. I understand, Mr Kell, that there was a letter to investors dated 18 July 2002 which said that legal action against the Brinton Group was not feasible. Is that accurate? Is the information I have accurate or not?

Mr Mullaly : In relation to that, as I understand it—and this has come up in a number of other matters of this nature as well—money ends up in bank accounts, sometimes for a very short period of time but sometimes longer, in Hong Kong. As far as we understand, and this is based on analysis that we have done of legal cases, we are unable to repatriate money from Hong Kong.

Senator XENOPHON: So that raises issues of what—jurisdictional cooperation?

Mr Mullaly : It is not so much cooperation. In a sense it is the law of Hong Kong that applies. So certainly we have had in other matters very good cooperation with the Hong Kong authorities. However, that does not change the fact that, if money is restrained there, we are unable to get it back. Perhaps an example in Australia is where we take proceeds of crime action under the Commonwealth legislation. That money cannot be paid back to the people who may have lost that money. In another matter where we did recover funds in both Singapore and Malaysia, we had proceeds of crime action for some money that we were able to trace back into a bank account in Australia, and that proceeds of crime action was successful but the money was forfeited to the Commonwealth.

Senator XENOPHON: What my constituent told me, and I think he spent a lot of time on this, is that he managed with a group of private individuals who were scammed in the Brinton scam to get the funds frozen in Hong Kong and he ultimately received some of the lost funds back, along with the group of people who worked together. I guess their complaint that has been put to me, and I want to put this fairly to you, is that they managed through their own efforts to recover some of the funds but they felt that ASIC was unwilling or unable to do so. That is the nature of the criticism. I wanted to put that to you so that you could have a chance to respond to it.

Mr Mullaly : I think perhaps the critical word that you used there is 'unable' as opposed to 'unwilling'. Our view and the view on advice that we received was that we were unable recover the funds from Hong Kong. That has been the case in other matters as well. As I say, we investigated another quite sophisticated cold-calling scam between January 2006 and March 2007 in which the perpetrators opened up seven different entities to undertake the fraud. In that matter we were able to freeze money in Australia and we were able to get people arrested in various countries, including in Hong Kong. We were able to recover some money from Singapore and from Malaysia but we were not able to recover the funds that were frozen in Hong Kong.

Senator XENOPHON: Can you please take on notice what the core of my constituent's complaint was, that ASIC said it was unable to get those funds from Hong Kong. He says that he and a small group of investors were able to freeze funds and get some of the funds back, so I am trying to understand why they could get it, and I do not understand what happened there but something does not add up to me that they managed to and they felt that ASIC could have assisted them more than it did.

Mr Kell : I am happy to explore that further on notice but there is a paragraph in the letter from however long ago it is now, 13 or 14 years, that I think sets it out very clearly. Currently the funds held in Hong Kong bank accounts are restrained as a result of action by the Hong Kong police. ASIC has received external legal advice from a legal firm in Hong Kong. We sought legal advice from a firm in Hong Kong. We also sought legal advice from an Australian firm. Both of those advices stated that ASIC has no standing to take civil or criminal proceedings in Hong Kong. According to the advice we received, the law in Hong Kong states that only the contracting parties to a contract—which might explain why your constituent was able to take action—have standing to initiate civil proceedings in Hong Kong. The Hong Kong courts will not enforce the criminal law of another jurisdiction, including offences under Australian law. I am happy to put that again in writing.

Senator XENOPHON: My final question is, does ASIC take advantage of existing legislation such as the external confiscation orders or mutual legal assistance requests to try and freeze funds and assist in the retrieval of funds transferred overseas to the operators of such scams?

Mr Mullaly : Yes, we do. As I say, in another subsequent fraud of this nature we did successfully repatriate funds from Malaysia and from Singapore. We will use whatever legal means are available to us to freeze those accounts, whether it be through IOSCO MMOU means, whether it be through mutual assistance in other ways. We do try and freeze the funds. As Mr Day has pointed out, one of the really successful things that we have undertaken is that through AUSTRAC we identify bank accounts, we are able to talk to the ADIs in Australia, tell them that we think money going from any of their clients to these particular bank accounts might be subject to fraud. That stops it at the front end and then we talk to our colleagues overseas about how we might be able to take action to freeze any money in the accounts. What people need to understand, and I think it is fairly common knowledge, is that the money is in the bank account for literally minutes or hours.

Mr Kell : It is very rare to even be able to identify money to freeze, let alone to be able to then retrieve it.

Senator XENOPHON: Okay. Could you take on notice the number of external confiscation orders or mutual legal assistance requests made in the relation to these scams over the past few years. That would be quite useful to me.

CHAIR: Thank you, Senator Xenophon. I want to go through a number of the individual submissions we received from aggrieved individuals. The secretariat has provided you notice of those. I will go through three or four at this stage and I will put the rest on notice. I think that might be better in order to give us a considered response. The first I want to talk to is about Ord Minnett submissions from clients. The allegation is that Ord Minnett stockbroking traded in high-risk options against the investor's profile, which caused the loss of money. Further, that, despite informing ASIC, it has not followed up the alleged wrongdoing by Ord Minnett. We have four or five submissions that make that generalised set of allegations. Could you provide us with some background of ASIC's involvement with the allegations about Ord Minnett trading in high-risk options against investor profiles?

Ms Armour : We did receive complaints about those matters which we did look at at the time. We found that, on most of the occasions that were complained about and were the subject of the submissions, the trading only occurred after instructions had been received from the clients. In a small number of transactions for two of the 11 client accounts received there may have been an issue. We did not find sufficient evidence to justify us taking action. We recommended to the clients that they exercise their rights against Ord Minnett. I understand from the submissions that there was some disquiet about the approach we took, because there had been an earlier matter involving Ord Minnett where we became a bit more involved. In fact, the people who were making the complaints about this particular trader were represented by the same legal firm who represented in the earlier matter, but the earlier matter was quite a significantly different matter. One hundred and thirty-three clients were affected by different individuals who had given inappropriate advice, in the formal sense of the word. We worked with Ord Minnett. We banned some advisers and worked with Ord Minnett to have a compensation regime. On this occasion, we just did not find the facts to support—

CHAIR: In this case you say that the trading involvement of Ord Minnett's trader was done consistent with written authorisation to so behave?

Ms Armour : We generally found that to be the case—yes.

CHAIR: But one or two exceptions?

Ms Armour : There were one or two exceptions. We took the view that we did not have sufficient evidence. We did not actually examine every file. We did not find sufficient evidence so that we could take action. We saw that the better process was for the individuals to deal with Ord Minnett.

CHAIR: Based on these complaints, ASIC did not conduct any formal surveillance or audit of the area?

Ms Armour : We actually went in and examined specifically the files of the people who were making the complaints. Yes, we did do that.

CHAIR: So you made a full examination of 11 files?

Ms Armour : Yes.

CHAIR: And in nine of them you found written authority—

Ms Armour : Yes. We examined 11 client accounts. In nine of them we found absolutely no problems. In two of the client accounts we found questions around a small number of transactions.

CHAIR: There is no suggestion that the authorisations in the client accounts were fraudulent or doctored in any way?

Ms Armour : We did not find sufficient evidence. I know there were some allegations made, obviously by the people who are unhappy about the outcome, but we did not find evidence that would lead to next steps of enforcement.

CHAIR: You are satisfied that the written authority for Ord Minnett to engage in that process was properly received?

Ms Armour : That was the conclusion that we came to: by and large, there was appropriate authority.

CHAIR: All right. In respect of Mr Catena, you have received a detailed set of questions concerning Mr Catena.

Mr Medcraft : Yes. Mr Savundra will—

CHAIR: We will leave those detailed questions on notice and ask you for a written response in due course, but I have a few other questions I want to ask now. Mr Savundra, on reflection, do you think there was reasonable evidentiary basis for proceeding to prosecute Mr Catena?

Mr Savundra : I do.

CHAIR: What discussions went on in both ASIC and DPP in arriving at such a decision?

Mr Savundra : We obviously work closely with the DPP, but the decision to prosecute is an independent assessment that the DPP makes. We put up a brief of evidence, and we would not refer a brief of evidence to the DPP unless we were satisfied that there was sufficient evidence to establish the contravention. In this case we were more than satisfied; we felt there was plenty of evidence to support the referral of a brief of evidence to the DPP. The DPP independently assessed that and formed the view that a prosecution was available.

CHAIR: Was outside senior legal counsel sought before or during the decision made by the DPP to initiate the prosecution?

Mr Savundra : I will take that on notice, but I would assume the answer to that is yes. It is almost always the case—at least one senior counsel, and it is often more than one senior counsel. But I would like to take that on notice just so I do not mislead you.

CHAIR: Understood. Could you explain the process of a section 19 examination and the reason for statements made during such an examination being made available to the CDPP.

Mr Savundra : A section 19 examination is a compulsory process. We serve a notice upon a person that we wish to speak to. They have to come in and, under the force of law, answer the questions we ask. Often we provide transcripts of the section 19 examinations to the DPP.

CHAIR: Are there any procedural safeguards in that process, or is it more of an inquisitorial process?

Mr Savundra : It is more of an inquisitorial process. There are safeguards in the sense that the person has the right to claim privilege against self-incrimination over the answer, but they have to answer the question. So the answer to the question cannot be used in evidence against them.

CHAIR: So, in this inquisitorial process under section 19, you can ask questions that would be ruled out of order in a court of law bound by the rules of evidence.

Mr Savundra : Not ruled out of order, but under section 19 itself, if privilege is claimed and the person who is being prosecuted is the person who has been examined under section 19 and has claimed the privilege, it cannot be adduced in evidence. So it cannot be put into the trial for consideration by the judge or the jury.

CHAIR: I see.

Mr Price : But they need to answer.

CHAIR: So you ask the question and they have to give a full answer.

Mr Price : Yes.

CHAIR: So you get the information, but it may not be led in court.

Mr Price : Correct.

Mr Savundra : That is right.

CHAIR: That is a useful process.

Senator WILLIAMS: What if they do not answer?

Mr Medcraft : It means that we can ask but it cannot incriminate.

CHAIR: So you know the answer.

Mr Savundra : We can prosecute them if they do not answer.

CHAIR: Yes. You have to ask, though.

Mr Price : We have to ask the question.

Mr Medcraft : But the most important thing is that it cannot be adduced in evidence against them.

CHAIR: I get the point.

Mr Medcraft : Is there anything you want to add, Mr Mullaly?

Mr Mullaly : There is one other protection, of course, which is that they can be legally represented at that examination. They can have their lawyer or counsel or both.

CHAIR: Did Mr Catena have counsel present?

Mr Savundra : I would have to take that on notice again, but it is often the case that a person of interest is legally represented. Just to add to Mr Mullaly's addition, they also have the right to claim legal professional privilege, and ASIC's position on that is that we will not press for an answer if they can establish a proper claim for legal professional privilege.

CHAIR: All right. When they are called in for a section 19 examination, are they formally advised that they may have counsel present?

Mr Mullaly : I understand the notice that is given out provides quite a comprehensive list of the legal rights that they have, including the obligation to answer, the right to claim privilege—that is, privilege against incrimination. The right to claim legal professional privilege is set out in the notice provided. A lot of that is run through in the preamble to the actual examination.

Mr Medcraft : The question was representation.

Mr Mullaly : Yes. That is set out. Those rights are set out in the notice, as I understand it.

CHAIR: Could you explain then to the committee the seniority of persons making a banning order and at what level in ASIC such action is considered?

Mr Savundra : The decision to ban someone is made by a hearings delegate. They are within our chief legal office. They are either at the EL2 level or the senior executive level.

CHAIR: EL2 is relatively junior, isn't it?

Mr Medcraft : No, EL2 is actually just below senior executive leader.

CHAIR: I understand the public service classification, but EL2, in my mind, is not a particularly senior person to be making banning orders.

Mr Medcraft : If you think about it—

CHAIR: It is a senior policy officer.

Mr Medcraft : A senior executive leader is somebody who runs a whole division and an EL2 reports to a senior executive leader. It is actually our most senior nonexecutive.

CHAIR: It is, but it is not an executive position. It is not SES.

Mr Medcraft : It is an executive level 2.

CHAIR: Yes, it is the most senior executive but it is not SES level.

Mr Medcraft : No.

CHAIR: It is a person who is on the way up.

Mr Medcraft : The group is overseen by somebody who is SES level, and that person—it is like anything—is overseen by the SES.

CHAIR: Your answer is either EL2 level or senior.

Mr Medcraft : Yes.

Mr Mullaly : I will just add one thing. The people who are sitting on our delegates panel are quite experienced. They are people who have been at ASIC and have had a lot of experience in these sorts of matters. They have had external legal experience. So, while they might be EL2, they are very experienced.

Mr Kell : It is worth noting that they are the people who are making the actual decision. In terms of making a decision to take that sort of enforcement action, to present that material to a delegate, that would have to be signed off by a commissioner.

CHAIR: Would it?

Mr Kell : Yes.

CHAIR: So the commissioner reviews the material, comes to the view that is worthy of detailed investigation—

Mr Kell : There is detailed investigation about how this matter is going to be dealt with, is it a banning, is it some other course of action—that sort of thing.

CHAIR: So you are saying that there is sufficient oversight to ensure that decisions are properly made and considered.

Mr Kell : It is a very serious decision and it needs to be considered—

CHAIR: In this case it was a loss of livelihood.

Mr Savundra : In this matter it is worthwhile noting that Mr Catena did seek to have the banning decision reviewed, that is of the ASIC delegate. It was upheld by the AAT, by the Federal Court of Australia and the full Federal Court of Australia.

Mr Price : The other thing to bear in mind just for clarity is that, while these people still work for ASIC they are independent of the unit that is referring the allegations.

Mr Medcraft : They are very independent.

CHAIR: The Minister for Defence, Senator Johnston, put a number of questions on notice possibly in the first half of last year about the Catena matter, and I am advised that they have not yet been respond to. Is that correct?

Mr Price : My understanding is that they were responded to by the Commonwealth Department Public Prosecutions, but perhaps we should take that on notice.

Mr Kirk : The have been responded to. They are on the committee's website.

CHAIR: What is the reference number.

Mr Kirk : I do not have that with me, but it was in June 2013.

CHAIR: They were responded to in June 2013. If you could let us know the reference number so that we could have a look at those in due course. This is on notice but you might be able to give me an indication. I am advised that there were initially four people involved in this matter, that a prosecution was initiated in the Magistrates Court in Victoria against one or more of the persons and that the matter was dismissed.

The magistrate or judge was quite strong in his language that there was no evidence or a limited amount of evidence that would warrant the matter going to trial in Victoria. Notwithstanding that, the same facts in terms of a different set of persons were the subject of prosecution in Perth, where there is no facility for a magistrate's hearing. Why was the decision made effectively to re-prosecute on the same set of facts with one of the original parties in Perth?

Mr Savundra : I do not think it is correct to say 're-prosecute'. I think the simple answer is that the evidence led in the matter of Messrs Catena, Hebbard and Nielsen—which was the WA action—was not the same evidence that was led in the McKenzie matter. For example, there were telephone recordings between Mr Catena and various persons. The prosecutions against the three individuals in Western Australia, which included Mr Catena, had already commenced at the time of the decision in relation to Mr McKenzie in Victoria. The decision of the magistrate in Victoria was carefully reviewed by the DPP and a decision was made by the director to proceed with the prosecution of the three individuals involved. It really is a question for the DPP, but we were certainly consulted in relation to that, and we agreed with the decision to proceed because the evidence was different.

CHAIR: You say that the additional evidence that was led in Western Australia was sufficiently material to warrant that, notwithstanding the decision of the magistrate in the McKenzie case in Melbourne.

Mr Savundra : That is right. I think it is worthwhile noting that one of Mr Catena's co-accused pleaded guilty and the court convicted. The court would not have convicted unless it felt there was sufficient evidence despite the plea. I guess there is further detail which I could give to the committee in camera if it would wish, in relation to the matter.

CHAIR: No; you have a set of questions on notice.

Mr Savundra : We are happy to answer those.

CHAIR: If you give us a written response, that is sufficient at this stage.

Mr Savundra : We can.

CHAIR: I am not competent to re-try the matter, which is what an in camera hearing would be.

Mr Savundra : It is worthwhile noting that there are a number of safeguards and a number of hurdles. Obviously, the matter was referred to the jury by the judge. The judge would not have referred it to the jury unless he or she felt there was adequate evidence available for the jury to reach a conviction. Obviously, it is not a matter for ASIC nor the DPP to determine guilt. That is a matter for the jury. That is how the criminal justice system works; juries acquit when they feel they have not been satisfied beyond a reasonable doubt, or there is not agreement amongst the jury.

CHAIR: Provide us with those answers in due course. If I need to come back to you I will. Can we now turn to submission 404, concerning Mr Graeme Hay. Mr Hay is director of Sub-Sea & Pipeline Service International. He says:

I have operated successful businesses in Australia and throughout Asia for over 40 years.

Around April 2013, Mr Hay was informed that PPI had been listed or deregistration. He goes through a whole range of technical and procedural matters. He is essentially arguing that the deregistration process was occasioned by minor clerical breakdown errors and the like. Can you outline the details of this matter, including why ASIC has declined to remove the notice and the reasons for ASIC not being able to satisfy what appears to be a reasonable request: get the stuff off the website in view of the higher court decisions.

Mr Tanzer : In fact, we have removed the notice from the web site in that particular case.

CHAIR: Have you? When did you do that?

Mr Tanzer : We did that on 10 March.

CHAIR: When did the submission go in?

Mr Tanzer : I am not sure. The background of the matter is that Mr Hay's company was listed for deregistration for not having paid its annual return fee that had been outstanding for over 12 months. The process is that we then publish a notice of deregistration as required by the law and separately write to all of the office holders at their home addresses that this is the process that is being undertaken. Mr Hay tells us that that is the first time that he heard about this deregistration process. There would have been a previous notice both to remind of the need to pay the annual fee at the time that it was due and a subsequent reminder, but the registered office Mr Hay tells us had changed. We had not been informed of that change. Subsequently, however, we became satisfied that there were reasons that suggested that it was not appropriate to proceed with the deregistration. Chief among them was that he paid the annual return fee, but also that there had been some communication that the previous registered office was no longer the right registered office. In fact, the sole Australian director had died and their spouse had advised us that she was no longer accepting mail at that particular address but we had no other address to follow up. Therefore it has been removed.

CHAIR: This is a comedy of errors, isn't it?

Mr Tanzer : Our registry business deals with two million companies and is receiving fees from two million companies, processing a very large amount of correspondence. There were steps at each point in the way where communication was attempted to be made but the process did not work as well as it should.

CHAIR: All right. But you say that as of some time in March the notice has been removed. There is nothing further on the website referring to this particular company.

Mr Tanzer : The notice has been removed.

CHAIR: I suppose we have got some result.

Mr Tanzer : Mr Hay has been informed of that. We have been in quite regular contact with Mr Hay.

CHAIR: At what level are decisions made to proceed to deregister a company either upon non-payment of fees or return of mail from a director that does not respond?

Mr Tanzer : The legislation provides the capacity to deregister a company for that reason, so that policy is set. The actual deregistration process I will check but it is done with our registry operations area. I will check the precise level of the person who signs off on the decision.

CHAIR: Are there any lessons to be learned from this case?

Mr Tanzer : Yes.

CHAIR: What are they?

Mr Tanzer : With respect to our insolvency notices website we have already made some changes to make very clear that where there is a notice of deregistration published there we make clear to anyone who searches that that is a notice at a point in time and that they should subsequently checked to see whether or not the company has in fact been deregistered. We take the view that the notice being a fact that it is appropriate to publish it as required by the legislation. We are also allowing some extra time between mailing to all of the people involved in the company our intention to deregister and the publication of the notice on the website. We have extended that from five to 11 days to allow people to opportunity to pay so that it does not even appear on the website, although technically at law we would be entitled to go ahead and publish the notice to deregister in any case.

CHAIR: Submission 409: the submitter raised concerns about a situation where ASIC can deregister a company for non-payment of annual fees regardless of how well or badly a company is operating and regardless of whether there are any debts owing. He gave the following example. A director of a private company was no longer able to operate financially or meet his business obligations to shareholders and so he left it for ASIC to deregister this company for not paying its annual fee. This also resulted in shareholders having difficulties in seeking a return of their funds. He argued:

The trouble with ASIC’s current procedures for deregistration of private companies in particular is that:

a) Outstanding debts remain unpaid

b) Difficulties are created for shareholders in taking any action against these companies

c) It provides directors of private companies the means to avoid meeting their obligations to shareholders.

Is there any truth to the three conclusions he draws regarding the consequences of deregistration of private companies?

Mr Tanzer : The policy that we set out with respect to deregistration is set out in the policy statement. We also have a separate process for reinstatement of companies that may be in that particular position. The reason we deregister is that the legislation provides that capacity to deregister for failure to maintain even the most modicum of records, which is—

CHAIR: But is the legislative direction mandatory in nature?

Mr Tanzer : No, it is not mandatory.

CHAIR: So you have a choice?

Mr Tanzer : It is a discretion.

CHAIR: It is a discretionary matter that you do.

Mr Tanzer : Yes. The policy sets out how we exercise that discretion.

CHAIR: That is a policy that ASIC has determined from the discretionary provision in the act?

Mr Tanzer : Yes.

CHAIR: That is fine. But what about the three things that matter? Firstly, regarding the consequences of deregulation of a private company: 'Outstanding debts remain unpaid'—true or false?

Mr Tanzer : No. There is the opportunity for the company to be reinstated, if there are debts that are outstanding, or there is the opportunity, in the case of shareholders, where one would expect they either receive more regular reports from the directors or are more closely involved with the company. In the case of a very small company they will be aware that the company is either dormant or has not paid fees for some time. The basic answer is that, if there is a concern about outstanding creditors, reinstatement is the appropriate course.

CHAIR: Subsequent upon payment of the annual fees?

Mr Tanzer : Yes.

Mr Medcraft : You can do what you want.

CHAIR: That is right. That means that, if the shareholder had the ability to recover debts, he would have to have the capacity to pay the outstanding fees if the director declined to do so?

Mr Tanzer : I think the outstanding fees in this case are going to be pretty low. It would be, obviously for any creditor—

CHAIR: No, outstanding debts.

Mr Tanzer : No, not debts. The company will be reinstated if the outstanding fees are paid and then whatever action needs to be taken can follow from that.

CHAIR: So, if the shareholder or shareholders wish to pursue outstanding debts against the company, they have to pay the annual fees before they can proceed?

Mr Tanzer : If there is any reinstatement, it is the rectification of the outstanding fees, I think. I will check and get the answer to you.

CHAIR: What is the legal status of a deregistered company?

Mr Tanzer : It ceases to exist.

CHAIR: So there is no action against it until it is revived?

Mr Tanzer : That is right, which is why the reinstatement process exists.

CHAIR: The whole point of this discussion.

Mr Tanzer : That is right. There may also be direct actions that could be taken against the director, depending on the particular circumstances.

Mr Medcraft : I think I know what the senator is getting at. If there are some debts owing by the company, you cannot go after them until you have re-establish the company, which is correct.

CHAIR: Yes. That is exactly what I am saying. I think we are all in screaming agreement.

Mr Medcraft : We have all got it.

CHAIR: Yes. Submission 170 and a series of others went to LM Investment Management. This is the last question, Mr Tanzer; the rest are on notice. In total, how much was invested through LM Investment Management?

Mr Tanzer : There are seven registered managed investment schemes. There are approximately 4,500 investors in the managed performance fund, which is the largest of those schemes, with $408 million in it. As at the date of appointment of administrators to LM, which was 19 March last year, LM as a group, or as a whole, under those seven schemes, was responsible for managing at least $800 million on behalf of approximately 12,000 investors in Australia and overseas.

CHAIR: What investigations did ASIC have underway into LM Investments before the ABC's Four Corners aired its story in March last year?

Mr Tanzer : There were a range of investigations that we had underway. A number of the actions that we took actually go back to some years before. In respect of the managed performance fund, we had become aware of concerns in late 2012, and we commenced inquiries around that time.

CHAIR: When you commenced those inquiries in late 2012, did you find that LM did not obtain any independent valuations of its assets?

Mr Tanzer : That is quite a detailed question and I would prefer to take it on notice, because there are different funds at different times where this question of independent valuations comes up. But the core issue around the issue of the Maddison Estate, which was the key asset of the managed performance fund—the issue of what valuations were in place—is a core part of our investigation, so I would rather—

CHAIR: Then or now?

Mr Tanzer : Continuing.

CHAIR: So then and now?

Mr Tanzer : Then and now.

CHAIR: Were LM's business practices examined in detail in 2012?

Mr Tanzer : We commenced more detailed investigation into the managed performance fund after the end of 2012. There had been work that we had done with LM as a responsible entity in the years leading up to that in relation to some of the other schemes, largely relating to the conduct of the funds and their management of them and many of which related to hidden changes to disclosure to investors.

CHAIR: Were you sufficiently alert, sufficiently early, in the matter of LM Investments?

Mr Tanzer : It depends on the matter that you allude to, but, writ large, the particular matter that is of concern at the moment, and was the concern of the submissions that were made here, relates to the managed performance fund.

CHAIR: It does.

Mr Tanzer : That managed performance fund is not a registered scheme in Australia. It is a wholesale fund. It cannot be sold to retail investors in Australia. The large proportion of concerns that have come to the committee are on behalf of overseas investors and in particular are made by financial advisers who appear to have acted for those foreign investors.

CHAIR: Where is the scheme registered?

Mr Tanzer : The managed performance fund is not registered. It is a wholesale scheme.

CHAIR: Where is it—what is the word?—listed or—

Mr Day : Where is domiciled?

Mr Tanzer : I think it is domiciled here but I would need to check that. But it is not a regulated scheme. It is a wholesale scheme.

Mr Medcraft : So therefore it does not require registration.

Mr Mullaly : It is a trust.

Mr Medcraft : It is not offered to retail.

CHAIR: This is going to get quite technical, isn't it?

Mr Tanzer : It will. I am happy to provide a more detailed brief here.

CHAIR: I think you are going into some technical areas and, whilst they are interesting, I would rather have a considered response.

Mr Medcraft : We will take questions on notice.

Mr Price : Are there any particular aspects, Senator?

CHAIR: The questions I have got here—but they derive from the submissions—go into: if ASIC had stepped in earlier, could losses have been reduced and not incurred by some clients; the role of the overseas investors; complaints about fees being charged.

Mr Tanzer : This is where there are a mix of issues that you are raising, so—

CHAIR: There are. Take this stuff on notice.

Mr Medcraft : We will take it on notice.

CHAIR: The rest of those individual submissions—I think we provided you with about 25—

Mr Medcraft : Virtually all of them were investors in the wholesale fund?

Mr Tanzer : The managed performance fund is a wholesale fund.

Mr Medcraft : Sorry; the managed—

Mr Tanzer : There were a series of concerns that Australian investors had raised about a firm called the First Mortgage Income Fund, including, I think, some of the concerns that you are referring to there about fees. The First Mortgage Income Fund was a registered fund in Australia. It was frozen, like a number of mortgage funds were frozen, following the global financial crisis.

Mr Medcraft : We will take the questions on notice.

Mr Tanzer : That is why I do want to be quite careful about the distinction between the two.

CHAIR: Seeing I put the questions on notice, I would rather have a considered, detailed response.

Mr Medcraft : No, I think that is appropriate.

CHAIR: I think that is better.

Mr Medcraft : Agreed.

CHAIR: And that applies with respect to the other matters which I was going to ask you questions about. I think I would rather have a considered, detailed response in due course. So take them all on notice. That will save us time tonight.

Mr Medcraft : Yes.

CHAIR: Is Senator Whish-Wilson still there?

Senator WHISH-WILSON: Yes, Chair.

CHAIR: At this level, Senator, we have concluded all of our questions on ASIC and we propose to adjourn sine die. So do you have any final questions you wish to ask?

Senator WHISH-WILSON: I have a couple I was going to ask on the media a few days [indistinct] of Gina Rinehart's companies. I might put those on notice.

Mr Medcraft : Very happy to answer that.

CHAIR: Okay. You can either do that or ask them now if you like; it does not worry me.

Senator WHISH-WILSON: I will put them on notice.

CHAIR: That is fine. Thank you, Senator, for that advice. Senator, the committee is going in camera now. The secretary has advised me that Hansard is concerned that you are not on a secure line.

Senator WHISH-WILSON: Yes, that is very possible. I am in my parliamentary office, but I cannot guarantee it is secure.

CHAIR: No. So the secretary has asked me to advise you: do you mind hanging up?

Senator WHISH-WILSON: That is fine. Will you be concluding tonight's proceedings after going in camera, Chair?

CHAIR: Yes, this is the end tonight. A copy of the transcript of the in camera session will be made available to you, but this is the end of all of our hearings tonight.

Senator WHISH-WILSON: Thank you, Chair.

CHAIR: Thank you, Senator.

Pr oceedings suspended from 19:37 to 20:09

CHAIR: I thank the witnesses for their evidence. The committee is now adjourned.

Committee adjourned at 20:09