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Economics Legislation Committee
30/05/2018
Estimates
TREASURY PORTFOLIO
Australian Competition and Consumer Commission

Australian Competition and Consumer Commission

CHAIR: I welcome officers from ASIC—in particular, the chair, Mr Shipton. Do you have an opening statement?

Mr Shipton : Yes, I do.

CHAIR: Thank you, Mr Shipton.

Mr Shipton : Good evening. I'm pleased to appear before the committee today, along with deputy chair, Peter Kell, and my fellow commissioners, Cathie Armour and John Price. Also appearing are senior executive leaders Laura Higgins, Sharon Concisom, Warren Day, Jane Eccleston, Greg Kirk, Louise Macaulay and David McGuinness. Chair, with your permission, I would like to acknowledge the important work of the royal commission. I expect the committee will have questions about various issues raised recently at the royal commission hearings, including about evidence which was derived from ASIC's work and investigations. Given that the royal commission is ongoing and yet to make any findings or recommendations, it is important that we not comment or speculate on what the royal commission might find or may recommend. I'm also aware that ASIC has ongoing investigations relating to a number of issues covered by the royal commission hearings. Accordingly, there are limits to what we can publicly disclose about them today. Nevertheless, we appreciate the opportunity to speak about the public outcomes we have already achieved in matters that have been subject of the royal commission hearings. Accordingly, Chair, with your permission, I seek to table a folder of public statements and public reports by ASIC that relate to matters which have been raised by the royal commission as case studies.

CHAIR: Thank you, Mr Shipton. I have received this folder. I must admit it is highly unusual to receive such an enormous number of documents to be tabled. But if the deputy chair is happy with that.

Senator KETTER: No problem.

CHAIR: Yes, thank you, we will table that.

Mr Shipton : In those tabled documents, for broader context, is information regarding total enforcement outcomes and the very broad work we currently have underway. In particular, I draw the committee's attention to the first document, ASIC's regulatory activities—activities that are aimed at ensuring that we have a fair, strong and efficient financial system for all Australians.

I also thought it would be useful for me to pass on some observations to the committee of how I see Australia's financial system and its regulatory structure, having returned to Australia a little over three months ago from almost 25 years working overseas. My observations include that, firstly, there is a trust deficit between the financial industry and the broader community. Secondly, there is insufficient embedding of a professional mindset and a professional culture in finance. Thirdly, there is insufficient attention given to, and mitigation of, by the finance industry, conflicts of interest. These observations are very consistent with reports and recommendations made by ASIC in recent time. In fact, ASIC's pursuit of regulatory enforcement, prosecutions and consumer compensation is very consistent with the regulatory responses that I believe were warranted. Nevertheless, ASIC must continually look for new ways to do its job, to ensure that it is evolving to respond to the harms and threats manifesting in Australia's financial system. And today I would like to outline to the committee some of the new approaches ASIC is looking to deliver in response to the threats I just mentioned.

Firstly, there is enforcement. We have used funding from our enforcement special account over the last few years to fund a regulatory program, called our wealth management project, that focuses on financial advice. Much of what we saw in the financial advice round of the royal commission hearings was based on the work of this project. We want to expand and accelerate this important program. We are also looking to build ways on our enforcement outcomes. This could include making greater use of external resources for our investigations—again, in order to accelerate response times.

The government has announced that it has accepted or agreed, in principle, to all of the recommendations in the task force that reviewed ASIC's enforcement powers. These reforms include significantly stronger and clearer rules about the obligation of licensees to report to ASIC honestly and, importantly, in a timely manner. They include a stronger ability for ASIC to take regulatory action against senior managers or controllers of financial services businesses. They include a new directions power that will enable ASIC to direct licensees to undertake remedial actions, such as consumer compensation programs, and they include stronger penalties against licensees in breach. For example, section 912A of the Corporations Act that, importantly, requires firms to deliver financial services 'efficiently, honestly and fairly', does not currently incur a criminal or civil penalty. It would incur a civil penalty under the proposed reforms.

I want to turn to supervisory approaches. ASIC currently supervises firms it regulates through a combination of risk based surveillance or reviews aimed at a particular firm and thematic reviews aimed at a sector or subsector. While these approaches can be very effective, they can be less intrusive and are generally based on sampling. These techniques will continue to have an important role to play; nevertheless, over the coming years, we will seek to improve our work by adopting new supervisory approaches for Australia's largest financial institutions and the important sectors within that sector. This will involve more intensive day-to-day supervision, with better cooperation between our fellow regulators, especially with APRA. This approach will be more intrusive, enduring and, with onsite visits, more physical.

The third new approach is ASIC's role in encouraging adoption of regulatory technology solutions in the financial sector. ASIC believes Australia can position itself as a world leader in the development and adoption of Regtech solutions, and we look at new ways to encourage this.

In closing, I expect also that there'll be further strategic responses necessary to enhance a regulatory approach to tomorrow's threats. We look forward to the recommendations that will come from the important work of the royal commission. And, as the Treasurer confirmed earlier this month, ASIC is discussing with the government what additional support it may need to support these new directions. To this end, we formally submitted our request for funding of these important initiatives on Monday. I have spoken directly with the minister for financial services and the Treasurer on these new ideas and have received a positive reception from them. Nevertheless, I am very conscious that there is a formal process to review and decide on these types of funding requests, a process that I very much respect and do not want to pre-empt.

As always, ASIC looks to maximise the effectiveness of its work, whatever its budget. Deciding what it does and doesn't do is one of the most difficult parts of ASIC's job. My job is to ensure that ASIC responds to circumstances strategically and with a clear sense of priority. Thank you, Chair. We look forward to your and the committee's questions.

CHAIR: Thank you, Mr Shipton. I just want to confirm: how many people did you bring with you today?

Mr Shipton : We brought up with us—

CHAIR: Or down and up.

Mr Shipton : Down and up—it's a federated organisation, as you know. We brought eight senior executive leaders and four commissioners; that's a total of 12.

CHAIR: I want to kick off, using the chair's prerogative, by asking you some questions about the enhancing ASIC's capabilities bill. The government has introduced that legislation to remove some of the requirements of ASIC to engage staff under the Public Service Act and to give you a bit more operational flexibility. I want to talk about the competition mandate aspect of it. I realise you weren't in the country at the time of the Murray review, but I'm sure you're entirely across it. What did the Murray review recommend in terms of competition and ASIC's role?

Mr Shipton : My understanding—and I can defer to my colleagues who were here at the time—is that ASIC should have consideration of competition in the fulfilment of its mandate and the execution of some of its decisions. But I will defer to colleagues who, as I said, were here at the time.

Mr Kell : ASIC didn't have competition as one of the elements that we should consider as part of our statutory mandate. The Murray inquiry recommended that that be incorporated into our mandate in a formal sense—not so that we would become the competition regulator but so that it was clear that we should be taking into account the impacts on market competition in our regulatory decision-making. We were very supportive of that recommendation and we've been very pleased to see that the government wants to take it forward.

CHAIR: Have other reviews reiterated that that you're aware of?

Mr Kell : I think the Productivity Commission review recently has emphasised the importance of ASIC's role in facilitating competition as well as other elements of the financial system.

Mr Kirk : That was just in their draft report.

Mr Kell : Yes, in their recent draft report.

CHAIR: Can I ask whether such a mandate as given to you under this legislation will improve ASIC's decision-making, or how it will potentially benefit your end users, your customers?

Mr Kell : We think it would certainly assist our decision-making in that it would allow us to formally incorporate competition elements into regulatory decision-making—for example, decisions around granting relief or cross-industry issues. It's quite a while ago now, but there was a case where ASIC did seek to take into account competition issues in the past and where the Administrative Appeals Tribunal said, 'No, actually, that's not part of your remit, so that shouldn't be taken into account.' We think that's unsatisfactory.

CHAIR: Can I ask also about what the ASIC capability review recommended in terms of supporting a more effective staff recruitment and retention strategy?

Ms Armour : I'm happy to commence answering that. The ASIC capability review did recommend that ASIC be free to employ staff outside of the Public Service Act. That same recommendation was made by the Senate inquiry into the performance of ASIC and also I believe the financial system inquiry. And really here, what we're looking to do is to be able to employ staff on similar terms to those of the other financial regulators. For example, APRA is able to employ staff outside the Public Service Act.

CHAIR: So how will it make ASIC a more effective regulator to be able to do that?

Ms Armour : Some of the skill sets that are required to effectively regulate in the financial markets involve employing people with that market expertise, and we'll be able to attract people at a more reasonable set of salary terms and conditions—well, a more competitive, if you like, set of salary terms and conditions—than under the current arrangements.

CHAIR: I should pull you up on that one. I should ask you: will the removal of existing ASIC staff from the Public Service Act potentially impact the staff and their employment arrangements?

Ms Armour : First of all, we have an enterprise agreement in place with staff. The proposals allow for things like continuation of the superannuation arrangements that currently exist for staff.

CHAIR: So it shouldn't affect any—

Ms Armour : We don't see that it should at all be a negative situation for current staff.

CHAIR: So it won't affect the enterprise agreement in any way, shape or form?

Ms Armour : No.

CHAIR: Will existing staff have the choice to remain in their existing Commonwealth superannuation fund?

Ms Armour : Yes, they will.

CHAIR: Excellent. That's what I wanted to know. I want to ask you some questions about the ASIC Enforcement Review Taskforce. I've only got about four minutes before I turn over to the deputy chair, so forgive me if I whiz through these things a bit. I want to ask you about how significant the new powers are for ASIC and when the last time ASIC received such a significant boost to its powers and also to its regulatory toolkit.

Mr Kell : We are very pleased when it comes to the package of reforms that are proposed through the enforcement review. It includes proposed increases to maximum penalties, both criminal and civil. I might note that I don't think the civil penalties have been reviewed since 1993—

CHAIR: Wow!

Mr Kell : so they are long overdue to be modernised so that they offer a far more meaningful deterrent effect for wrongdoers.

CHAIR: I would like you to expand on that: how they'll act as a deterrent to unacceptable misconduct and how those reforms will potentially affect consumers in the end.

Mr Kell : The maximum civil penalties across ASIC administrated legislation will increase for individuals to $1.05 million or three times the benefit obtained. For corporations, it's the greater of $10.5 million, three times the benefit or 10 per cent of annual turnover. It's worth noting that, for some of our key provisions at the moment, such as 912A—the requirement for licensees to act honestly, efficiently and fairly—there is no monetary penalty at all. When you look at the increase there, you can see it's very significant. In addition to the penalties, we're also very pleased that there would be a disgorgement power available for us, which would allow us to seek the disgorgement of profits that have been obtained as a result of misconduct. There would be better banning powers for senior managers.

CHAIR: How do disgorgement powers work?

Mr Kell : It would mean that, when we take civil penalty actions, we can also seek to have the court order that the profits or the money made as a result of the misconduct—

CHAIR: Become the proceeds of crime?

Mr Kell : Yes.

Ms Armour : It's a similar concept.

Mr Kell : That's important. We've been arguing for some time, and this committee has supported us, for an improvement in our ability to take action, ban action and administrate action against senior managers—not just the frontline advisors or mortgage brokers but also those who have effectively managed them and allowed the conduct to continue. We think that's something the community expects: those at the top of the tree are also going to be held accountable. There will be enhancements to our search warrant powers. We will also be given a directions power which will help us in a variety of ways, including the ability to direct licensees to put in place a suitable compensation program, for example, and do that far more easily than it can be done at the moment. If you consider the package, with the additional penalties, the additional powers and the additional remedies, we're very pleased to see that coming forward.

CHAIR: It's safe to say, then, that ASIC is very confident that the powers that you have been given—the new penalties; the new regime—will more effectively deter and punish those who are doing the wrong thing?

You think that, if this had been in place a decade ago, you would've been a more effective agency—is that what you're telling us?

Mr Kell : When you also consider the enforcement package—and, obviously, the government is intending to introduce product intervention powers and design and distribution obligations on firms—we think, as you add that up, it makes for a much stronger and more diverse toolkit to allow us to address harm. We're already thinking about how we're going to start using this when it comes on board, because we want to start using it from day one as I think our chair has indicated.

Mr Shipton : We want to use every inch of our powers as soon as they are available to us.

CHAIR: That's terrific. Senator Ketter.

Senator KETTER: Thank you very much, Mr Shipton, for that information; that's very useful. I've got a range of areas to cover. I'll start firstly with the legislation that's been introduced to remove ASIC from the Public Service Act. I understand that current ASIC staff will remain in terms of their superannuation coverage under the current CSS and PSS schemes and will be able to remain PSSAP members. Can you confirm that's the case.

Ms Armour : Yes, that's the case.

Senator KETTER: What entitlements to maternity leave do ASIC employees currently have?

Ms Armour : We probably have to give you that detail on notice, but the intention is that those entitlements would continue. There is no intention that those would change.

Senator KETTER: So you're saying they'll have access to the same entitlements after these changes occur?

Ms Armour : Yes.

Senator KETTER: How will you give effect to that?

Mr Price : There will need to be some changes to legislation to enable this to occur, and my understanding is that legislation is in the process of being drafted.

Ms Armour : In any event, ASIC has its own internal policy on paternity and maternity leave and our intention is to replicate the existing requirements.

Senator KETTER: What about redeployment rights within the APS? Is it the case that ASIC employees, including those who are made redundant, currently have redeployment rights to the broader APS?

Ms Armour : I think we'd have to take that on notice, if that's okay, and give you some more detail.

Mr Price : It may depend a little bit on how the relevant ASIC staff member is employed—whether they're employed as a permanent public servant or under contract—but we'll take that on notice.

Senator KETTER: Will current ASIC employees retain those rights after 1 July 2019?

Mr Price : Yes, we'll take that on notice.

Senator KETTER: Is ASIC supportive of existing ASIC employees retaining these redeployment rights?

Mr Price : I think, as a general principle, what we're aiming to do, as far as possible, is ensure that rights and entitlements flow through under the new scheme. You've raised a couple of matters of detail, so we'll come back to you on this.

Senator KETTER: Will ASIC be covered from the Australian Public Service Commission's workplace bargaining policy after these changes commence from 1 July next year?

Mr Price : Again, we'd like to take that on notice.

Mr Day : My understanding is the answer to that question is yes.

Senator KETTER: If the current bargaining policy remains in place, would ASIC expect to have to bargain under that framework?

Mr Day : The answer to that question is yes.

Senator KETTER: So, one could argue: this goes against the point of removing ASIC from the Public Service Act, if ASIC is still going to be subject to the restrictions of the Australian Public Service Commission's workplace bargaining policy.

Mr Day : We can take that on notice and come back to you with a more complete answer, but we don't believe so. I think, as Commissioners Armour and Price said, there are still certain flexibilities that are open to ASIC when we moved out of the APS in relation to the remuneration that we're able to offer certain staff through short-term contracts and other things and the ablity to employ staff and retain staff. In relation to the broad bargaining framework, that still sits. Shortly, we'll be entering a new set of bargaining discussions with our staff in relation to replacing the existing one. The current employee agreement is about to expire and we'll be looking at a negotiation with staff in relation to replacing it with a new one.

Senator KETTER: I think it's 26 May next year—is that right?

Mr Day : I think that's right.

Senator KETTER: According to the minister's second reading speech, removing the requirement for ASIC to employ people under the Public Service Act will promote greater operational flexibility.

Ms Armour : Yes.

Senator KETTER: Can you explain what 'extra operational flexibility' is?

Mr Price : To elaborate: with highly skilled people in particular areas of the financial system and in particular geographic locations, it can be a challenge for us to compete with private employers to retain the talented staff that we feel we need to get the best results for all Australians. That's why we're seeking these changes. And I would note that if you go back to the Wallace inquiry, which was the inquiry that set up the financial system architecture as we know it, my recollection is that the recommendation was that both ASIC and APRA be able to employ outside the Public Service for that reason. Those changes were put in place and that legislation was put in place for APRA but not for ASIC. So one might argue that this is actually delivering on what was originally recommended in the Wallace inquiry.

Senator KETTER: The minister's second rating speech goes on to say:

It will also allow ASIC to tailor management and staffing arrangements to suit its needs, ensuring it is fit for purpose to deliver effectively on its mandate.

Can you explain how you're going to utilise these changes to give effect to that?

Ms Armour : We'll be able to be more agile with our hiring of staff for particular projects, and be able to employ people on contracts which are tailored to the expertise that's required for the type of project and the length of the project. That will give us some more agility in doing that.

Senator KETTER: So more short-term contracts?

Ms Armour : Maybe, yes.

Senator KETTER: I just want to move to the Dollarmites issue. These were the practices where thousands of accounts were set up by Commonwealth Bank staff because of the pressure that they were under in terms of their performance targets and bonuses. Can you firstly tell me just when these practices in relation to Dollarmites and Youthsaver accounts came to ASIC's attention?

Mr Kell : I would have to take on notice the exact date, but very recently.

Senator KETTER: And can you tell me how they came to your attention?

Mr Kell : The detail of the issue came to our attention through media reports, rather than a report directly from—

Senator KETTER: So the CBA didn't report this matter?

Mr Kell : Not all the detail. I will take on notice the exact timing, but we have been meeting subsequently with CBA to get more details. We are investigating the matter.

Senator KETTER: So you found out about this through the media, Mr Kell?

Mr Kell : The details, the extent of the matter, were found out when we found out through the media.

Senator KETTER: What is ASIC's understanding of the period of the misconduct?

Mr Kell : Our understanding of the period of the misconduct is that CBA became aware of it in 2013. So that was some time ago. But, as I said, we're still finding out from CBA some more detail about the matter.

Senator KETTER: So this poor behaviour just continued. For you to have to find out about this through the media is just indicative of ongoing—

Mr Kell : I'm not sure that it continued beyond 2013. I'm not sure. I wasn't suggesting that it continued over that period. That's something I can come back to you on.

Senator KETTER: But the fact they didn't report it to you, and you only found out via the media—

Mr Kell : I only found out about the detail. There was a very brief report a little way before the media report to us from the CBA, but didn't contain the detail that we saw in the media report.

Senator KETTER: Can you take on notice whether they provided you with at least some detail of that?

Mr Kell : Sure.

Senator KETTER: What's your understanding of the number of customers affected?

Mr Kell : Again, we're in the process of obtaining information from CBA about the extent of the conduct. We're reviewing information we've obtained from the bank under notice in order to inform our decisions on next steps, and that includes the breadth of the conduct.

Senator KETTER: Has ASIC taken regulatory action over this issue as yet?

Mr Kell : Only to the extent that we have issued notices to obtain material from CBA, and we are investigating the matter.

Senator KETTER: Finally, do you expect to take regulatory action in relation to these issues?

Mr Kell : Look, I don't want to prejudge what decisions we might make, but we're taking it very seriously. As I said, it's the subject of an investigation.

Senator WILLIAMS: Mr Price, in 2009 I took a representative from ASIC to Adelaide. We met with John Viscariello. We gave ASIC two folders of chronological evidence about the accusations of Peter Macks, who worked for PPB as a receiver. Peter Macks spent $500,000 of creditors' money suing a lady called Heidi George for $27,000. ASIC did nothing. I'm alarmed. I table this letter in which ASIC responded to Mr Viscariello saying, on 13 January 2012:

I confirm that Peter Macks agreed with the Australian Securities and Investments Commission to seek retrospective approval from the committee of inspection in relation to the decision to fund the Heidi George Litigation.

ASIC ticked it off. This has cost John Viscariello millions. He won the court case under Chief Justice Kourakis and has won the appeal. Just before his appeal case started, his barrister committed suicide. It's been a shocking time for him. My question is: why didn't ASIC run this case? Clearly, you should have.

Mr Price : Senator, I will say at the outset that I certainly feel for Mr Viscariello and his circumstances. He's been through a very difficult time.

Senator WILLIAMS: He's been through hell, Mr Price.

Mr Price : I would, however, take issue with your final point that he won the appeal. For example, there is a recent article in the Insolvency Law Bulletin that talks about this very case. It concludes that the full court's decision largely vindicates the liquidator on findings of fact, 'although there were still breaches of s 180 relating to the continuation of legal proceedings'. It remains the case that ASIC does have some action on foot in respect of the liquidator in question. That action is ongoing, and therefore it is probably not appropriate for me to go into a large amount of detail in respect of that action.

To the extent your point is why we did not make a decision to investigate this matter when the material was first brought to us, I will go back to a point I made in this place a couple of times before: with every matter that we decide to take, there is an opportunity cost. At any one time, there are a large number of matters where we have to make decisions about which one to resource and which one not to resource. In the case of this particular matter, a decision was made not to resource it. As I said, the full court's decision in this matter largely vindicates the liquidator on findings of fact, according to this independent article. I very much appreciate and feel for the difficult situation that Mr Viscariello has been in. We made a decision at the time not to take this action. Other actions were preferred rather than this particular action. But in more recent times we have taken, and we are taking, action against the liquidator in question, and we will follow that action through.

Senator WILLIAMS: Should you have taken action? Looking at this in hindsight?

Mr Price : In hindsight, as I said, with every choice we make about an investigation or enforcement decision, there's an opportunity cost. So it's not as if there was nothing else for us to do. It would have been fantastic if we could have taken this action, but necessarily that would have meant that some other action that we were taking—perhaps criminal, perhaps against an institution, perhaps recompensing investors—was not possible. Those are the sorts of decisions we need to make every day.

Senator WILLIAMS: Thanks, Mr Price. I appreciate that. I'm sorry I had the appeals judgement wrong, but I was led to believe that he'd basically won it.

Mr Price : I'm happy to provide a copy of that.

Senator WILLIAMS: Thanks for that. Mr Shipton, on Thursday 17 May you gave a speech titled The Trust Deficit and Corporate Australia. The speech contained the following statement:

…the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether.

This is an option that ASIC favours in relation to conflicted payments and advice. There can be no ambiguity in this area.

In terms of life insurance, Mr Shipton, there was a long process that started with ASIC Report 413 in 2014 and ended with ASIC legislative instrument 2017/510, which introduced caps and clawbacks for life insurance commissions from 1 January 2018. Given your speech and the context of your published statement, do you no longer support your own legislative instrument on life insurance commission caps? If not, what has changed?

Mr Shipton : Thank you for the question. To clarify, when I was talking in that speech about conflicted payments and advice, I was talking about financial advice. I went on to also use that as an example or a benchmark to show that, when talking about the broader issue of conflicts of interest, particularly in remuneration, eradication of conflicted payments is one option. I wouldn't go on and then extrapolate that our policies in relation to other areas like life insurance are a direct consequence. That said, it is very important in all of these areas that the industry, and companies and entities within that industry, are constantly looking at the remuneration structures so as to minimise or mitigate conflicts of interests.

Senator WILLIAMS: So there's no plan for changing the process that was put in place for commissions for life insurance? The other commissions for advice have gone?

Mr Shipton : Correct.

Senator WILLIAMS: No plan to change that?

Mr Shipton : Again, I called in this speech—and I'm happy to reiterate it today—for the industry to take a lead. I called on that day for the industry to have a wholesale review of their practices in relation to conflicts of interest, particularly in relation to remuneration structures, so as to eradicate or mitigate and deal with conflicts of interest, because they are far more prevalent than they should be. Going back to some earlier comments, they are causing bad customer outcomes. It is a priority to ensure that conflicts of interest do not end up with consumer and customer outcomes which are untoward.

Senator WILLIAMS: Mr Kell, I'm running out of time; I have about three questions. You've used enforceable undertakings for many years now on big companies for wrongdoing. Are enforceable undertakings a sufficient deterrent to stop bad behaviour?

Mr Kell : Enforceable undertakings are a very effective tool. You need to sit them alongside the fact that we take a considerable amount of criminal actions.

Senator WILLIAMS: A very effective tool in relation to preventing wrongdoings in the future?

Mr Kell : They can be. They can be a very effective tool, yes.

Senator WILLIAMS: Perhaps they can't be, either.

Mr Kell : In cases where we don't think they're going to be an effective tool, that they're not going to stop the conduct or where they're not going to provide remediation we are not prepared to use them.

Senator WILLIAMS: I asked the question in the context of AMP. In 2007, you put an enforceable undertaking on AMP, correct?

Mr Kell : It was in 2006, 12 years ago.

Senator WILLIAMS: Look at the behaviour of AMP coming out in the royal commission. Did that enforceable undertaking you put on AMP in 2006 do anything to deter their behaviour in latter years?

Mr Kell : At the time—and I have to say, I wasn't around at the time; this was 12 years ago now—it enabled compensation to be paid in a way that wouldn't have been achievable through a court outcome. It's also worth remembering the environment back in 2006. The legislative standard of advice was different, arguably lower. All commissions were allowed. There were no civil penalties attached to the misconduct, had we taken court action. It's obviously been extremely disappointing to see the conduct of AMP in recent times around the fees for no service issue, but I think it's difficult to imagine that an enforceable undertaking from 12 years ago could have prevented some of those things that we've seen in the last few years.

Senator WILLIAMS: If you have them in the future, let's hope they work to more effect. Turning to small amount credit contracts in industry, who is responsible for that? Is it you, Mr Kell?

Mr Kell : I think so, yes.

Senator WILLIAMS: There were issues in 2013 where compensation was sought for six consumers. Are there any issues in that industry which are currently against the interests of the consumers they serve? Are there any ongoing issues with small amount credit contracts? There were some half dozen back in 2013. Are there any now?

Mr Kell : Yes. We have some investigations underway in the payday lending space. I won't go into those that are the subject of current investigations, but it is an area of focus for us, because we are talking about particularly vulnerable consumers in many cases.

Senator WILLIAMS: With the flagged changes being talked about in this building, will you be engaging with the National Credit Providers Association and having negotiations and consultation with them?

Mr Kell : We certainly will be. We've had some meetings with the industry association and we've had meetings with the consumer associations that are interested in this area. We're obviously engaging with Treasury and the government. We think the reforms are important. Our experience in the administration of the regime over the last few years has been that there have been some shortcomings. It hasn't properly addressed some avoidance issues and it hasn't properly addressed the issue of consumers ending up in a spiral of taking out one loan to pay back the previous loan and another loan to pay back that one, and so on. We've certainly supported reform. Ultimately the decision on the reform, the shape it takes, is one for government. We want to make sure it works and can be enforced.

Senator WILLIAMS: In other words, you want to clean it up but not crucify it? I hope that's the case. Mr Shipton, Senator O'Neill was talking in the chamber a couple of weeks ago, saying how we've cut the funding for ASIC in the budget. The Superannuation Complaints Tribunal will go from ASIC when AFCA kicks off in early November, correct?

Mr Shipton : Correct.

Senator WILLIAMS: You don't need the funding for that. We've been on at this for years about how you spend $30 million policing, if I use the word, financial planners, but you only collect about $2.8 million in fees. You spend $10 million a year policing liquidators and only collect about $40,000 in registration fees. Your user pays system will be coming in soon—is that correct?

Mr Shipton : Yes. The industry funding model will commence this coming financial year.

Senator WILLIAMS: Is ASIC funding good enough?

Mr Shipton : The current funding regimes for ASIC very much are subject to NPPs. Some of those NPPs are winding down and that explains that there's been movement in our funding. I would like to reiterate that we have put in on this Monday a funding request based on a number of strategic initiatives that I've outlined in my opening remarks. That request is being processed in the ordinary course. As I also mentioned, I have personally spoken to the Minister for Revenue and Financial Services and the Treasurer and I have received positive responses. I am very respectful of the due and proper processes in these regards, and I will leave my remarks at that.

Senator WILLIAMS: We will run through that in October and see how you go. Good luck and all the best with what is coming out of the royal commission. I believe ASIC has played a major role in giving evidence to the royal commission on companies such as AMP and others, is that correct?

Mr Shipton : That's correct. We've been very pleased with the support that we've provided the royal commission, which is doing incredibly important work and putting a lens on issues that the community needs to see. We remain very committed to trying to deal with the issues coming from the royal commission, now and into the future. But as you highlighted in your question, these issues were very much a part of our regulatory attention for quite some time and they will remain part of our regulatory attention into the future.

CHAIR: As a follow-up to Senator Williams' question, do you have any idea exactly how many requests from the royal commission ASIC has already responded to, or how many documents you might have already produced?

Mr Kell : We would have to take that on notice. It's a lot.

CHAIR: The official count is a lot!

Mr Kell : That's what we do. That's our job.

Senator KETTER: Can I follow up on that issue of funding cuts? Mr Shipton, I understand that you've been subjected to increases in your efficiency dividend over the last four years. What strategies did ASIC adopt to meet the efficiency dividend increase beginning in 2014-15? Was a reduction in staffing levels one such measure?

Mr Shipton : I will have to defer to my colleagues who were at the organisation at the time.

Ms Armour : We have adopted a number of strategies to ensure that we are operating as efficiently as possible. One of those strategies has been actually NPP funded since 2016, but we had started work on it place a number of years before that. That is transforming the platform on which we do our work. So we have a simpler system, we have more connected databases so that staff can make inquiries at one place on any one issue, rather than having to look at a number of dispersed areas. We've been running that program for some time. So it's changing our platform, and is helping us to garner a number of efficiencies.

Senator KETTER: My question is, was reduced staffing levels one of the methods you adopted to meet your efficiency dividend objective?

Ms Armour : We did have a reduction in staffing levels in 2014 as a result of this objective.

Mr Kell : We might need to check the dates.

Senator KETTER: What was the impact of these cutbacks on ASIC's supervision of enforceable undertakings during this period?

Mr Price : I think—and again it's the dates that I'm trying to place—but remember around this time there was the Senate inquiry into the performance of ASIC. There was a substantial piece of work that followed that around enforceable undertakings generally, and it did include enhanced supervision around those undertakings.

Ms Armour : There was an audit conducted by the ANAO into our processes in managing enforceable undertakings. That made some recommendations, which we adopted. We'd be happy to provide you with the relevant material on notice.

Senator KETTER: I note that while the number of financial adviser entities increased by over 400 between 2015 and 2016, the number of ASIC staff in the team overseeing them dropped from 32 to 26. Staffing numbers also fell in the investment manager and superannuation oversight team despite the number of entities in that regulated population also increasing. Did these cuts hamper the ability of the stakeholder teams to supervise their regulated operations?

Ms Armour : There was a redundancy program in 2014 as a result of cuts to our core budget. We can come back to you with details on the numbers of staff who were made redundant.

Senator KETTER: During that period, I understand that ASIC was heavily reliant on independent experts to oversee bank remediation. Was this related to these cuts?

Ms Armour : No. Generally our practice with enforceable undertakings, depending on the nature of the matter and the undertaking, is that frequently independent experts are appointed to conduct a review of the practices and processes in the organisation providing the undertaking. ASIC staff review the work of the independent expert and will work with the firm in response to recommendations made by the independent expert in a program that is developed with an independent expert. We haven't changed our processes over that period of time in relation to using an independent expert. Things we have changed are that in certain situations ASIC may appoint the independent expert rather than the particular firm, and we have a system of public reporting on the progress of the independent expert's review.

Mr Price : If my memory is right, those enhancements came out of the Senate inquiry into the performance of ASIC. That drove some changes in terms of how that work was reviewed.

Senator KETTER: In which other ways did the funding cuts and efficiency dividends curtail ASIC's regulatory capacity?

Ms Armour : We've always done the best job we can with the resources available to us, so we will have made an overall adjustment to the way we approached issues.

Mr Price : We do look at things critically in the goods and services budget. That tends to be the first area. We think very carefully about what travel we're doing, whether meetings can be done by video conferencing rather than by in person, reducing travel costs in that way. There's a whole range of things that might be put in place, but we don't want to micro-manage the senior executives for each team. The senior executives for the relevant teams are allocated budgets and they tend to make decisions about what the best areas are where savings might be able to be attained. That's a general principle that we try to adhere to.

Senator KETTER: Mr Price, in answer to a question from Senator Williams you mentioned that if you had undertaken the legal action that Senator Williams suggested, there would be an opportunity cost in that you wouldn't be able to initiate another action. It suggested to me—

Mr Price : My point about opportunity costs applies whether ASIC's budget is $200 million, $300 million, $400 million or $500 million. It's the same basic point. There will always be matters where we have to make choices about what is more important, what seems to be a better case, and therefore what resources are allocated to it. That applies regardless of budget.

Senator KETTER: That's right, but one would like to think that for ASIC, as a regulator, if there are meritorious cases, you shouldn't have to make a decision amongst them as to which are to be pursued on the basis of funding?

Mr Price : Sure. There are real questions of judgement in there. We think our staff do have the right judgement to make the right decisions on which cases to take forward and which ones not.

CHAIR: I'm certain, Mr Price, you made the same sorts of decisions when there was an efficiency dividend applied in 2008, 2009 and also 2012 and 2013.

Mr Price : Absolutely. I reiterate that we do the best job we can with the budget allocated to us. We understand that there are many competing demands on governments of the day. That's our commitment to people—we will do the best we can with whatever money we're provided with.

Senator KETTER: I'd like to move on to another subject. The fact that there are billboards popping up over Queensland with Mr Palmer's photo on them reminds me about your investigation into his activities, particularly in relation to Queensland Nickel. Could you update us in relation to the allegations of shadow directorship?

Mr Price : I think I indicated at the last appearance—I can't remember whether it was the parliamentary joint committee or Senate estimates—that our investigation was well advanced. That remains the case. I probably would not like to go into too much more detail at this stage, at least in public hearings.

Senator KETTER: Okay. I respect that we certainly don't want to prejudice anything. I'll keep going. Can you tell me if there are any new allegations that you are following up on in this matter?

Mr Price : No, the core allegations we're looking at are still the same. They're basically the ones that I think we discussed on the last occasion. They relate in particular to the following matters. Just bear with me.

Senator KETTER: Breaches of directors' duties and false documents.

Mr Price : Correct. And in particular various—so the use of company funds to fund the Palmer United Party and other companies controlled by Mr Palmer.

Senator KETTER: I was interested if there was anything new. So are you saying there is nothing new?

Mr Price : Yes.

Senator KETTER: Can you tell me what other agencies ASIC is working with in relation to these investigations, and what their involvement has been?

Mr Price : Again, I would prefer not to go too far into that.

Senator KETTER: Sure. Can you tell me if ASIC has spoken to Mr Palmer or Mr Mensink as part of its investigation so far?

Mr Price : I'd prefer not to go into that. We have conducted a number of interviews with various parties, but I would prefer not to name those parties.

Senator KETTER: Okay. I have a number of other questions. Can you tell me what the potential maximum penalty is for someone found guilty of acting as a shadow director?

Mr Price : That's not quite how it works. Basically the shadow director provisions say that you are placed in the same position as a director of the company would be if that person were correctly appointed. The penalty that might attach really depends on what breach of the law flows from that person's action. For example, if there was misuse of company funds, as a shadow director the penalty that would apply would conceivably be in the same range as the penalty for the misuse of funds by someone who is an actual company director.

Senator KETTER: Okay. In relation to Mr Mensink, he's wanted on two warrants to appear before the courts. Mr Palmer has told the courts he was at one stage paying him $4,000 a week while he was away on an overseas holiday while the courts were seeking his attendance. Are you concerned that Mr Palmer has said he'd be willing to pay his nephew $1 million a week, if he wanted to, given that Mr Mensink is a wanted man? Is this a breach of any corporate laws?

Mr Price : Mr Mensink has been asked to appear before the court in relation to some civil proceedings, if my memory is right, that liquidators of the company are undertaking. The comments that Mr Palmer has made recently in relation to Mr Mensink are not the main focus of our inquiries.

Senator KETTER: You don't believe there's any breach of corporate law involved in the comments that he's made to the court?

Mr Price : On the basis of the material I've seen to date, I do not believe so.

Senator KETTER: Thank you.

CHAIR: Just before I throw to Senator Whish-Wilson, I want to confirm, Mr Price, the efficiency dividend that applied in the 2008-09 period was two per cent and the efficiency dividend in 2013 was 2.5 per cent—is that correct? Is that your best recollection of those efficiency dividends applied by the Labor government in those years?

Mr Price : I have a good memory, but not that good. I'll take that on notice.

CHAIR: Fair enough. Thanks very much.

Senator WHISH-WILSON: I might start with a big broadbrush question, if I could. Senator Williams and I, and probably Senator Bushby, have been on this committee, and others, in the last five years looking at a broad range of inquiries. I campaigned hard to get a royal commission and I was quite surprised by some of the revelations that have come out of the royal commission, even after seeing and experiencing what I'd experienced. I know other commentators, including very experienced commentators, have made similar comments. I suppose the big question that a lot of people would like answered is: was ASIC surprised by some of the revelations we've seen at the royal commission? I will give you a couple of examples. I know you won't be commenting, Mr Shipton, on specific aspects of some of the revelations, but, for example, CBA knowingly charging customers who'd been dead for a decade; there's the NAB branches in Western Sydney with their Introducer Program, and bribery and forgery rings. We've talked about AMP already, how they lied to you guys on 20 individual occasions and how they misrepresented the findings of their own audit reports. They are some examples. Can you speak generally to them? Have you been surprised by some of the revelations, or did you already know about these things?

Mr Shipton : The vast, vast, vast bulk of the matters that have appeared as case studies are known to us and have been a matter of regulatory and investigatory attention, and my colleagues can speak in some detail on that. A very good example is the broader fees-for-no-service issue, which has rightly been highlighted by the royal commission. Again, the royal commission has done the community a great service by highlighting these issues.

Senator, you're absolutely right: you can sit in this place or you can sit as a regulator, and it is still nonetheless confronting to see these matters play out on the screen and in the public domain. This is very important, and that is why the royal commission is serving a very valuable role. Fees for no service is a very good example. We reported this in 2016. It's a subject matter of an ASIC report, and it is a matter that we have paid serious attention to and we continue to pay serious attention to. In fact, some of the initiatives that I spoke to in my opening remarks are very much aimed at accelerating some of the work in relation to advisers and the deficiencies that we see in that space. Before I hand over to my colleagues, I would reiterate that while the vast, vast bulk of the matters were under our regulatory attention, it is still, as you alluded to, nonetheless extremely confronting to see them in the public domain.

Senator WHISH-WILSON: Hence your comments, Mr Kell, about being very disappointed about these revelations about AMP? You were aware of them?

Mr Kell : Yes, by and large. But there have certainly been some instances that have come to light through the royal commission case studies where it's become apparent that not all the information about a particular matter, say, a particular advisor, has been reported to the regulator. That in itself is obviously of concern, and we will be following up with that. It might have been that some information about an advisor engaging in misconduct has been reported, but not the full picture. But in relation to the AMP matter, we have a very significant investigation underway there. We've been public about that.

Senator WHISH-WILSON: That was underway prior to the royal commission?

Mr Kell : It's been underway for some time now, arising originally out of, as the chairman said, our work looking at the fees-for-no-service issue. That significant investigation is continuing. We're considering criminal and civil options there. I don't really want to go further into it because it's quite serious at this point in time.

Senator WHISH-WILSON: I respect that; I wouldn't want to compromise your investigation. And in relation to some of the revelations, like the Commonwealth Bank charging dead people—was that a revelation? Are you able to comment?

Ms Macaulay : We weren't specifically told that in so many words. It may have been that those clients were included in broad statistics or broad groups that were reported to us, but it was never made plain that some of these clients had passed away.

Mr Kell : We're following up on that particular issue. With the fees-for-no-service investigation that we've been doing across the large firms, there's around $220 million so far that's been identified for remediation; there's more than 300,000 clients across the five largest entities. We expect that to grow significantly, I'm afraid to say, because some of those entities are still undertaking reviews around who has been charged fees without advice being provided. Within that mix, it has now become apparent with CBA that some of those clients were deceased, which is obviously completely unsatisfactory, and we'll be following up on that aspect of it.

Senator WHISH-WILSON: And the same with the NAB branches in Western Sydney with their Introducer Program?

Mr Kell : ASIC has had a significant program around loan fraud matters underway over the last few years. This includes taking action both against individual brokers that have engaged in fraud and also some more large-scale systemic matters. That is one matter that we were aware of and that we've been investigating and engaging very closely with NAB on, so there is a major investigation underway there.

Senator WHISH-WILSON: That was underway prior to the royal commission as well?

Mr Kell : Yes.

Senator WHISH-WILSON: How long was that underway for?

Mr Kell : I'd have to take that on notice, but more than a year. Again, from our perspective it is important that the community gets to see some of the issues around loan fraud. There will always be, given the size of the mortgage and other finance industries in Australia, some fraud. Our objective is to minimise the risk of that and to take brokers and others out of the industry as quickly as possible. I think we've removed about 70 so far since we've had the regime, with more than a dozen criminal convictions. We had one earlier this year—a five-year jail sentence for a big $180 million loan fraud. It is a focus for us, because you just don't want that sort of thing spreading.

Senator WHISH-WILSON: I will ask you a question that I asked the other two regulators today, the ACCC and APRA. It's probably more to do with prudential financial risk, but I know you have a direct responsibility for ensuring that lending standards set out under the national consumer credit code are adhered to. Is that correct?

Mr Kell : Yes. We have responsibility for the responsible lending standards.

Senator WHISH-WILSON: The royal commission has also uncovered an overreliance by banks on the household expenditure measure, the HEM, to determine a loan applicant's income, particularly for household mortgages. Have you investigated the use of this measure in the sleep is it where they have where they've introduced this program past and do you agree that there is an overreliance on the HEM in setting mortgages and mortgage risk weightings in Australia?

Mr Kell : It has been a significant focus for us. We've had, in particular, a major focus on the use of benchmarks in relation to interest-only loans. We did a major review there a few years back. We've taken some actions against some of the major lenders in respect of overreliance or inappropriate use of benchmarks without taking into account people's actual expenditures and incomings. We have Westpac in court at the moment on this matter. I don't want to talk further about that. We'll see how that goes. Certainly it has been a very significant focus for us and we're currently engaging further with the banks around this. We have seen improvements in that area, I have to say, so we've been pleased that the banks and the other major lenders have responded and improved what we would have regarded as an overreliance in this area. We hope to see that continue.

Senator WHISH-WILSON: Can I put another broad question to you—and I suppose various senators have touched on it in some way or another tonight. To the public that are looking at the debate at the moment around the royal commission and seeing examples of misconduct or fraud or unconscionable conduct—whatever you want to call it—how do you separate pursuing corporations or companies through enforceable undertakings or civil and criminal proceedings versus individuals within those companies? Where do you draw the line? Most people out there say, 'We want to see people being thrown in jail.' Why aren't these executives going to jail? If someone steals from a car three times, they'll go to jail. Why are these people getting away with it? Corporations can pay the fee, and it's a cost of doing business, and they move on. It's the most common question I get, all the time. I find it difficult to answer, because I actually don't know the answer. How do you separate out individual conduct within organisations? I did write down, Mr Kell, that you mentioned you've got new laws around administrative actions or banning actions against executives.

Mr Kell : Senior managers.

Senator WHISH-WILSON: Sorry, senior managers. When you are going to pursue misconduct how do you decide between going after the individuals to get a conviction and letting the company take the rap, pay the fine and move on?

Mr Shipton : Let me start and then the deputy chair can pick up. The starting point for any regulator is that we are in the business of aiming for a financial system for all Australians that is fair, strong and efficient. That's our goal. We will use all of the tools available to us to achieve that goal, modify behaviours and get the right outcomes to get that goal. You mentioned our range of enforcement tools that are absolutely instrumental and absolutely key, and we will utilise them. Our aim when we're exercising the discretion that my colleague Commissioner Price was talking about is to get to a point whereby Australians have confidence in the integrity, the efficiency, the strength and the fairness of the financial system. We work back from that goal. That is what we're aiming for.

When we are presented with the misconduct that we're seeing very clearly through the prism of the royal commission and, as we have mentioned before, we have been focused on for quite some time, we are exercising professional regulatory judgement in relation to the particular cases and the particular circumstances, again with the ultimate goal of that efficient, fair and strong financial system. There isn't a bright line between a corporate entity and a person. It is what we believe to be the right response in the circumstance with that goal in mind. Might I also add, as you've highlighted, there are a range of different enforcement options to us and we will exercise our best discretion in trying to apply whether it's a civil pursuit, a criminal pursuit, an enforceable undertaking, an administrative action or the like. So you've actually highlighted one of the great challenges of a good regulator, and that's something that we are striving to achieve by being strategic but above all by being very attentive to the harms that have been manifested and the ultimate goal.

Senator WHISH-WILSON: And the disincentive for this kind of thing not to continue?

Mr Shipton : Correct.

Mr Kell : I also want to make the point here that it's not always the case that these objectives are mutually exclusive and, where possible and where it's relevant, we will seek to take action to address problems within the firm—imposing requirements on the firm to improve its processes, to improve the way, say, in the financial advice area, it audits financial advisers and remunerates financial advisers while also potentially taking the worst advisers out of the industry through bannings—and also, hopefully, in some cases ensuring remediation or compensation for the consumers. In the larger and more significant matters, you are looking to have, if you like, a holistic approach to ensure that you get the consumers fixed up, the people who are responsible for misconduct taken out of the industry and the firm itself having to bear the costs of fixing their own systems.

Ms Armour : I don't accept the premise of the question, which seems to be that we don't take action against individuals.

Senator WHISH-WILSON: I didn't say that. I said that the perception on the street is that you're not throwing anyone in jail.

Ms Armour : Yes, and that's a really unfortunate perception because it is not reflected by the facts. In the last seven years we've had more than 160 people convicted criminally.

Senator WHISH-WILSON: Senior managers of corporations?

Ms Armour : We've run cases against senior managers and we've run cases against people who may have been participating in the markets. We've had a range of cases. We have actually taken over 140 civil cases now. Often they are against corporations, but we have taken them against individuals as well. In fact, we have some cases underway in relation to individuals who are senior managers of Rio Tinto. We actually do that, and I'm happy to provide the information.

Senator WHISH-WILSON: I understand. This committee had an enquiry into white-collar crime only last year, and, of course, we've all worked hard to get you and to support you in your call for higher penalties and provisions. Certainly, I think the overwhelming evidence was that gaol time is the biggest disincentive for managers in companies, especially around changing corporate culture. I'll just put that on the record.

Senator BUSHBY: Mr Shipton, you mentioned that ASIC was aware of the vast majority of cases that the royal commission is looking at, and, when Senator Whish-Wilson went through a number of cases, you indicated that ASIC was already investigating most, if not all, of them, I think. To what extent is the royal commission informed by what you're giving them? I presume that you haven't been able to talk about these because you have a requirement to keep confidential who you're investigating, but, with the royal commission, you can provide information to them and then they can open it all up? To what extent is the work of ASIC actually informing the work of the royal commission?

Mr Shipton : We would like to think that we are being very helpful and beneficial to the work of the royal commission. The chair, Senator Hume, asked earlier about the volumes of information we're providing, which is absolutely significant. So I am very confident in predicting that the information we're providing is extremely useful and helpful to the royal commission. But, of course, having said that, the royal commission is conducting its own work. It is deliberating in its own way. We respect their important and very independent role that they are performing, and we await the recommendations or any matters that they happen to bring to our attention and to the attention of other agencies.

Senator McALLISTER: About three years ago, I asked Mr Kell about the use of the Henderson poverty line. At the time, you were engaged in enforcement with the Bank of Queensland. You said that you were concerned that the use of benchmarks might not be appropriate. You said you thought industry was moving away from those practices but that the responsible lending laws would require a very different approach from lenders and that a reliance on benchmarks alone would not be acceptable. Can I ask how many enforcement actions ASIC has taken in the last year in relation to the misuse of benchmarks?

Mr Kell : I think we'll have to take that on notice. We have one major one in court at the moment with Westpac. Are you talking about benchmarks or responsible lending more broadly?

Senator McALLISTER: Benchmarks, specifically.

Mr Kell : I think that might be the main one, but I'll have to come back to you.

Senator McALLISTER: Do you have any idea how many enforcement actions have been taken over the last five years?

Mr Kell : I'll take that on notice as well.

Senator McALLISTER: Is it tens or hundreds?

Mr Kell : No, not that many.

Senator McALLISTER: Not hundreds?

Mr Kell : Certainly not hundreds. I'll come back to you on the benchmarks issue.

Senator McALLISTER: APRA made a supplementary submission to the banking royal commission, and, drawing on their targeted review, they indicated that the extent of reliance on the benchmark is not consistent with APRA's preferred approach. That evidence from APRA, which they confirmed this evening, was that the problem is relatively widespread. Can you tell us what steps you are taking to proactively identify instances of breaches, particularly in relation to the inappropriate use of benchmarks?

Mr Kell : We conducted a major review several years ago, which we have subsequently repeated, on the use of benchmarks and responsible lending more broadly, especially in relation to interest-only loans, which is the fastest growing sector in the home loan industry. We looked at the lenders, and we undertook a separate review of the responsible lending obligations of brokers because both parties have responsible lending obligations in the credit sector. We came out with a set of recommendations. I haven't got the report in front of me, but I'm happy to provide it to you. It set out where we thought improvements needed to be made. We identified and engaged with the lenders on that and those improvements generally were made. That has also subsequently led to the test case, in effect, that we have before the courts at the moment in relation to Westpac. So it's been a focus for us.

Mr McGuinness : The central issue in the case against Westpac to which the chair has referred is about the use only of benchmarks in the absence of using actual expense from borrowers. So we are putting that front and centre in that case. That arose out of this review to which Mr Kell has referred. That review was also conducted in a collaborative and joint way with APRA. Out of that work sprung our concern more broadly around benchmarks and their use in a vacuum. That is a critical question in this case that will be before the court for trial in September this year.

Mr Kirk : One of the other things is that the simple case, and the rarer case, is the one where they're used in a vacuum and used as a substitute for asking any questions of the borrower. The more common practice which I think may be concerning APRA is that, having asked questions of the borrower and got information about their expenses and the like—

Senator McALLISTER: The benchmark is a substitute?

Mr Kirk : you use the benchmark as a test against that. Even there the concern is the benchmark being used as the backstop check is not high enough. The experience, I think, from lenders is that very often people understate. They don't want to use the information that people have given them without testing it because they think it's too low. To some extent the benchmark, used wisely, can be used to put a check on the expenses people are really reporting and to test whether that is realistic for a person in their circumstances.

Senator McALLISTER: Is it your assessment that that is how benchmarks are being used?

Mr Kirk : That's a very common use of benchmarks. As I said, there is also the rarer case—or we hope it is rarer—where it's used as a substitute for asking the questions at all. I think that industry has moved away from the bare use of benchmarks to a more complicated process, but there are still problems with that complicated process and some questions to be asked about it.

Senator McALLISTER: Mr Shipton, I apologise that I wasn't here for your opening remarks, but I understand that you talked about the need for stronger penalties against licensees in breach. There's been some commentary—and I'm sure you're aware of it—in an article on the ABC website today that in fact there is a penalty in relation to section 912A's obligations and that penalty is the suspension or removal of a financial services licence under section 915. Do you believe that that option is available to ASIC?

Mr Shipton : Thank you for the question. That option is certainly available to ASIC. I would like to just clarify my statement from the speech which has been quoted in that article. I want to put it in context because I don't believe the context was made as completely clear as it could have been in the article. I was actually talking about the announced reforms which my colleague the deputy chair has just mentioned that would strengthen the available penalties. I was talking about the fact that section 912A does not currently incur a penalty and it would under the proposed reforms. I was referring to either civil or criminal penalties. As I mentioned in my opening remarks, that is being addressed.

I also want to clarify that the article referred to section 915C, which is talking about administrative action to suspend or cancel a licence. It's important to note that this does not give ASIC a unilateral or automatic power to remove or suspend a licence. It instead establishes a procedural requirement for a hearing which, amongst other things, would then trigger procedural fairness. Therefore, I would not personally characterise this particular power as a penalty. I think that clarifies my remarks.

Senator McALLISTER: But it is available to you as a sanction?

Mr Shipton : It is a sanction and it is a consequence—

Mr Kirk : If I can clarify: it's available as an administrative procedure. The purpose of that administrative procedure must be to protect the public. If we were to seek to impose conditions or to take away someone's licence with the intent of punishing them for wrongdoing, that would be overturned in the courts. That's not a permissible use of licence conditions or removal of a licence. We're not given the power for that purpose and we can't use the power for that purpose.

Senator McALLISTER: In other securities it is possible. The Hong Kong securities regulator this year suspended the ability of UBS to act as an IPO sponsor for 18 months.

Mr Kirk : I don't know whether they did that as a penalty or to protect the public. Again, with examples here, we can take someone's licence in order to protect the public.

Ms Armour : In any event.

Mr Kirk : But in a case where we seek to do that—which commonly happens where we have sought to do it—they put up the defence saying: 'Yes, we did those things, but we've now got new procedures in place and we're undergoing a review. We've brought in a compliance expert. We will be able to comply in future, therefore you should not take our licence.' That is an argument that is sufficient to keep their licence in the courts.

Ms Armour : And we regularly exercise this power. Over 800 people or entities have been banned from having licences or have had licences suspended in the last seven years. It is a power we use, where it makes sense. It's a power we use, where it's available.

Senator KETTER: Can I just follow up on that question, Mr Kirk. Section 915C—you know this better than I do—says:

ASIC may suspend or cancel an Australian financial services licence (subject to complying with subsection (4))—

where—

… the licensee has not complied with their obligations under section 912A.

Senator McALLISTER: It's fairly direct.

Mr Kirk : That opens the door. It's a possibility, if it's necessary, in order to protect the public. It can't be done as punishment for the breach.

Mr Price : That's right. The full details are set out publicly in ASIC's information sheet 151—which I'm happy to read out here—and in our Regulatory Guide 918, Licensing: administrativeaction against financialservices providers.

Senator McALLISTER: Maybe don't read it out, Mr Price.

Mr Price : But these are not constraints we impose on ourselves.

Senator McALLISTER: I understand that.

Mr Price : This is how administrative law works in this country.

Senator KETTER: But, Mr Shipton, if somebody was listening to your speech or listening to your opening comment tonight where you said that there is no penalty for a breach of these obligations in relation to 'efficiently, honestly and fairly', they would think that there's no penalty, no sanction and nothing that anyone can do. That's not the impression you wanted to convey, is it?

Mr Shipton : The point, which I'll reiterate, is that the expression 'penalty' was being used in the context of the act that we administer that connotes either a civil penalty or a criminal penalty. I think this is more of a point at the margin, because, as I've said, there is a potential consequence of a breach of section 912A which would trigger other consequences. The broader point, which I made in my opening remarks—and I'm sure, if you look at Hansard, you'll see I was very careful to further elaborate that I was referring to civil and criminal penalties—was the fact that there was a civil penalty on its way. The broader point is that section 912A is an important provision. The reason why it's an important provision and the reason why I highlighted it—and I'm glad you're giving me an opportunity to highlight it again—is it places an obligation on financial entities to be responsible for their representatives and it places a responsibility on them to adhere to financial services law. That's the message I wanted to get across to the broader community and, importantly, to the people in finance that they have responsibilities. What makes me feel better is that we will shortly have a penalty that will enable us to actually enforce it more efficiently and more readily. That's the important point. I'm sorry it's getting lost in legal technicalities, because the broader point is a far more important point.

Senator KETTER: I take your point. I'm certainly not arguing against the need for stronger penalties in this area. We might be splitting hairs here, because you describe it as an administrative procedure or an administrative sanction, but it's a fairly significant sanction to take someone's licence away from them, isn't it?

Mr Shipton : It certainly is. We have, as my colleague Commissioner Armour has mentioned, used it and we will continue to use it. My colleague Mr Kirk is absolutely right to identify that, if we do decide to use it, there are important administrative law considerations that we have to consider. Again, tonight's session has been very useful, because it highlights we have to make important decisions that do have opportunity costs, and we have to exercise judgement. We do weigh up these issues, we do weigh up the processes and we do weigh up how we can get the most efficient outcome in the circumstances that it warrants, because, at the end of the day, our job is to have a fair, efficient and strong financial system for all Australians. That's the ultimate aim.

CHAIR: I was going to go to Senator Patrick, but we have hit the break time. Senator Patrick, can we go for a break and come back? We'll start with you. Are you happy with that?

Senator PATRICK: Yes.

CHAIR: All right. We might do that.

Proceedings suspended from 20:31 to 20 : 46

CHAIR: This committee will now resume. I welcome back to the committee officers of ASIC. Senator Patrick will kick-off the questions.

Senator PATRICK: Thank you, Chair. I want to respond to a couple of things that have been said along the way, in particular, in your opening statement you made a claim in relation to the royal commission. I want to read this from our bible, which has some derivative from section 50 of the Constitution:

The sub judice convention does not have application to matters before royal commissions… A royal commission is not a court, its proceedings are not judicial proceedings, it does not try cases and it is unlikely that a royal commissioner would be influenced by parliamentary debate.

I just wanted to put that out there. Blanket claims are normally done so in error. Of course, you can make public interest immunity claims on any particular question.

Commissioner Price, you made a statement in evidence before that in many instances you investigated a matter and took it to a point where you then had to consider the opportunity cost of taking it further. That's an unfortunate position you end up being in. I'm a little bit concerned about that. I'm happy to take this on notice, but I'm wondering if you could indicate matters, over can last three years, in which you decided not to, on the basis of opportunity cost, proceed to a court action? I don't mind if it's de-identified but perhaps attached to sector.

Mr Price : Sure. What I was really referring to there was ASIC's information statement 151, which publicly sets out our approach to enforcement. The fact of the matter is that every reported misconduct that comes to us is assessed. It goes through an initial point of assessment. At that point, we ask questions like, 'What is the extent of the harm or loss? What are the benefits of pursuing this conduct relevant to the expense? How do other issues like the type and seriousness of the misconduct, and the evidence available, affect the matter and is there an alternative course of action?'

Following that, you will see a flowchart in that document I'm referring to—that publicly available document—where we ask ourselves whether a formal investigation should be held. Following the investigation, if we do find evidence of misconduct then we do get into a question of what's the appropriate remedy, be it a punitive remedy—that is punishment—protective, preservative, corrective compensation or negotiated resolution.

The important point I want to get across is that every report of misconduct that comes to us is assessed. Then the question of whether or not they're sufficient to actually launch a formal investigation is a question that requires a sufficient level of evidence, because we can't just start an investigation because we feel like it. In addition, there's a question sometimes of judgement in relation to which particular matters should be prioritised at a point in time.

Senator PATRICK: Sure. And it's not a criticism, but you did use the word 'expense' in there. And I understand when you need to balance resources. So, that's the burden of my question. It relates to decisions where you decided that you wouldn't proceed because the cost-benefit wasn't right.

Ms Armour : It's almost a question where it's really difficult to produce an answer for you, because our processes are so iterative. We know we have X amount of money available to us or we anticipate that we'll have X amount, and we assess and then we take cases through stages over a period of time. It's not a case where you—

Mr Price : Let us take it on notice and we'll assist as best we can.

Senator PATRICK: Thank you. And are you aware of any of those matters where you decided not to proceed that have now been re-agitated or reprosecuted at the royal commission?

Mr Price : That's a very good question.

Senator PATRICK: I'm happy that it be taken on notice, if you think it's complex or requires—

Ms Armour : In relation to rounds 1 and 2, I think we're reasonably confident—

Mr Kell : As I said earlier, there are a small number of matters where it's apparent in relation to, say, individual advisers that not all the information may have been provided to us by a licensee, and we're following up to ensure that if further action needs to be taken then we will take it.

Senator PATRICK: Sure; that's good. I'm just wondering whether you could give us some statistical information that says that there were eight matters that we decided not to proceed with but have been—

Mr Price : We'll assist as best we can. I'm not sure whether we have those statistics, but if we can take that on notice we'll assist.

Senator PATRICK: Thank you very much; that's appreciated. Mr Shipton, you talked about a trust deficiency between the financial sector and the community. I've read a number of news articles, and I might put it to you, giving you a chance to respond, that there may be a trust deficiency between the community and ASIC. Do you accept that proposition?

Mr Shipton : I don't accept that proposition, with due respect. I would frame it that a challenge for any regulator, us included, is to earn the trust, the respect and the confidence of the community. That is something I believe that we have, but I'm not going to take that for granted, and I know that the fine men and women I work with don't take it for granted. This is something that drives us every single day—to earn the trust, the respect and the confidence of the broader community. We hope and expect that the work we're doing, the regulatory outcomes that we're striving for, will engender that trust.

But you raise a broader point, which is that we have to work very hard at it. And there are significant challenges facing the financial system and the regulatory structure that oversees that financial system right now, and that is redoubling and re-energising our efforts to maintain, strengthen and heighten that trust with the community.

Senator PATRICK: In light of the royal commission and a whole range of matters—I'll step back: one might argue that had ASIC done its job properly a royal commission—whether it was through lack of resources or for some other reason—would not have been necessary. Would you like to respond to that?

Mr Shipton : I don't think it's as simple as one agency or another agency doing or not doing something that triggered the royal commission. I wasn't here when the royal commission was triggered. The only observation I will make—and this was implicit in my opening remarks and I make it explicit now—is that 25 years away, coming back to Australia, I am really confronted by the failure of financial services firms and some people in finance to take the levels of professionalism and customer focus that are needed to heart. That was my motive when I mentioned that there is a trust deficit.

This is why I was mentioning the important responsibilities, in answer to the previous question, under statute by financial services firms to ensure that they comply with financial services law and also provide honest and fair financial services as well as supervise and ensure compliance of representatives. This is where there's been a fundamental failure. And this is where the trust deficit, along with a failure to focus on conflicts of interest and a failure to nurture and encourage a culture and a mindset of professionalism—this is why we find ourselves, in the financial sector and the financial system, in the predicament that we are in. That's why I've been calling upon the men and women in finance to actually meet their obligations, both under statute but also what the community expects, which I think is neatly enshrined in the culture and mindset of professionalism, and that's part of what we're trying to do.

Senator PATRICK: Mr Shipton, what you're doing is looking outward at the sector. I think everyone understands there's a problem there. I'm asking you to look internally and I'm asking for comments internally. You're clearly very experienced and passionate. Have you looked internally? Have you taken the time or gone through a process where you've looked internally and said: 'What could we have done better? Have the people that I've got working for me done the best they can?' Maybe they have; maybe they haven't. The point is: have you looked?

Mr Shipton : I have looked, and my job is to look at where we are today and where we are going to in the future.

Senator PATRICK: But you must look at the past to be able to—

Mr Shipton : Sure, but right now, three months on the job, what I've prioritised is, firstly, diagnosing the challenge and, secondly, thinking about and strategising what tools and what approaches we can use to respond to these important challenges. I outlined some of them. I outlined the fact that we want to accelerate our enforcement outcomes. I outlined that we want to have a focus on conflicts of interest. I also outlined that we want to increase our supervisory intensity. I also outlined that we want to utilise regulatory technology tools. These are some of the solutions that I believe and my colleagues believe can address these harms and threats that are manifesting themselves right now. Yes, of course, there are lessons to be learned. What I've been prioritising in the last three months and will continue in the years ahead is to apply that strategic framework and that strategic mindset. Only by that strategic mindset and the adoption of the right tools and the right circumstances and, importantly, the industry living up to their first-line responsibilities, both what is expected by the community and under the legislation, will we get through into a better place.

Senator PATRICK: In your submission to the royal commission, there's a statement you've made about general conduct obligations. You said:

Presently, there is no civil penalty available for a breach of General Conduct obligations. This is a very real short-coming in the legislative regime.

I wonder going back, with the benefit of hindsight, whether or not you're looking at what you did in the past—I imagine that's a longstanding problem—and saying: 'What did we do about that problem? Did we do enough two years ago or three years ago to address a shortcoming like that and why did we fail to not move government?'

Mr Shipton : I think on that shortcoming, that was a part of the discussion we've just had about increasing our civil penalties and increasing our ability to respond.

Senator PATRICK: But it's taken a royal commission to do that.

Ms Armour : Sorry, that is not correct. It has not taken a royal commission. ASIC advocated for changes to the penalty regime in 2014.

Mr Kell : And earlier.

Ms Armour : And earlier. The Senate committee that reviewed ASIC's performance at that time also advocated. The financial system inquiry also advocated. There was a year-long project conducted in 2017 reviewing our enforcement powers and, actually, that project reported to government at the end of 2017. So this was all underway before the royal commission.

Senator PATRICK: So why do you say nothing's happened?

Ms Armour : The government has announced that it will introduce legislation. We are looking forward to that legislation being introduced into parliament.

Senator PATRICK: How long do you believe those shortcomings were in existence? I think someone said that these laws haven't been reviewed since 2003.

Mr Kirk : 1993.

Senator PATRICK: 1993—so, for a long time.

Ms Armour : And ASIC has been advocating for improvements for much of that time.

Senator PATRICK: To whom?

Mr Kell : To this committee for a start.

Ms Armour : To this committee, publicly—

CHAIR: I get a sense we're all in vehement agreement here, Senator Patrick.

Senator WHISH-WILSON: Senator Patrick, it's true that we have all been working on this for at least six years.

Senator PATRICK: Sure—in this forum, yes, and, I understand, the inquiry into ASIC. I'm actually referring to government—advocating to government—who control the legislative agenda in the parliament. Senate inquiries are very useful for exposing issues and making recommendations, but ultimately it's the government—

Ms Armour : We have been advocating consistently, and we actually put out a public report. Not only were we advocating to government as part of our normal work; we put out a public report on this issue in 2014.

Mr Shipton : Senator, we're very pleased that the government has announced that they are remediating this area. So, there is progress on fraud.

Senator PATRICK: Sure. Where I'm going is that it comes back to your organisation, internally, looking back and saying, 'What could we have done better? How could we have done things differently, with the benefit of hindsight now, to make sure that these things wouldn't happen again?' That's the trust I'm getting too, in terms of the trust between ASIC and the community.

Mr Shipton : Sure. A strategic response—and a strategic mindset—requires an analysis of lessons learned. But I don't personally want to dwell on the history; I want to focus on the demonstrable challenges and threats that are relevant right now and today. Yes of course we can always look to history and try and avoid circumstances repeating themselves. That's why we have some suggestions, which we presented to the government and which we've mentioned to this committee, that we believe can go some way down the track of remediating the challenges and the threats that are confronting us.

CHAIR: Senator Patrick, I've let you go on six minutes longer than I would normally do so. It must be late and I'm getting soft! I'm going to give the call to Senator Abetz. I won't be quite so generous with you, Senator Abetz!

Senator ABETZ: Thank you very much, Chair. Can it be confirmed that a company limited by guarantee, to be registered by ASIC, needs to lodge a constitution? It's pretty basic.

Mr Price : It is pretty basic, Senator. But ASIC has dual responsibility for certain charitable companies with the charities regulator—

Senator ABETZ: I didn't ask about that. Do you have to lodge a constitution to be registered by ASIC?

Mr Price : My recollection is yes, but I would like to check that.

Mr Day : We would want to check that, but I don't believe you have to lodge your constitution with ASIC.

Mr Price : The replaceable rules—

Mr Day : Yes—the replaceable rules could be suitable in that circumstance.

Senator ABETZ: Do you have to have a constitution to be able to be registered by ASIC as a company limited by guarantee?

Mr Day : Yes.

Senator ABETZ: Right. So how do you know that the organisation has a constitution without sighting it? Surely you must sight it.

Mr Day : As I understand it, no, we don't have to sight it. With a whole range of companies, they can utilise and take advantage of the replaceable rules. In circumstances where they have other rules or they've adopted another constitution, they inform us that they have that and that it's held at their registered office. But, again, I would want to go and just double-check that.

Senator ABETZ: You don't bother to check and verify whether it's an appropriate constitution?

Mr Price : There are many elements of our regulatory system that are self-executing—for example, there is no requirement to provide any identity checks for directors of companies.

Senator ABETZ: I'm only asking about a company limited by guarantee. Time is limited.

Mr Price : I understand that. I use that as an example.

Mr Day : There are well over 2.2 million companies in Australia, Senator. In circumstances where you would expect that we would have to vet or review every constitution, I think you would understand that that would be prohibitive. The short answer to that is: we don't review every constitution.

Senator ABETZ: Who, then, is tasked with that to protect the public?

Mr Day : The director of the company.

Mr Price : The directors.

Senator ABETZ: To protect the public.

Mr Day : Why do they need to protect the public, Senator? The company does the things a company does. It has the rules it needs to operate as a company. The company of itself is not a consumer-protection mechanism, as I understand it.

Senator ABETZ: For example, a company might falsely describe itself in these terms: 'The object for which the company is formed is to advance the progressive public policy in Australia where that advancement furthers a charitable purpose.' That organisation is not a charity, is not registered by ACNC. A punter might look at the object and think, 'This is a charitable organisation; this is worthwhile supporting.'

Mr Price : We would very much like to get further details of the matter to which you're referring.

Senator ABETZ: Good. I would invite you to do that. That was going to be my last question: to follow that up. I'm reading object 15 from the GetUp! constitution. It says 'where that advancement furthers a charitable purpose'. The punter reading this would believe that the only purpose is charitable. I would assert that is demonstrably false, but I will leave that with you to follow up.

Mr Price : Thank you.

Senator ABETZ: The other issue with the GetUp! constitution is that it has categories of membership. One is full membership. Those members, basically, run the show. They are the ones who can vote for directors and admit others into the full membership. There are founding members, full members and other classes. Concentrating on full members, we are told in this constitution, under definitions: 'Full member means each of the persons listed in schedule 1 and any other person.' You go to schedule 1 and we are given a completely clean sheet. One wonders why an organisation that is so on about transparency in all things public fails to disclose its membership? Chances are, it starts with the CFMEU and then the AWU and then the Greens, but that is all conjecture. Knowing who funded them to get them started, one assumes that would all be in the full-members schedule. It is completely and utterly missing.

I believe the public needs to be protected, so my final question is: will ASIC please take on notice these deficiencies in the GetUp! constitution and report back to the committee as to what can be done to protect the public, in relation to those two matters? If it's not within ASIC's bailiwick can you assist me as to whom I should go to, to have this egregious matter redressed and rectified, to make GetUp! into an honest organisation?

Mr Price : Yes.

Senator ABETZ: Thank you very much.

Senator WHISH-WILSON: My last question is not very long. You are aware that I wrote to the Auditor-General recently asking for an investigation around your declaration of interest and conflict-of-interest policies. You may be aware that they responded and said they'll wait for the royal commission to deliver any findings before they look at doing something like that. It's an opportunity tonight for you at ASIC to briefly tell us how you manage your own internal conflict-of-interest policies and whether, for example, you have a register and that kind of thing that other organisations do.

Mr Shipton : Thank you very much for raising this very important issue. I'll start from the outset by saying it's absolutely fundamental that we as an organisation that expects high standards of the regulated population have high standards of ourselves. We are subject to a range of different conflict-of-interest management rules under various acts. We have rules that apply to me as chair, to the commissioners and to members of staff in relation to disclosure of conflicts of interests and management of conflicts of interest.

One thing that I would add—because this is an issue that I pursued with vigour in my former role as a regulator in Hong Kong—is that I have asked the internal audit team to commence a review of internal conflict-of-interest procedures and requirements with an aim that what we have is best in class and world leading, because we must, as an organisation, live up to the expectations that we expect of the regulated population. Commissioner Armour and I would be happy to go across some of the detail, if you'd like to go into detail, about our conflict-of-interest policy; otherwise, I'd be personally very happy to keep you and the committee updated as to how our review and updating of our procedures progress in the period ahead.

Senator WHISH-WILSON: I understand that, given people come from different backgrounds and different employment histories, they are inevitable and they are not necessarily a negative thing or a slight on ASIC at all. I just wanted to see if you had a system in place, and perhaps you could give that to me on notice.

Mr Shipton : Of course. We'd be delighted to give that to you on notice.

Senator WHISH-WILSON: In the 2013 enquiry, when we were looking at ASIC, something came up around the secondment of ASIC staff or, vice versa, financial services companies working at ASIC. Are you still seconding ASIC staff into banks and financial services companies at the moment?

Ms Armour : We probably do need to come back to you on that. We adjusted the policy after the 2013-14 enquiry. I believe at that time part of the concern was more the other way; it was people from industry coming into ASIC.

Senator WHISH-WILSON: That's correct. Is that occurring currently?

Ms Armour : We would need to come back about whether it is occurring currently. We have introduced more steps to ensure that if it does occur it's carefully managed. I think we require commission approval for that, and we are managing that.

Mr Price : We certainly adjusted our policy. We can come back to you with the exact detail. There are some areas of ASIC that aren't strictly regulatory areas. So there may well be secondments into some of those. But we can give you more detail when we come back.

Ms Armour : We will come back with the detail.

Mr Price : We were certainly very conscious of the questions that were raised during the 2013 process and we rewrote our policy as a result.

Senator WHISH-WILSON: I was interested in light of what's going on at the moment with the royal commission into financial services and how sensitive that is. I understand why you would have secondments both ways so you understand better how these firms work. But I suppose it is a question of the tension between being on Christmas lists or being on dartboards—or maybe both. If you could get back to me that would be great.

Ms Armour : Yes, we will.

Senator WHISH-WILSON: Thank you.

Senator KETTER: Mr Shipton, while I've been here idling away my time, I've taken the opportunity to look at the very helpful folder you have provided and looking the misconduct and breach reporting section. If we look at the period to April 2013, there's been a 39.1 per cent increase in breach reports related to a AFS licensees and registered entities of managed investment schemes. Is that a large increase?

Mr Day : Yes, it is, Senator.

Senator KETTER: What do you put that down to?

Mr Day : Probably a large number of financial services licensees reviewing their own conduct or, if you like, misconduct circumstances and deciding there are things they need to report to ASIC in compliance with the section.

Senator KETTER: What might have prompted them to do that?

Mr Day : I think there's a royal commission on in town, Senator.

Senator KETTER: That could be right.

Mr Shipton : I'd also add that we have accelerated and increased the volume of our expectations in this regard.

Mr Kirk : And we have an active project on breach reporting.

Senator KETTER: Can you tell us a bit more about that?

Mr Kirk : We're reviewing breach reporting practices and are looking at, I think, 12 different banking entities, including the four majors. We're looking at their internal processes and policies for identifying breaches, for making decisions about whether there is a breach and whether it's significant, how those matters are escalated and how they're reported to ASIC. We're also getting time frames on how long those things take across the board. We're expecting to put out a report. I think the work will be finished by the end of July and we'd expect a report soon after.

Senator KETTER: Are you able to tell us anything about some of the impressions that you've got so far in this investigation?

Mr Kell : We did provide some of this information to the royal commission after some preliminary findings based on a quantitative analysis of data from 12 banking groups, including the four majors, between 2014 and 2016. The average time frame from an event occurring to it being identified internally for investigation was 1,552 days—just over four years—which was a median of 1,094. The average time frame from the start of an internal investigation of a matter to lodging a breach report was 123 days—a median of 58 days. One in four significant breaches took longer than 145 days to report to ASIC. The institutions in question had commenced a change to their systems to address a compliance issue within an average of 18 days of an investigation concluding, but customer remediation often took a lot longer, averaging 217 days. These preliminary findings confirm the concerns that we've articulated publicly and before this committee about the timeliness and consistency of breach reporting and projects still underway.

Senator KETTER: Are you able to provide the information that you've given to the royal commission?

Mr Kell : Yes. It's in a witness statement.

Mr Kirk : Possibly for completeness, it's worth mentioning that the enforcement review has also looked at breach reporting and made significant recommendations, which the government has adopted in principle, which would make a big difference to how breach reporting would work. One of the problems until now has been that the test for when something has to be reported is extremely subjective. The intention is to make that an objective test and to require it to be reported within 30 days. Even if the investigation is not complete, it has to be reported within 30 days. That's a very significant change from the current legal settings, and we very much welcome those recommendations and the government's in-principle commitment to them.

Senator KETTER: The time frames you outlined seem extremely suboptimal. What's your impression of those findings, Mr Kell?

Mr Kell : As I said, they confirm our concerns about the problems and the inadequacies of breach reporting across the sector. They're unfortunately based on some very real poor experiences. That's why we've been arguing for reforms. It is too easy for firms to arrange their systems in such a way that reports don't come in for quite a long time. Penalties for not breach reporting adequately are insufficient and the test, as Mr Kirk said, in some ways benefits larger firms relative to smaller firms. This has to change. I mean, it is such a fundamental part of the regime that licensees come forward when there is a problem and explain what it is, so a decision can be made about how to deal with it. Reform is overdue so we're very pleased to see the reforms coming through.

Senator KETTER: And you mentioned that this analysis that you've done was over 12 financial institutions?

Mr Kell : Yes, 12 banking groups.

Senator KETTER: And are you able to disaggregate that information? I'd be interested in the four major banks, whether the statistics there are different to the rest of the cohort?

Mr Kell : Can we take that on notice in terms of how we might categorise and to help you understand the mid-tier banks?

Senator KETTER: The four major banks, I'd be interested in. You're saying there is a lot of self-reporting now happening.

Mr Kirk : There's more of it.

Mr Day : The regime is a self-reporting regime.

Senator KETTER: The volume has increased so we're now looking at the figure you've given here—423 for 2018 compared to 304 for April 2017. That's around 120 more.

Mr Day : We're looking at over a 30 per cent increase for the similar period on average over the last two years The last two years were quite static and similar. So in breach reporting, we're looking at a 31 per cent increase. Similarly, in relation to general reports of misconduct from the wider public in the same period, since the start of this calendar year, we've seen an 18 per cent increase in volumes compared to the last two years.

Senator KETTER: I will come back to that. In these breach reports for the AFS licensees and registered entities of managed investment schemes, can you tell me is there any pattern emerging?

Mr Day : I don't think at this stage I could say. That is something we're looking at at the moment. We're trying to look at what are, if you like, the spheres of activity or the areas of activity that these breach reports relate to. But we normally only do that type of analysis on a six-monthly basis. So at this stage I can take it on notice but I don't think I can help you at the moment.

Senator KETTER: In terms of breach reports from the broader community, you say there's an 18 per cent increase there.

Mr Day : We call them reports of misconduct for the matter of distinction. What are we seeing? I can tell you, we have done analysis in that increase and that is in the financial services and credit area.

Senator KETTER: Can you provide any further information?

Mr Day : It is about 18 per cent, yes. It ranges from financial advice to dealings with mortgage brokers, to other banking products. This is against all of ASIC's areas of focus so that is corporate governance issues, directors' duties issues, liquidators' issues, auditor issues—the list goes on. That 18 per cent is mostly attributable to financial services and credit, as I said, those categories of financial advice and so on.

Senator KETTER: Do you put that down to the royal commission's activities?

Mr Day : Yes, but we do see an upswing at this time of year. But again, taking out the seasonal nature of that, we are still seeing an 18 per cent increase. So we do put it to the fact that people's attention is focused on their own personal circumstances, given the stories coming out through the royal commission.

Senator KETTER: So that suggests to me that there will be more of a call on the resources of ASIC to deal with this fairly significant increase in breach reporting. Would that be correct?

Mr Day : Absolutely. At the moment in terms of the resources we have—and my team is devoted to that—we are stretched to be able to deal with those in a timely fashion. In relation to breach reporting, we have an internal time frame of 14 days that we want to assess those in. That is starting to creep out a little bit in general reports of misconduct from the general public. Our aim is to have assessed and responded to about 70 per cent of those within 28 days. We're meeting that still but, if this continues, we don't think we will be able to sustain that, at least over the next three to six months.

Senator KETTER: Mr Shipton, is this one of the areas that you've sought additional funding for?

Mr Shipton : We have engaged a proposal that, amongst other things, is attentive to the need to receive and diagnose information coming in from the general public and from entities. So the answer is yes.

Senator KETTER: The difficulty that we have with those very lengthy time frames that you've talked about, Mr Kell, is that it's all too easy for evidence to be lost during the course of those extended periods of time before breaches are reported. Is that correct?

Mr Kell : That has been an issue that we've encountered across a number of different areas in the past, that the further you go back, generally, the less adequate the record keeping has been. That's another reason why we want to see more timely reporting. We would hope that with the increasing availability of new technologies to record data in the financial advice industry or the credit industry that some of those record-keeping issues won't be as significant in the future. But there are no two ways about it: the further you go back in time, the poorer the records. That's something that we've always had to deal with.

Senator KETTER: Given the additional activity that's happened around the time of the royal commission, have you changed your risk profiles when regulating different sectors? For example, the perceived risk in the financial system post the revelations of the royal commission surely would impact on your activities and—just going back to what you said, Mr Shipton—the need for additional resources?

Mr Shipton : Well, that's right. That was part of the diagnostic exercise that I embarked upon. Certainly, we have highlighted—and this is part of the strategic initiatives that I outlined earlier—for instance, that we need to accelerate work, in amongst other matters, in the financial advisory space: the wealth management project that I mentioned before. We want to accelerate our outcomes there.

We are also gearing up for a more intrusive, a more attentive and a more physically based supervisory structure when it comes to larger financial institutions because it's very clear that the larger financial institutions touch the largest amount of members of the general public and therefore require our supervisory and regulatory attention. And as I just mentioned, we also want to increase our ability to receive, triage, respond to and analyse information that is coming in to us that will lead to potential regulatory intervention, supervisory action and, potentially, enforcement outcomes.

Senator KETTER: This then takes me to the questions I had around your proposal for embedded supervisory teams in financial services. Can you just tell me how you believe those activities will strengthen compliance and culture in the industry?

Mr Shipton : This is still a work in progress and, again, I don't want to pre-empt the final delivery of the plan. Essentially, our belief is that by having a more attentive and more physically based supervisory presence, whereby we were, as it were, touching important regulated entities more often, there can be a change in the mindset. There is an expression which is often used about a regulator being a cop on the beat: this is a manifestation of that. By actually having ASIC representatives, and maybe representatives from other regulatory agencies, present that does make a demonstrable change. For instance, if we were able to spend more time with senior management, middle management, different parts of financial institutions and different governance bodies on a more regular or more permanent basis, then I believe—and I've seen this be reasonably effective in other jurisdictions—that it can have a mindset change, not just for the senior leadership of an organisation but, importantly, for the middle management of an organisation. That is absolutely vital for the delivery of cultural and organisational change in an organisation.

Senator KETTER: Can you tell me practically how these embedded supervisory teams would work.

Mr Shipton : Just to clarify, we're not proposing to embed on a permanent basis supervisory teams. What we are doing is looking very closely at supervisory structures that have worked, or have been deployed, in other jurisdictions like the United Kingdom and the United States. We are going to embark upon an exercise where we take the most valuable lessons to be learnt from those jurisdictions and apply them in Australia. Again, I don't want to pre-empt any conclusions that my colleagues and I reach, but the aim is to focus on a basis whereby we are spending more time physically inside financial institutions. By doing so, we believe we can affect cultural change and a mindset change. We also think that we should have early focus on, for instance, the governance structures and the decision-making structures—and to pick up on some of the comments my colleagues have just made about breach reporting—and how organisations themselves collect data, identify breaches, resolve them, respond to them and, importantly, inform us and fellow regulators when these breaches occur. This is an example of where we've highlighted, through the very good work of the breach reporting exercise at ASIC, that there's a problem and we're trying to identify ways and means that we can respond in a regulatory and supervisory sense so that we can affect permanent change inside financial institutions to rectify this harm.

Senator KETTER: Is this new strategy fully developed, or are there certain aspects yet be finalised?

Mr Shipton : We are in an advanced development stage but, again, there are a number of processes that we need to go through and I'm very respectful of those processes. However, I hope that what I've just done is give you a sense of the philosophy and some of the examples that exist as a matter of good practice internationally that we will look to apply at some stage, hopefully, in the not too distant future here in Australia.

Senator KETTER: Have you raised this proposal with the government?

Mr Shipton : Yes.

Senator KETTER: What indication have you received about the level of interest?

Mr Shipton : As I said before, they have been positively predisposed to the initiatives that I've mentioned to them.

Senator KETTER: Can you tell me when you approached government?

Mr Shipton : Yes. I can certainly mention that we've been in discussions, as the Treasurer mentioned earlier this month, and we formally submitted a proposal with funding requests last Monday.

Senator KETTER: If this proposal has the objective of engaging cultural issues, how do you propose to maintain a separation of the supervisory team and the bank and the culture that they're overseeing? I acknowledge it's not a permanent situation but, potentially, you could see some cross-pollination..

Mr Shipton : That's right. The harm that you are identifying, which is an important one, is to avoid regulatory capture. I will just talk about models and lessons that have been learnt from other jurisdictions, particularly in the United States, which are to have a mixture of representatives and supervisory officers who are physically onsite, backed up at regulatory headquarters by teams who look across the spectrum of financial institutions. Putting it simply: the best way of solving for this regulatory capture point is to have vertical as well as horizontal teams and make sure that there is active benchmarking between the different teams by individuals and supervisory officers who work across the spectrum and can ensure that we monitor and avoid regulatory capture. But regulatory capture is something that we are very attentive to in our planning and we will be very attentive to in our execution. It is something, again, where we would like to spend some time learning some of the lessons from the application of these more intrusive, more intensive supervisory approaches in the United States and Europe.

Senator KETTER: Are you able to tell me how many people would be required to staff these supervisory teams to actually start to make a difference in the culture?

Mr Shipton : That will be something I hope to come back to you on in the not-too-distant future, once we've gone through the formal processes.

Senator McALLISTER: I think that you may have mentioned the product intervention power earlier in your remarks—and I'm sorry if I'm covering ground that you've already gone across; I wasn't able to be here between seven and eight. I'm wondering what your expectation is about the introduction of this legislation. Treasury have advised us that they're going into a second exposure draft phase.

Mr Kell : Do you mean our expectations around timing?

Senator McALLISTER: Yes.

Mr Kell : I think we would defer to Treasury on the timing.

Mr Kirk : We've been informed that there's another round of consultation; we don't know more about the timing than that.

Senator McALLISTER: What is your understanding about the outstanding issues with the legislation?

Mr Kirk : Again, I think Treasury are a better source because they've been the ones engaged in the industry consultations.

Senator McALLISTER: On the process side, then, when did you last meet with Treasury around the legislation?

Mr Kirk : Staff from ASIC met with staff from Treasury either earlier this week or late last week—I can't remember which it was, but it was in the very near past.

Senator McALLISTER: What has been ASIC's role, if any, in the development of the legislation since the consultation closed in, I think, February?

Mr Kirk : I think there have been ongoing meetings managed by Treasury which probably are in the nature of consultation still. So saying it closed in February—

Senator McALLISTER: Well, it's been going for some time, I suppose. Let's step through the phases. I'm just trying to understand what your contribution is. You're not the policymaker; you're the regulator—I understand that distinction—but you've obviously been involved in some way to provide some practical guidance about how it might work in the field, and I'm trying to understand how that's been orchestrated in the process.

Mr Kirk : We made public submissions in relation to the consultation draft. We have had discussions with Treasury where we've talked about those things. We have long been advocates for these powers. In fact, we were the ones who advocated for them in the Financial System Inquiry and we're very pleased they were recommended. So we have been continuing to advocate, including for things that we think could be improvements even on the draft that was consulted on. For example, we thought there could be some increases in coverage in terms of ASIC Act products in relation to both product intervention and product governance, and in relation to credit products more broadly in relation to product governance. We've taken positions on those things.

Senator McALLISTER: Has that been simply through the formal process of consultation on the draft legislation or through some other mechanism?

Mr Kirk : Both through that formal process but also in conversations we've had with Treasury, we've explained why we think that's a necessary and worthwhile thing and given them examples where we think it would come into play.

Senator McALLISTER: I apologise that I have not read your submission on the draft, but you mentioned three areas where you had some very specific views. They're set out in that draft submission?

Mr Kirk : In the submission, yes.

Senator McALLISTER: The submission on the draft—my apologies. Have you commenced any preparatory work around guidance materials for industry in anticipation of implementation of the policy?

Mr Kirk : We've been thinking about it, but, no, not in concrete terms. We certainly haven't started talking to industry or consulting on that.

Senator McALLISTER: Have you got a view about the inclusion or not of basic banking products in the design and distribution obligation?

Mr Kirk : Yes. Generally we have supported the idea it should be inclusive in that way.

Senator McALLISTER: Right. Would you explain the rationale for that view?

Mr Kirk : Accepting that basic banking products are simpler than others and don't have some of the complexity, we have seen problems in the past on relatively straightforward products—for example, term deposits. We put out major reports about problems in the way term deposits were marketed. Even there, whilst it might be easier to comply with the product governance obligations in relation to basic products, they should still play a role.

Senator McALLISTER: Okay. I turn to something quite different. I'm aware that you have established an initial coin offering regulatory watchdog. Mr Price, you've made some public comment about that. In very brief terms, can you describe how you're thinking about the scope of this? What are the ICOs that you're concerned about and what are the structural risks that you are trying to address?

Mr Price : I have a couple of comments. First of all, one of the challenges with ICOs is that they don't have a set legal structure, so, depending on how they're actually set up, they might be things like a security. They might be like a share. They might be like an interest in a collective investment scheme. They could be a derivative. They could be a non-cash payment facility. Indeed, they might not even be a financial product, so they might fall outside ASIC's regulatory jurisdictions in normal circumstances. To deal with that particular issue, we've spoken to the ACCC and asked them for a referral of their powers relating to misleading or deceptive conduct.

The simplest way to explain the situation is that, regardless of the legal structure of an initial coin offering, ASIC will be able to take action if the disclosure around that product—either formal disclosure or promotional material—is misleading or deceptive. We think that's quite important because, I think, it is documented that there are some scams—and the ACCC has reported on this—to do with crypto currency, and we'd like to be able to deal with those in a quick and efficient way, being very pragmatic about it without getting into a prolonged process of going through legal advice and deciding what sort of financial product it is. I think what consumers really care about is that they're getting honest and fulsome information about the product.

I suppose that doesn't stop us looking at regulatory issues that are more specific to particular legal structures, like securities or collective investments, but the fact that we have this referral from the ACCC will let us act quickly on misleading or deceptive conduct.

Senator McALLISTER: I understand the point you're making about the variety of legal or commercial structures that might underpin these products. That being the case, how would you describe the scope of the task force? Is it simply cryptocurrencies, or are there other kinds of activities that you're observing in the market that you think should fall within the scope of the task force?

Mr Kirk : The cryptocurrency work is with an internal working group. It draws together people with skills from a variety of areas of ASIC—people skilled in the regulation of securities, regulation of collective investment schemes, derivatives—and pools that expertise so we are very quickly able to pick apart what an offer is and work out where there might be problems.

Senator McALLISTER: I think I'm just trying to work out what's in and what's out. If people are out there and they see something happening, how do they know whether to refer it to your regulatory watchdog or whether to send it somewhere else?

Mr Price : I'm not going to give you a legal answer; I'm going to give you a very pragmatic answer. If there is a product out there and it's being promoted or marketed as an initial coin offering or a cryptocurrency product and you think it's a scam, please contact us.

Senator McALLISTER: Okay. That's in fact quite straightforward. I think I understand the enforcement mandate that you've sought to respond to that. When was the decision taken to set up the task force?

Mr Price : It was last year. The initial decision was taken last year, and the referral from the ACCC was this year. I should add that our work around cryptocurrencies and ICOs isn't the just around the enforcement piece; there are some legitimate people operating in this sector, and we have done some work to provide guidance and assistance for them as well.

Senator McALLISTER: So this is a decision taken exclusively within ASIC and then reaching out to the ACCC to derive the necessary powers to do the work?

Mr Price : That's right. I should add that it's not unusual for the ACCC to refer powers to ASIC, and indeed, for ASIC to refer powers to the ACCC. This happens quite a bit and it deals with—

Senator McALLISTER: I'm not troubled by it; I'm just trying to understand the scheme. How long do you anticipate it being in place for? Is this an ongoing regulatory role? Is there an end point?

Mr Price : Nothing lasts forever. It will be something that's under review, obviously. But, at the moment, it's an area that I think is garnering a lot of public attention. According to press reports just recently you know, the ACCC reported that Australians lost $2.1 million to cryptocurrencies scams, so clearly that's a concern for us.

Senator McALLISTER: How many employees are assigned to the task force?

Mr Price : We pull in employees as we need it. I'd need to take that question on notice. But you need to understand there's not a very large number of people that are full-time dedicated to this. There's a small core of people who are spending a lot of time doing this, and then we're pulling in that other expertise as we need it.

Senator McALLISTER: When you say a small core, do you mean under 10?

Mr Price : Under 10.

Senator McALLISTER: So it's a small core, and then you identify the resources elsewhere in the organisation for a particular issue.

Mr Price : Exactly right. And that task force type structure is, again, not unusual in ASIC.

Senator McALLISTER: That's also okay. I'm really actually genuinely seeking information. There's no punchline to this line of questioning. I just want to know what's going on. The Norton Rose Fulbright partner Zein El Hasan has suggested that you're underfunded for this activity. Do you think that's fair?

Mr Price : I think that certainly, with the work we have at the moment, I'm comfortable with the resources that we're allocating to this.

Senator McALLISTER: I think you've publicly said you expect you'll need to accelerate your activity in this area. Do you have the funding to do that?

Mr Price : That might depend a little on what level of acceleration is needed. I should add that I think public interest in these products perhaps has waned a little from the time I made some of those initial comments. I think that the price of bitcoin has not done as well as it had earlier in the year.

Senator McALLISTER: Have you given thought to what the reporting framework or communication piece, either with the general public or with the market, might be for the task force?

Mr Price : Absolutely. To that end, we've got an information sheet, which is information sheet 225, 'Initial coin offerings and crypto-currency'. That's really directed at market participants, but we also have provided messages for consumers on the risks of ICOs on our MoneySmart web page. I encourage any consumers who might be listening: please, look at our MoneySmart web page.

Senator McALLISTER: Do you anticipate pursuing people retrospectively after they have raised funds, or are you principally trying to encourage compliance in advance?

Mr Price : I think it's both. If there has been disclosure that's clearly misleading or deceptive and that's caused harm and there are funds that we can access and recompense to consumers, I would be quite interested in that sort of situation. Equally, the extent to which we can prevent harm before consumers are parted from their money obviously is a very worthy aim as well.

Senator McALLISTER: What kinds of mechanisms do you have to play that preventive role? Do the misleading and deceptive conduct provisions you say you'll rely on assist in that prevention function?

Mr Price : Again, there are a range of enforcement remedies that we might consider. They range from as simple as contacting issuers or their lawyers to express our concern. We have done that in the past and people have taken offers down. It extends to issuing public warning notices where we have concerns that particular disclosure is misleading. So that's letting the public know. It goes right through to, for example, taking injunctive action. So there's a regulatory toolbox, and we try to tailor our action, I suppose, to the particular circumstances we're seeing.

Senator McALLISTER: Some other international authorities have said that ICOs are linked to illegal financial activities. Is that something that ASIC is concerned about in the Australian context?

Mr Price : I know there are certainly some jurisdictions that are concerned that ICOs and cryptocurrencies might be used for money-laundering purposes. While it's a matter for AUSTRAC, my understanding is that there were some law reforms recently here in Australia so that cryptocurrencies exchanges would actually be governed by various money-laundering provisions.

Senator McALLISTER: Nonetheless, bringing them within scope is not quite the same thing as effective regulation and enforcement. Do you see engaging with those questions of criminality as one of the things that your task force might engage with?

Mr Price : We obviously have limits to what we can do in that we've got to be cognisant of what our own jurisdiction is—and that's an expanded jurisdiction through the referral that the ACCC has provided. Where we do see activity—and I am speaking on a general basis, not just in relation to ICOs—that looks as if it may be of interest to other regulators, wherever possible we will share that information with other regulators. We are in close contact with a variety of international jurisdictions about the approaches that they have taken with ICOs. It's fair to say that many jurisdictions have a similar regulatory framework to us in the sense that some ICOs are within the purview of the securities regulators and some ICOs aren't. I haven't been able to find another regulator that's managed to cover the field in the way we have with that referral from the ACCC. There are some regulators that have prohibited these products outright, namely the one in China.

Senator McALLISTER: Yes, sure. I'm conscious that the expertise that might be relevant to the task force may well be embodied in the same group of people who are involved in the equity crowdfunding compliance framework. Is that a fair assessment?

Mr Price : There is some overlap but not a great deal, to be honest.

Senator McALLISTER: I suppose my question is: has establishing the task force in any way delayed or hindered efforts to establish the equity crowdfunding compliance and regulatory regime?

Mr Price : No. As far as the equity crowdfunding regime goes, obviously public companies have been able to be licensed for some time. From memory, nine institutions have been granted a licence. There have been around nine equity crowd funding matters raised. I think there's legislation currently before parliament in relation to extending that to proprietary limited companies. Once that's passed, ASIC will need to make some changes to its systems, but we should be able to do that within a couple of months, I would have thought, once we know the final form of the legislation that's been passed.

Senator McALLISTER: What's your assessment about ICOs as a capital-raising pathway? Do you think that, in terms of just the trends you see, it's likely to be more or less prevalent, perhaps, than the equity crowd funding model? We're seeing these new models come into the system, and I'm just wondering where you see the weight of effort falling.

Mr Price : Regulators are not so great at picking commercial winners. I think there's a great deal of potential in the initial coin offering space. It is really important, though, if that market is to flourish, to make sure that the broader public has trust and confidence around it, and that does mean dealing with some scams that are in the marketplace. And I really don't want to tar ICOs generally with that statement, but I think it's well documented that there are some ICOs out there that are scams, and it's important that we deal with those, and that's one of the reasons why we set up this task force.

Senator McALLISTER: Thanks, I have further questions around equity crowd funding, but I'm conscious the chair may wish to break.

CHAIR: Yes, we are going to have a break. In fact, we've kept ASIC here for more than the 2½ hours that we had scheduled.

Senator McALLISTER: So many questions!

CHAIR: I know. I've got some questions too. In fact, I did want to ask the chair specifically about a speech he made at the Australian Council of Superannuation Investors Annual Conference earlier this month. I think a lot of my questions may have been answered in your opening statement, Mr Shipton, so I might put those questions on notice or ask them at additional estimates. Are there further questions from Labor?

Senator McALLISTER: We do have further questions.

CHAIR: We might just take a five-minute break, if that's the case.

Mr Kell : Chair, can I just take a minute to correct a statement I made earlier?

CHAIR: Yes.

Mr Kell : I've had some updates from the staff. You asked about Dollarmites, and we have found out about it. I just wanted to correct that. When we found out about the detail, we did receive some information and had some engagement with CBA immediately before the article appeared. So I'd have to take on notice exactly when that was, but, in the days leading up to the article, there was more detail provided by CBA around that matter, prior to the media article coming out.

Senator KETTER: But only a matter of days before?

Mr Kell : As I said earlier, we did receive a very brief indication a little while before that, but, in terms of detail, just in the days leading up to the publication of the article, yes.

Senator KETTER: Thank you.

CHAIR: Thank you, Mr Kell. We are going to take a five-minute break for a private meeting.

Proceedings suspended from 21:58 to 10:01

CHAIR: The committee will now resume. As ASIC come to the table, I'm going to say that we're going to let you go. Thank you very much, ASIC, for staying so late this evening—starting late and finishing late. You don't even need to sit down again, Mr Shipton.

Mr Shipton : I thought, out of respect, I would sit down, Senator.

CHAIR: Thank you very much. I think there will be a number of questions on notice.

Mr Shipton : Thank you.

CHAIR: We will have an adjustment to the agenda. We are going to first call the ABS, followed by the Productivity Commission and then we're going to call the Commonwealth Grants Commission. The Inspector-General of Taxation is now going to appear at spillover on Tuesday.