Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Parliamentary Joint Committee on Corporations and Financial Services
Oversight of the Australian Securities and Investments Commission

ALDRIDGE, Ms Calissa, Senior Manager, Australian Securities and Investments Commission

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

HILL, Ms Bronwyn, Senior Manager, Australian Securities and Investments Commission

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

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

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

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

CHAIR: I reopen this public hearing of the Parliamentary Joint Committee on Corporations and Financial Services. Under section 243 of the Australian Securities Investment Commission Act 200, the corporations and financial services committee is required to oversee activities of ASIC. This hearing is part of that oversight and is the second hearing that the committee will conduct this year in fulfilment of our oversight responsibilities.

I remind everyone that witnesses giving evidence to the committee are protected by parliamentary privilege. Any act which may disadvantage a witness on account of their evidence is a breach of privilege and may be treated by the parliament as a contempt. It is also a contempt to give false and misleading evidence to a committee. Witnesses should be aware that, if in the giving of their evidence they make adverse comment about another individual or organisation, that individual or organisation will be made aware of the comment and given a reasonable opportunity to respond to the committee. The committee prefers to hear evidence in public but we may agree to take evidence confidentially if the committee believes it to be relevant to the inquiry's terms of reference. The committee may still publish confidential evidence at a later date, but we would consult the witnesses concerned before doing this.

Parliament has resolved that an officer of the Commonwealth shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy; it does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground claimed. If the committee determines to insist on an answer, the witness may request that the answer be given in camera. A request to give a particular answer in camera may also be made at any other time. The committee welcomes officers of ASIC. Mr Kell, I invite you to make a short opening statement.

Mr Kell : We are very pleased to appear today. Our chairman, Greg Medcraft, is abroad chairing the IOSCO meeting in Canada. He sends his apologies, but he is very much looking forward to briefing the committee on developments with IOSCO when he returns. With me are commissioners Price and Tanzer, and our new commissioner, Cathie Armour, who joined ASIC a fortnight ago. As you have heard, also testifying is Senior Executive Leader, Chris Savundra, and senior managers Bronwyn Hill and Calissa Aldridge.

In my brief opening statement, I would like to address three issues. The first is around Commonwealth Financial Planning. As you would know, the Senate yesterday voted to hold an inquiry into ASIC, in part prompted by commentary on our enforcement action against Commonwealth Financial Planning several years ago. We welcome this inquiry and we look forward to the opportunity to provide the inquiry with substantial information on what we do, on what we achieved and what we seek to achieve.

The media is right to shine a light on the conduct that occurred five years ago at CFP, because it reminds the public how far we have come in changing the financial planning sector. There was unacceptable and unlawful conduct at CFP. Clients were given inappropriate advice and many suffered badly because of it, and that is exactly why we took significant enforcement action. Our actions saw seven advisers banned from the industry, and we set up a compensation system that will result in more than 1,100 clients receiving around $50 million in compensation. There are around 37 or so cases, out of that 1,100, that are yet to be resolved. We forced CFP into an enforceable undertaking that has required the group to completely change the way it does business, its compliance, its supervision and so on. This was a large and complex matter, and cases like this involve much background work before a public result is achieved. That is how law enforcement works. ASIC also has to carefully assess information presented to us in such cases and make judgements about what would stand up in court or before a tribunal.

The issue of whistleblowers has come up here, and on this topic it is important to emphasise that we do not discuss whistleblower involvement in any particular case. If ASIC revealed these details, it would compromise the integrity of our whistleblower policy and deter people from coming forward. After all, what person would approach ASIC if they suspected that we might then discuss their case with a newspaper reporter or other journalist? In fact, we go out of our way to protect whistleblowers and, several years ago, successfully fought a case in the Federal Court to conceal the identity of a whistleblower.

More broadly—and, I think, as this committee knows more than most—there is major law reform underway for the financial planning industry, largely in response to mis-selling episodes such as CFP. Conflicts of interest arising from commission-based payments were at the heart of the problems in CFP, and the Future of Financial Advice reforms, which start in a few weeks, include a prohibition against commissions, going forward, and there will be a new duty to act in a client's best interests. As I said, we are looking forward to discussing these matters further with the inquiry that has just been announced.

The second matter I would like to discuss is Kagara. Both TheSydney Morning Herald and The Age have published a number of articles on the failed mine at Kagara and ASIC's handling of the financial reporting waiver request, or relief request, for the company. I should note at the outset—and this is important, because it seems to have been confused in some of the reporting—that the handling of this application is a separate issue from the administration of Kagara itself. The articles attacked ASIC and gratuitously named a number of ASIC staff copied into correspondence. We were not given any opportunity to comment on the articles before publication. Amongst other things, the articles imply that ASIC staff did a favour for a former employee who is now Kagara's administrator. I want to be absolutely clear: ASIC does favours for no-one. Any suggestion otherwise is a serious smear on this organisation and its people. People work here at ASIC because they believe in the public interest and they are committed to very high levels of integrity.

As an ASIC commissioner, or a senior executive, fronting up to criticism in the public arena is part and parcel of the job. For example, it is part of our role to be accountable before committees such as this and to explain what we do. This is not the case for some of the other ASIC staff named in these articles. More broadly, our published policy of many years is to allow companies under various forms of external administration to defer preparing accounts if they meet certain conditions. We do this because of the substantial costs that creditors may otherwise have to bear in preparing accounts for a company with an uncertain future.

This is the approach; we also adopted with Kagara. ASIC's normal conditions of relief, such as answering free of charge reasonable inquiries from company members, has applied to Kagara. The Kagara matter was dealt with urgently because financial reports were shortly due and because of timing considerations of related court proceedings where ASIC was contesting orders requested by the administrators about financial reporting. When the administrators understood ASIC was going to contest the court orders that they wanted they decided to apply for more limited relief in accordance with ASIC's published policy. ASIC understands Kagara's predicament is a serious matter, very much so, which has had very significant consequences for creditors. But the public can be assured in this matter that all procedures and processes continue to be properly carried out and we will also table a more detailed background document regarding Kagara for the committee. Commissioner Price is happy to answer any questions about ASIC's handling of that relief application.

The third issue I would like to touch on is unclaimed money. I would like to briefly update the committee on the unclaimed money program. In December last year, as I am sure you are aware, the definition of unclaimed money changed from 'accounts not accessed in seven years' to 'accounts not accessed in three years'. In April this year, there was $709 million of unclaimed money across banking, life insurance and companies that had built up over several years. As a result of the change, there was a one-off increase at the end of May of $471 million. This is composed of $450 million in bank accounts and $21 million in life insurance. The total amount of banking unclaimed money represents around 0.05 per cent of all Australian bank deposits. The new details for the additional accounts that have come through are being uploaded onto ASIC's free searchable database as we speak. This is happening progressively and it will be completed around 12 July. All those new details will be up there. We will be continuing our program of reuniting consumers with their lost money. This includes promoting the ability of people to undertake free searches through our website and we will also continue our program of writing to potential owners of lost accounts. Over the past five financial years to 2011-12, we returned just under $250 million to the public. So I want to provide that update on unclaimed money. Chair, we are happy now to take questions.

Senator BOYCE: Of that $470 million, how much has been returned?

Mr Kell : That is the money that has now come into unclaimed money—

Senator BOYCE: It would be between seven years and three years, basically

Mr Kell : That is right. So at this point in time—

Senator BOYCE: None of that has come back down?

Mr Kell : It has just come into the system, so to speak.

CHAIR: On the Commonwealth bank matter, particularly with regard to whistleblowers, obviously we have had a discussion at a previous ASIC oversight hearing and Mr Medcraft stated that some of our major successes have come from whistleblowers and we want to encourage them and make sure they are protected. You have reiterated that again today, Mr Kell. But I understand at the recent Senate estimates hearing ASIC stated in relation to Commonwealth financial planning that it was a very large and complex matter, and that ASIC secured landmark achievement with enforceable action, undertaking compensation for investors. But the committee is still concerned with the delay in responding to facts provided by whistleblowers, as reported, and one indicated urgent action was required. The question that still lingers is why did ASIC fail to follow up for 16 months on a detailed initial contact from the whistleblower?

Mr Kell : The fact that we were not coming out publicly saying that we were taking this action or that action does not mean that ASIC was not following up during that period; it does not mean that we were not looking at some of the issues that had been raised with us, that we were not engaging with the company concerned.

Senator BOYCE: It does not mean you were, though.

Mr Kell : Yes, that is effectively what I am saying. It is difficult in matters involving whistleblowers to go into details, for fairly obvious reasons. We do not want to say, 'We dealt with a whistleblower on this date and that date and so on and so forth.' These issues around the timing are ones that we are looking forward to explaining in more detail with the upcoming inquiry. But I can assure you that we were engaging with CFP prior to the date that people have been talking about in terms of when we commenced our formal investigation. It is fairly standard practice for ASIC to gather information, to analyse information that is being presented to us, to look at complaints that are coming in and to do a fair bit of work prior to a formal investigation commencing. That is fairly standard practice.

Mr FLETCHER: Do you have a formal system of rating your level of intensity of engagement on an issue?

Mr Kell : Could you be slightly more specific about—

Mr FLETCHER: You have put to us that you were pursuing this matter even though you were not saying things publicly about it. Is there evidence that you can provide to us on notice that demonstrates an increasing intensity of engagement in this issue?

Mr Kell : We are looking forward, I should say, about presenting some of that material and providing some context around that, especially in relation to the inquiry that was just announced. We would be happy to present similar information to this committee if you would like.

Mr FLETCHER: And would that go to such things as the seniority of the ASIC executive or officer who had carriage of the issue or the number of officers who were involved in pursuing it—in other words, some quantitative metrics to support the proposition that you were substantially engaged on this issue even though you were not saying things publicly about it?

Mr Kell : I am not sure it would work in exactly the way you have described. These are issues that we are also reviewing ourselves at the moment in terms of preparing for the sorts of questions that we are going to get as part of this inquiry. It is not necessarily the case that for each investigation there is a neat step-up over a period of time.

Mr FLETCHER: Let me put the question another way. Do you, for example, at a particular point say, 'This issue is of sufficient gravity that we should establish an internal task force or working group on it'?

Mr Kell : If you are asking that generally, yes. If you are asking that in relation to this issue, yes, there obviously was a trigger point where we asked for more information from the company, undertook the formal inquiry and then started processes around establishing a compensation requirement to impose on the company and banning the various advisers and trying to establish who within the company had been providing inappropriate advice—all those sorts of processes that you work through when you are looking a large instance of potentially inappropriate advice across a range of advisers within a large organisation.

Mr FLETCHER: Can I ask then, on notice: are you able to provide a time line and include on that time line, to the extent possible, evidence demonstrating key milestones in terms of degree of engagement such as, for example, setting up an internal working group?

Mr Kell : We can certainly provide an account of how ASIC looked at this matter. But I think we will cover many of the things that you are after there, and that is what we will be seeking to do.

Mr GRIFFIN: On that, I think that, from the committee's point of view, we are keen to understand the nature of what took place, how seriously it was taken and, frankly, also whether that is in line with what should be the case with this matter.

Mr Kell : That last point that you raised is a very important one. In the discussion around this issue so far, there has not been a lot of context around how long these processes normally take, what sorts of steps are followed and what resources are required for this matter when you have got other matters that you are also looking at at the same time, such as Storm in this case. So some of that context we are keen to also provide.

Senator BOYCE: The 16-month delay in doing anything has been in the media over and over. In your view, did ASIC promptly react to the information they were given? Was there any delay at all in beginning to investigate the claims brought to you?

Mr Kell : I think we would like to come back to you on that question. Part of the issue here is that many of the people involved—in fact, pretty much all of the people involved—are no longer with the organisation.

Senator BOYCE: Is that as a result of this?

Mr Kell : No. The commissioners, for a start, have moved on. Those are the issues that we are looking at within ASIC at the moment, in response. The inquiry having just been announced, the questions only having recently been raised, we are looking at some of these issues. But generally we are comfortable that the result we got will have covered anyone who lost money as a result of CFP's advice.

Senator BOYCE: But, given these criticisms were raised over a month or so ago, there has not been any internal process at all up until the announcement of the inquiry yesterday?

Mr Kell : We have been looking at what was done in the nature of the engagement with CFP and the sorts of issues that were being discussed with the firm at that stage and the complaints that were coming through, but it is a large and complex matter and it is something where, I think, we would like to be fully informed before we provide you with the complete picture.

Senator BOYCE: Thank you.

Mr FLETCHER: Mr Kell, I wrote to Mr Medcraft on 27 August about the conduct of Mr Nguyen, asking a series of questions. Mr Medcraft wrote back to me on 11 September last year and the letter contains the statement, 'It is ASIC's understanding that 11 claims of former Nguyen clients are still being negotiated.' I just want to understand how that fits with the 37 cases that you have specified in your statement today. Is it possible that more have come to light or is it potentially a different definition?

Mr Kell : It is a different definition, effectively. Out of that $50 million and the 1,100 cases that I mentioned, a subset relate to Nguyen—about $23 million, I think, from memory. I will have to double-check that. About $23 million compensation relates to former clients of Nguyen. Two hundred and two former clients have been paid $23 million. From recollection, there are still nine former Nguyen clients where matters have yet to be resolved. So it is a subset of the larger set of compensation that is being provided, to not only former Nguyen clients but clients of the other planners involved. Does that answer your question?

Mr FLETCHER: Yes. On notice, could I just get a reconciliation? You may have just given it to me now, but could I get it in writing as well—the reconciliation between that 37 number and the 11 number?

Mr Kell : Sure.

Mr FLETCHER: I want to ask about the compensation mechanism. As I understand it, the guiding principle is that Commonwealth Financial Planning will calculate the investment positions that clients would have held had they received appropriate advice, so that sets the benchmark. Then the compensation is determined by reference to the difference between that and the actual balance in their account. Is that roughly correct?

Mr Kell : Broadly speaking, yes.

Mr FLETCHER: Who proposed that mechanism? Was it ASIC or was it Commonwealth Financial Planning?

Mr Kell : That is a reasonably common sort of principle for assessing compensation in these types of matters. We put to CFP what we required by way of a compensation system arising out of poor advice.

Mr FLETCHER: Does that therefore mean that the total amount of compensation paid is an indication of the total amount of loss that was suffered by reason of poor advice?

Mr Kell : That is, broadly speaking, the objective, yes.

Mr FLETCHER: Subject, presumably, to the caveat that not all cases have yet been resolved?

Mr Kell : There are a few that have not been resolved.

Mr FLETCHER: You have given us the total number that went into the system and the total number that remain unresolved, but what we do not know is the split by value.

Mr Kell : I see—the ones that are unresolved?

Mr FLETCHER: Are the ones that are unresolved, on average, larger or smaller or about the same as those that have been resolved?

Mr Kell : I do not know that for sure. I am not sure that they are necessarily the larger ones, if that is what you are indicating. I think there is a mix, but we are happy to take that on notice.

Mr FLETCHER: Is there any other unifying theme among the ones that have not yet been resolved?

Mr Kell : Some of the clients are represented by Financial Resolutions Australia, perhaps one-third or one-quarter. There is still work being done on to them to work through the final amount.

Mr FLETCHER: Has there been any follow-up work done in terms of questionnaires or surveys or other things like exit interviews as to the overall level of satisfaction of those who have received compensation?

Mr Kell : No exit surveys, but perhaps I could take the opportunity to just briefly outline how the compensation arrangements are structured so that you understand what we are saying.

CHAIR: That would be helpful.

Mr Kell : CFP assessed compensation based on the broad parameters you have just discussed. We then required that an independent expert provide a check on those payments—not every single one but a sample to ensure fairness. We then required that, for any client who is not satisfied with the compensation amount, CFP also offer to pay for the client to obtain their own expert accounting or legal advice. The CFP would pay $5,000 for that advice, and in some cases more. We then required that any further disputes that still remained after that occurred could and should be assessed by the free Financial Ombudsman service. So there were several layers of safeguards, protections and checks built into the compensation system.

ASIC itself obviously took an interest and was involved in mediation matters around several complaints and compensation issues. In addition, at the earliest stages of the process, we required that anyone who had received compensation prior to ASIC's system being imposed on CFP have their compensation reviewed and put through that same process. Also, to deal with timing issues, we required anyone who needed money urgently back at that time to be provided with interim compensation prior to a final amount being arrived at. The compensation system, in other words, that we required had flexibility in terms of providing people with access to money and several levels of safeguards.

Mr FLETCHER: I have just one other issue. There have been some reasonably serious claims reported in the media about what occurred at Commonwealth Financial Planning after it became evident that complaints had been made to the regulator—correction: there have been two classes of fairly serious claims. One is that, as part of the conduct of certain advisers, there was forgery of documents, forgery of signatures and so on. The second is that it has been alleged that, subsequent to it emerging that complaints had gone to ASIC, there was what was described as a 'sanitising of files', which I understand to mean that clients' files had particular documents removed from them, and in some cases the entire file went missing. Has ASIC investigated those two separate classes of allegations, what are ASIC's views on those matters and is there further action to be taken?

Mr Kell : Doing a very careful assessment of the files and the information that is held by CFP particularly in relation to the advisers who provided the inappropriate advice was certainly central to the work we did in this area. We did not find evidence that would support a criminal prosecution or criminal action being taken.

Mr FLETCHER: I infer from that that you carefully considered whether there were grounds for criminal action.

Mr Kell : We do as a matter of course in these sorts of matters.

Mr FLETCHER: Are you able to say what it was that was not present that meant you could not proceed to prosecution?

Mr Kell : I would prefer to take that on notice to provide a more fulsome response around that, but it is evidence of the sorts of criminal conduct, broadly speaking, that you referred to earlier.

CHAIR: Mr Kell, if such evidence became available, even at this late point, what would ASIC's response be?

Mr Kell : The standard response in these sorts of matters is that, if new evidence comes to light that highlights serious misconduct, we will look at it.

Senator BOYCE: I just want to follow up again on the whistleblower in this case, Jeff Morris. He has sort of outed himself and made some fairly serious claims about ASIC's lack of interest or lack of activity around the claims he made. Do you have a policy on communicating with whistleblowers? You claim to want to encourage whistleblowers to approach you. What are you doing to encourage that?

Mr Kell : We have policies relating to the level of confidentiality—that is the most critical issue around whistleblowers—and the way in which that is dealt with and the way in which that confidentiality is protected.

Senator BOYCE: Not contacting them for a long time would also surely be an issue for a whistleblower, would it not?

Mr Kell : It is a case by case issue. People who provide information to ASIC in any capacity do not become part of the regulatory action which ASIC is engaging in. Sometimes somebody will be approach immediately; sometimes not immediately. These are issues that arise on a case by case basis. Our obligation is primarily to protect the confidentiality of any whistleblowers. That is a very serious one. So that is primarily what our policy revolves around. Given the level of interest in whistleblowers more generally, not only in relation to this case, we are looking towards the opportunity of reviewing how we communicate in that area, going forward. That is something that we can raise as part of this inquiry. So it is something that we want to make sure that we have developed to the extent that we should.

Senator BOYCE: Do you have any interaction with Whistleblowers Australia? They are a sort of support group for whistleblowers, I suppose.

Mr Kell : Not that I am aware of, no.

Mr Price : Not that I am aware of.

Senator BOYCE: There are a lot of nos, can I say for the sake of Hansard.

Mr Kell : I should have checked, I do not know if any whether of my colleagues want to make any comments about whistleblowers at this stage.

Mr Savundra : No.

Mr Price : There is a regulatory framework in relation to protections for whistleblowers and those laws were introduced in around 2005-06, I think. They were controversial at the time because there were a couple of competing policy priorities. One is to get useful information to the regulator; the other is you do not want to encourage claims that may not have merit. They are important policy considerations.

Mr Tanzer : I would certainly like to check that rather than just assume the answer, but I am certainly not aware of that. Mr Day cannot be here today but that is one area that quite frequently has contacts with groups who are relevant to people who might make these sorts of reports. He may well have that sort of contact.

Senator BOYCE: I am happy for that to go on notice.

CHAIR: Given that Mr Morris has gone on the public record about the experience of being a whistleblower and he is clearly very unhappy with the timing of the response and a disconnection from engagement with ASIC as it moved forward, what are your plans in terms of engaging Mr Morris's experience as a point of reflection on how you might move forward with improved processes should this situation rise again?

Mr Kell : As I indicated earlier, we are taking this opportunity, not only in relation to CFP but more broadly, to consider some of our engagement with whistleblowers and how we manage some of that communication. It is a challenging area. We understand how difficult it can be to come forward as a whistleblower. If there is feedback we can take on board there from various whistleblowers and experience that others law enforcement agencies have, we will certainly seek to learn from that. That is an opportunity that we have as part of this inquiry.

CHAIR: In Senate estimates, you took a question on notice from the Economics Legislation Committee regarding the estimate of the financial losses incurred by Mr Nguyen's particular book between October 2008 and when he actually resigned in 2009. Do you have that?

Mr Kell : I do not have an update.

CHAIR: Could you take that on notice and advise us as well? We are mindful that the Senate—

Senator BOYCE: We also wanted to try and take it through to when ASIC actually 'raided' the Commonwealth—what losses there might have been from his clients between October 2008 and March 2010, when you, hopefully, stopped his activities.

Mr Kell : I just make one point on that, which is not a unique experience in this case. We seek to make sure that our compensation system that we impose, if there is compensation to be awarded, covers any misconduct whenever it occurs. It is not always the case that you are going to be able to shut down something the day after you hear about it. Compensation, and ensuring that it is adequate and that it covers all instances of misconduct, is very important in dealing with the sort of issue that I think you were trying to get to there. But we will certainly take that on board.

CHAIR: We may have a couple of other questions on notice, so if we can get those to you and get a response that would be very good. We certainly look with interest to the Senate doing their inquiry as well into this matter.

Moving along to the second matter that you raised in your opening statement, which was with reference to Kagara. I was particularly interested in a comment that you made about your staff at ASIC being copied into come of the communications and then being publicly named as participants. Could you expand on that for me in the first instance?

Mr Price : What was going on here was commonly called an application for relief. Simplistically, it is a waiver request from various provisions in the law.

CHAIR: How often do you receive those?

Mr Price : We receive thousands of waiver requests every year. We have been given specific powers granted by the parliament to consider these requests and to deal with unintended consequences of the law in particular situations, and we have quite a well-established policy framework about how we make decisions in these types of situations.

What has transpired here is that there have been a series of articles which have raised concern that ASIC staff may have acted inappropriately in exercising these powers, and they have named specific ASIC staff as part of that. We feel that is very unfortunate because the articles, we feel, do not pay appropriate weight to several key factors. The concern that was being raised was whether there was any favouritism between former ASIC staff members and current ASIC staff members. But the articles actually do not mention a couple of key points. One of the key points is that ASIC was actually contesting court proceedings involving one of the former staff members. If there is a suggestion of favouritism and you are actually contesting court proceedings they are involved in, that is not the sort of friend I would like anyway. The other suggestion in the article is that ASIC inappropriately acted with haste in dealing with the particular matter. Having reviewed the electronic copies of the files, I have at least satisfied myself that the reason for acting urgently in this particular matter was twofold: first, financial reports of the company were due to be lodged very quickly; second, there were related court proceedings that were on foot. Again, these are court proceedings that were not mentioned in the article that was put before the public.

The other key thing to bear in mind is that the decision that ASIC staff have made in this instance was actually consistent with longstanding and public ASIC policy that is freely available on its website. That policy is set out in ASIC Regulatory Guide 174, which deals with financial reporting relief for externally administered corporations. So what has effectively happened here is that—I might take you to the chronology that has been tabled, because these circumstances are complex and it is going to be the easiest way to explain it—on 20 September 2012 ASIC received correspondence from King and Wood Mallesons, the administrator's legal representatives, indicating that they would be making a future application to the court seeking an extension of time for the lodgement of financial reports. Then, moving down, you will see that on 12 October 2012 an application was filed with the court, seeking that relief from financial reporting. Turning over the page, you will see that on 19 October 2012 ASIC filed an intervention in these court proceedings. We were concerned about the relief the administrators were asking for, firstly because ASIC has the primary regulatory role in dealing with these matters and secondly because we have longstanding policy about when we will grant this relief, on what conditions we will grant this relief and so forth. There was then a discussion between the administrators and ASIC staff on 19 October 2012, and in that discussion it was confirmed that ASIC was going to intervene in the court proceedings. Following that discussion the administrators decided that, rather than attend court and have ASIC intervene, they would simply ask for relief in accordance with ASIC's longstanding and published policy. They made an application, we granted it urgently and that was the end of the matter. What really concerns us in this case is that a number of, as I say, ASIC staff have been named simply for doing their job.

CHAIR: There seems to be quite a gap between the articles that have been published and the facts that you have just laid out before us in some detail, with dates and a sequence of events. How do you explain that, Mr Price?

Mr Price : I cannot speak for the journalist involved, but I think what has happened is that he accessed certain freedom of information materials that related to financial reporting aspects of this transaction and has not been aware of the broader court proceedings, and the two things are related.

CHAIR: So with half of the information the story amounts not to facts but more to allegations against people?

Mr Price : Unfortunately, the newspaper made various assumptions without knowing the background behind those court proceedings and, in particular, that ASIC was contesting the relief that the administrators were seeking in the court.

CHAIR: Did the newspaper ever contact you to ask you for this information?

Mr Price : Regrettably, they did not.

CHAIR: Do the newspapers normally contact you about matters of such import?

Mr Price : Some do and some do not.

CHAIR: I think that is very disappointing to hear. We will move on to the third matter that you raised in your opening statement: the unclaimed money. I know that this has exercised the minds of many Australians who were seeking to get reacquainted with their good friends the dollars. Could you just provide us with a little more information around the timing on this, such as how many have been uploaded? I think you said it was 12 July that you expect to have completed the task of people being able to get on and locate their money.

Mr Kell : The information is being uploaded progressively, so there will be some information up there now. I suppose the message we are sending is that there will not be 100 per cent of the new information up there until that date in mid-July. We are going to be making sure that we communicate that as clearly as we can to people so that if they do not see their information up there tomorrow, so to speak, they will know to come back in a few weeks time.

It is also the case that, while we are implementing the new calculator that provides for interest payment on money from 1 July onwards, that will mean there will be a short delay of a few weeks in our processing of claims as well—about the same time frame, until about 12 July. So, for a few weeks, our processing of claims will be delayed while we get that new calculator up online and implement it into our payment systems to enable that payment of interest going forward. Otherwise it is pretty much the standard approach that we have had in this area for many years. If people identify that they have a lost account or a relative or others have a lost account, they should contact the institution in the first instance—if it is a bank—to confirm that the money is theirs. The bank then contacts us and we process that within a few weeks in the vast majority of cases.

Senator BOYCE: Do you undertake any analysis of the unclaimed moneys in terms of being able to improve how you locate people or classes of unclaimed money that might be handled differently?

Mr Kell : In terms of particular demographics or regional breakdowns?

Senator BOYCE: If it all belongs to backpackers who forgot to close the account, clearly it is a different issue than if it is pensioners who could well use the money.

Mr Kell : It is a very diverse set of individuals; I suppose that is my initial response to that. There is a sizeable minority that consists of people that have passed away, for example, and their relatives are unaware that they have had a bank account or shares in a company; people who have moved house, perhaps numerous times; people who have moved jobs, perhaps numerous times—it is a very diverse population that we are talking about here. We have had a letter-writing program, and last financial year we sent out 28,000. We will continue with that. By definition, that is a far from straightforward program to undertake because these people are difficult to track down.

It is also the case—and we have been pleased about this in recent years—that a range of financial institutions also off their own bat, if you like, as a customer service initiative, I suppose, are seeking to help people identify and locate unclaimed money both in this area and, I think, in the other area that we do not administer—superannuation.

Senator BOYCE: I think they tried to correspond with people around the change in timing as an anger management tool, if nothing else. You have mentioned here that you have returned $250 million over the last five years. Can you tell me how many individuals that is?

Mr Kell : There have been successful claims over the last five financial years—around 74,000.

Senator BOYCE: And you mentioned that you had sent out 28,000 letters.

Mr Kell : That was 28,000 letters just in the last financial year. Over those five years we have sent out just over 100,000 letters. The majority of people who have successfully claimed money do not come through via letters. They undertake the free search. When we did some media on this in the latter part of last year, we had sought a response on a free search engine. It actually collapsed for a short period of time, for about a few hours, so there is a strong interest in this.

Senator BOYCE: Given that you have had $471 million coming in May and only 250 go out over five years, it looks as least as though the federal government will make a profit out of this.

Mr FLETCHER: Mr Kell, you said that the legislation took effect in December last year. Does that mean that there is, in effect, a 12-month period commencing December last year when you got to bring that forward such that during that period there will be unusually high amounts of money coming in?

Mr Kell : The supplementary figures covering the change from seven years to three years came in and they were due on 31 May. That will capture the overwhelming bulk of that—

Mr FLETCHER: Just before we come to the quantum, I just want to understand how it works. Is it the case that prior to December last year there was a steady run rate of money coming in each year as accounts got to the seven-year period and then became subject to the definition of 'unclaimed moneys'?

Mr Kell : That is right.

Mr FLETCHER: So you would have expected a business-as-usual amount to come in in the 12 months commencing December of last year? What roughly is that business-as-usual amount?

Mr Kell : Around about $100 million—it varies—

Mr FLETCHER: And then you have on top of that the fact that from December last year through to December this year there will be accounts hitting that three-year point at which they suddenly qualify for the definition of unclaimed moneys?

Mr Kell : It is roughly like getting four years return in one year.

Mr FLETCHER: That is because, presumably, the starting point is that every account which has sat untouched between three years and six years and 364 days suddenly becomes unclaimed moneys that you can get your hands on on behalf of the Australian people.

Mr Kell : Broadly speaking, that is correct. It is four years into one year, and when you look at the figure I am talking about, we normally get around $100 million and perhaps a bit more in some years or perhaps a bit less, so it is not surprising that we therefore cost $471 million—

Mr FLETCHER: So the right way to think about this is that one year's worth of payments has been replaced with, in effect, four years worth of payments.

Mr Kell : As a one-off.

Mr FLETCHER: So therefore the consequence is that, roughly, rather than $100-odd million coming in, there is going to be $450 million.

Mr Kell : $460 million.

Mr FLETCHER: One effect is the timing effect, but presumably there is a second effect which is that it is less likely that people will leave an account untouched for seven years than for three years.

Senator BOYCE: One can only leave it untouched for three and bit years now.

Mr Kell : We do not know the impact that issue might have at this point in time.

Mr FLETCHER: From first principles, does it seem plausible that behaviourally that would be a way people might treat their money? In other words, they would be less likely to leave it untouched for seven years than for three years?

Mr Kell : You would imagine there is more likelihood that people may look at their accounts between that three- and seven-year period. As to how many that might affect, at the end of the day that is very hard to say.

Mr Tanzer : I am not sure about that. I am not sure of the analysis done at the time, but I am not sure that your supposition is right. It might be that 99.9 per cent of people who do not look for three years also do not look for seven years.

Mr FLETCHER: Could you take on notice whether there is any analysis known to ASIC of that question; namely, the pattern of people's behaviour in dealing with their money? And, under the law as it previously stood, was there a steadily declining rate of engagement with accounts after one year, two years and three years et cetera?

Mr Kell : Yes.

Mr FLETCHER: I want to make sure that I understand that this is effectively a one-time exercise. Just as a matter of logic, it cannot be done again?

Mr Kell : In moving from seven years to three years?


Mr Kell : It is a one-off exercise in terms of the impact on how much additional money comes into the system.

Mr FLETCHER: So it is effectively a one-time change in accounting treatment which makes the overall P&L look a bit better?

Mr Kell : You can only move from seven to three years once—or some other time frame. In terms of the decision around what the time frame is, that is a government policy issue and not—

Mr FLETCHER: I am interested to know about the approach ASIC takes to the way corporates do their accounting. If they engaged in one-time changes in accounting policy to make the P&L look better, is that something that ASIC, as a corporate regulator, would think was worthy of attention?

Mr Kell : I am not sure that it would be something that would be relevant to our consideration of this issue.

Mr FLETCHER: That is not the question I was asking, Mr Kell.

Mr Tanzer : It is not a change in accounting treatment. This is a change in legislation. This is not revaluing an asset.

CHAIR: It is a policy shift.

Mr Tanzer : It is a policy change.

Mr FLETCHER: It is highly analogous to a change in accounting treatment. For example, it is quite analogous to a change in the treatment of the subsidy that mobile phone companies pay in relation to a post-paid handset on a contract.

Mr Tanzer : I would like to think about that a bit more. Perhaps we can discuss that more.

CHAIR: I go back to the underlying reason for this legislative change, and let us get this on the record today. My understanding, and you can expand, clarify or confirm, is that there are accounts out there where there are funds untouched for some period of time. Over seven years there is quite a depletion of the initial amount of money through account costs. This will capture that money and hold it until such time as people go looking for it, and then they will be able to relocate it. Is that roughly it?

Mr Kell : Yes. To clarify the actual operation of the unclaimed money process, it is certainly the case that once it is in the system for unclaimed money no fees and charges are applied and on 1 July this year interest will be paid on the moneys that come in going forward.

CHAIR: And that has not been the case until recently?

Mr Kell : That is correct.

Senator BOYCE: Unless that money was already in interest-bearing accounts.

Mr FLETCHER: Have you had many people saying, 'Thanks for taking my money and saving it from fees'?

Mr Kell : We generally do not have that type of engagement in one way or another on unclaimed money. It is simply, 'We have identified our money; how can we work out how we can get it back?' We are very happy to help them on that.

Mr Tanzer : And, without being flippant, I should say—this was years ago when I had some responsibility for this area—we did actually have quite a few people who said, 'Thank you very much having a system that enables us to find that.' With it being in one place, it did actually assist in finding that. But I understand the point.

CHAIR: If you could take this on notice, because I do not know if it will even be possible for you to find it. One of the things I have been very mindful of is women fleeing domestic violence—particularly at the end of a week when we had a quilt with that theme presented to the parliament that is going in the spouses' lounge—and those sorts of situations where women, often with small amounts of money, have to pick up their life and move on. I do not know what the gender breakdown would be on some of these accounts, but I would be interested in that and in any other further sociological data on the people to whom these accounts belong. It has certainly exercised the minds of the parliament a little bit this week. It would be interesting to find a little of the detail that lies in the background of this.

The other point is that, when people who might not in any other circumstances engage with ASIC's website come through looking for this, there is an opportunity for a more substantive conversation in terms of financial literacy. What have you got in place to make an easy connection for people doing a money search to then go to the financial literacy dimensions of the website?

Mr Kell : That is a very good question. We do seek to leverage off the very large numbers we get coming to the unclaimed money section, to encourage them to go to the website MoneySmart more generally to take advantage of the section that allows you to put together a budget or look at some advice about investments. So, certainly, even at the most basic level, part of the program is to introduce them to the website because it is a part of our MoneySmart website, the unclaimed money section, and to leverage off that as far as we can. It is not a large percentage that go to visit other parts of the website; but, because so many people come to unclaimed moneys, there are a large number in absolute terms who then do take the opportunity to look at other information we have on financial literacy, and that is a good thing from our perspective.

Mr FLETCHER: Might we move on to other topics?

CHAIR: Yes, I think we might move on right now. As you said, Mr Medcraft is at the IOSCO meeting, fulfilling his responsibilities there. I just wanted to give you the opportunity to put anything on the record with regard to IOSCO that you are aware of that would be of interest to the committee.

Mr Tanzer : One of the major matters that IOSCO and Mr Medcraft are dealing with at the moment relates to the implementation of the G20 reforms with respect to, particularly, the clearing and settlement of OTC derivative transactions. This was a major initiative of the G20 back in September 2009. As is often the case, the detail of the implementation of this became quite complicated and quite difficult to manage, but the principles are basically pretty straightforward. The concern that gave rise to this was the large level of exposure of the largest financial institutions in the world to OTC derivative settlement exposures which they were not really properly aware of in terms of the quantum and the set-off and the nature of the outstanding obligation that was slowing behind some of these complex OTC derivative transactions.

There were basically three elements to the reforms. The first was to require that all OTC derivative transactions be reported just to a trade repository, to report the nature of that trade, so that there was transparency about all of the trades that had taken place. The second level was to say that, where it was possible and where those transactions could be standardised, they should be cleared through a central clearing facility, the intention there being to reduce the counterparty risk on the outstanding liabilities.

The third level was to enhance price formation and transparency even further and where possible to have these derivative transactions, where they really were standardised sufficiently, traded on an established exchange—either an authorised trading platform or something like the Australian Securities Exchange. The highest level is the totality of all of the OTC derivatives transactions; they would all be reported. The next level is that where possible they would be cleared, and that requires a degree of standardisation. The third level, which is really down to volume as well as standardisation, is where they would be exchanged on an established securities exchange.

The operation of this in Australia has reached the stage where ASIC, which is responsible for proposing rules for both the trade repositories and the trading halls that sit underneath them, is very close to issuing those rules to the market, and that will start the process for Australia implementing this regime in our own regime. At the level of IOSCO, there are a number of fairly arcane and fairly detailed issues of technical specificity that need to be worked through, particularly around exactly what derivatives transactions would be covered at the clearing and at the exchange level, and a number of other technical matters that Greg, in his role as chair of IOSCO, is intimately involved with. As chair of the IOSCO board, he is also entitled to a seat at the Financial Stability Board, which is an emanation of the G20—a more working-level group of officials from the G20, on which Australia is represented by the Treasury and the Reserve Bank of Australia. We get a third seat at that table, effectively, through Greg's representation as chairman of IOSCO.

CHAIR: Financial stability certainly matters to the Australian community. It is good to hear that we have a chair at the table—or an extra one. I think Mr Fletcher wants to move on to, perhaps, other matters.

Mr FLETCHER: Yes, if I may. I would like to ask some questions about Trio and the follow-up from the liquidator's examination of Tony Maher in December of last year. I would like to quote from a couple of emails I have received from those who lost money as a result of the collapse of the ARP Growth Fund. I quote these to give an indication of the depth of feeling on the part of people who have been defrauded of very substantial amounts of money. One says, 'It beggars belief that six months have elapsed since the public hearing, with all agencies aware of the court restriction date for return of Maher's passport, and yet the DPP is still to receive the brief from ASIC to determine if charges will be laid.' Another says, 'As you know, members have died, sick from the loss of retirement savings, forced to sell their homes and hide from the shame that has come upon them.' I would like to know, firstly, whether it is true that Mr Maher has the prospect of having his passport returned to him.

Mr Savundra : To start with, just to pick up on those points, we certainly acknowledge the hardship that investors face in this. We accept and understand those comments. In relation to Mr Maher, it is true that there is a prospect of him getting access to his passport or, really, having some travel orders which currently are in place lifted. Before I go on to the passport, I will just talk about the progress. Certainly this is a high-priority matter. Clearly, given the public interest and given this committee's interest, it is a top-priority matter and we are progressing it as quickly as we can. It needs to be understood that evidence given through public examination is generally not admissible evidence. People claim privilege, and those are privileged answers, so you cannot just package up what is said in a public examination and present it to the court. Our exercise is different, and that is to collate and obtain admissible evidence sufficient to establish a contravention of the law.

In relation to restraining Mr Maher—whose passport ASIC has no involvement and never has had any involvement with—from travelling to other countries, the liquidators, shortly before the examinations, which were conducted in December last year, approached the court and obtained travel restraint orders for the purposes of keeping Mr Maher here so that they could complete those public examinations. It is fair to say that those orders were obtained with at least the acquiescence of Mr Maher, so it was not really contested as to the basis of that. The court, on the back of an application by the liquidators, and with no real contest from Mr Maher, granted those orders. One would have thought those orders would ordinarily have lifted after the examinations had concluded; but, because the summons was left open for a period of six months, the court made an open-ended order in relation to Mr Maher's ability to travel.

We understand that he recently applied to the registrar in those liquidator proceedings. I should stress here that ASIC is not a party to those proceedings. We did attend the public examination and sought to proactively intervene, to assist, if we could—and particularly in relation to the protection of confidential information from foreign regulators, we took that step. Otherwise, we are not a party to those proceedings. We have never sought to obtain or restrain Mr Gresham. I have explained to the committee previously why we have not taken those steps—and I am happy to do so again. He has approached the court to have those lifted, given the public examination has concluded and the period for which that public examination was left open by the court has now expired. He has approached the court before a registrar. A registrar, I think on 12 June, adjourned it off to a judge—because I understand that a judge needs to make this decision—on 8 July.

Mr FLETCHER: Does ASIC think it is a good idea that this man, who the evidence strongly suggests—although it is obviously a contention entitled to be contested in court—has been involved in defrauding many Australians in very troubling circumstances, should be allowed to leave Australia? There must surely be a suspicion that, if he does that, he will not come back. Therefore, the prospect of bringing him to justice will become remote, and this will be yet another person—along with several other key figures in the collapse of Trio Capital—who will evade the application of proper judicial processes.

Mr Savundra : I guess the first point I would make is that we can only act within the powers that the parliament gives us. There are a lot of things we would like, but that is another question. We can only exercise the powers that parliament gives us. Clearly, we are investigating this matter with a view to an end. If Mr Maher were to leave the jurisdiction, it would potentially defeat that end. It is certainly not in our interest to spend significant time and significant resources to waste that time. We are just not in that business. We would be more devastated than many if that were to occur, but we need to operate on evidence. The power that the parliament has given us is to restrain people where it will protect aggrieved persons who have lost money to have the ability to recover that money. That power is not just given to us. The power is also given to liquidators, and the power is also given to the investors. So the investors can take this action to restrain Mr Gresham, if they believe there is a basis to do so; the liquidators can bring that action, if they believe there is a basis to do so; and we can, if we believe there is a basis to do so. We currently do not believe that there is a basis to do so.

Mr FLETCHER: You would appreciate, I think, that the investors would not react warmly to the suggestion that after, in most cases, their life savings have been taken from them, they ought to be funding legal action to restrain this man from going overseas.

Mr Savundra : I understand that. Certainly if the investors have evidence to give us which demonstrates what we need in order to give us a basis, we would welcome that. We have asked them for that. We would equally welcome it from the investors. So I take your point that investors are in a difficult position, they are suffering hardship, and it is not our expectation and there is not a lack of willingness on the part of ASIC to take this action. There is a lack of legal basis. Unless we are given powers to restrain people, pending completion of our investigation with a view to charging, we cannot do so and we currently do not have that power.

Mr FLETCHER: Why is it taking so long?

Mr Savundra : It is a complex investigation. I disagree that it is taking so long. Complex matters take time to investigate. We need to obtain admissible evidence. It requires us to engage with international regulators and obtain evidence from them, which takes time, and the timing of which is generally well and truly outside our control. We have had to send staff members to Hong Kong in order to obtain evidence. We have needed to interact with counsel in relation to the sufficiency of evidence. These are the usual parts of the process and we are working through them.

Mr GRIFFIN: I have a quick question on your earlier comment with respect to the powers that you have got. I guess this is a question for you, and Mr Kell may also want to comment. Would ASIC see it as being desirable to have such powers with respect to enforcement? A follow-up question, which may influence what you say in answer to the first question, is: if so, why haven't you asked, or have you asked in the past?

Mr Savundra : From an enforcement perspective it certainly would make our life easier. But there is a serious issue—really one for the policy makers—around personal liberties. It is a fundamental right to be able to travel and have freedom of movement. There are very few other areas of the criminal law where, prior to a person being charged, they can be detained and restrained. It is a fundamental right, some would argue, and it is a fundamental legal principle. From ASIC's perspective, in terms of what would assist with us progressing enforcement actions, certainly the power would be welcome. But I think many people's views on this would differ. Equally, we see it even through the existing powers we have before the courts, that the courts are at times reluctant to exercise the power, given the fundamental right that people have of freedom of movement.

Mr Kell : I would add that, as Mr Savundra indicated earlier, it is obviously not just ASIC that has this power. This is something that I think if you were going to consider it for ASIC you would look at how to applied it to a range of other law enforcement agencies and whether, across the board, law enforcement agencies should have stronger abilities in this area.

CHAIR: Given that, because of the liquidators' action and the public hearing, he has already been restrained from being able to leave the country, is there a capacity for an extension of that for a short period of time if there are investigations underway that you can see an imminent closure to? Has any advice been sought to that end?

Mr Savundra : Certainly ASIC has sought advice in relation to whether there is a legal basis to extend it. Our current view is that there is no legal basis. If the liquidators were of the view that there was a need to further examine Mr Gresham, then it may provide such a basis. The original basis on which the orders were obtained was that it was necessary to obtain the order to keep Mr Maher in the country so that he could be publicly examined. Whilst it is ultimately a matter for the liquidator, it is ASIC's position that further public examination of Mr Maher is not necessary.

Mr FLETCHER: Is there any basis on which you can intervene in, you can appear at, the proceedings which I understand are scheduled to be held on 8 July? Are there factors that you could highlight to the court that would affect the court's decision?

Mr Savundra : We could intervene in those proceedings. However, we are subject to the Legal Services directions and in order to do so I think we would need to get over the threshold, and it is a fairly low threshold, that there is a reasonable basis or ground for us to be agitating for an order. I do not think we have sufficient to get over that ground.

Mr FLETCHER: Why is it not a reasonable basis to be agitating? Over $100 million has been defrauded, we have somebody who, all the evidence suggests, was very heavily involved in that fraud and there is a serious public policy question here about confidence in our financial system and public confidence that if people are involved in serious fraud they are not going to get away without their guilt or innocence being tested in a court. That seems to me to be a very substantial question to ask.

Mr Savundra : It is not the basis of the power, and if you would like me to go into more detail I would suggest we do so in camera. The legal basis is not about justice, it is not about keeping people here so that they can face justice. It is about the necessary protection of aggrieved persons so that they can recover compensation or money off people by which they have been aggrieved. All of the elements you raise there do not really go towards the power that we have been given. But I am happy to expand on that in camera.

Senator BOYCE: Mr Kell, you would no doubt be aware of a speech made by Senator David Johnston in the Senate on Wednesday about ASIC. He spoke about ASIC's very sorry saga of a vindictive waste of Commonwealth money. Do you have a comment on the speech and the information in it?

Mr Kell : No, I do not at this point in time. I am happy to take that on notice.

Senator BOYCE: Thank you.

CHAIR: I am just going to foreshadow that there will be some questions on notice with regard to dark pools, particularly since the price improvement rules began in May. We will ask for a bit of an update on that, if possible. Also, we will have some questions on high frequency trading. With regard to that algorithmic high-frequency trading as a new normal, how is the management of that new normal going? Another one is regarding cost recovery issues. There will be a little on auditing, and I do want to put on the public record here this afternoon that this morning we had a round table with the gatekeepers who we identified through our inquiry into Trio.

If I were to make an evaluative comment, I think it was a very fulsome conversation with very active participation by all the gatekeepers here, and I have some hope that it might foreshadow ongoing conversations amongst the network of gatekeepers, who seem very happy to be here and are very keen to enhance the professional capacity that they already have. I note with some hope their conversations with us today about the impact of the best interest duty and impact that has on rising standards. I make a final comment about a shift to regulation, which is sometimes, sadly, simply called 'red tape' but which is improving the integrity of the market. I think was generally the mood of those who were here this morning.-

Mr Kell : We touched on that. Can I say that we had two officers here to observe that conversation and we will certainly be looking at the issues that were raised, and they found that very useful.

CHAIR: Thank you. We might need to write to APRA, seeing as we do not get to talk to them, to alert them to some of the good commentary and other challenges that were raised this morning as well. Of course, the people who were involved in the Storm Financial issue still have continuing interest in how that is being progressed, and we will give you some questions on notice on that as well if we may.

Evidence was then taken in camera—

Committee adjourned at 15:25