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Parliamentary Joint Committee on Corporations and Financial Services
Oversight of the Australian Securities and Investments Commission and the Takeovers Panel

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

DAY, Mr Warren, Senior Executive Leader, Assessment and Intelligence, Australian Securities and Investments Commission

MACAULAY, Ms Louise, Senior Executive Leader, Financial Advisers, Australian Securities and Investments Commission

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

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

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

SAADAT, Mr Michael, Senior Executive Leader, Deposit Takers, Credit and Insurers, Australian Securities and Investments Commission

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

Committee met at 13:51

CHAIR ( Senator Fawcett ): I declare open this public hearing of the Parliamentary Joint Committee on Corporations and Financial Services. Today the committee is taking evidence as part of the committee's ongoing oversight of ASIC, the takeovers panel and the corporations legislation. This is a public hearing and a Hansard transcript is being made. The committee prefers to hear evidence in public. We may agree to take evidence confidentially if it is relevant. The committee may publish confidential evidence later, but we would try to consult before doing this. It is important that witnesses give the committee notice if they wish to give evidence in private. In addition, if the committee has reason to believe that certain evidence may reflect badly on a person, the committee may direct that the evidence be heard in private.

I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is against the law for anyone to threaten or disadvantage a witness because of evidence given to a committee. If they did, the action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to the committee. Witnesses should be aware that if they make adverse comment about another individual or organisation, that individual or organisation will be made aware of the comment and given reasonable opportunity to respond to the committee.

If a witness objects to answering a question, the witness should state the grounds of the objection and the committee will determine whether it will insist on an answer. I remind members of the committee that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer the questions to a superior officer or minister. This resolution prohibits only questions seeking opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies are adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for that claim.

The committee welcomes officers from the Australian Securities and Investments Commission. We have received your opening statement in writing. Would you care to present that and then we will proceed to questions?

Mr Medcraft : Thank you and for the opportunity to address the committee. Commissioner Armour is on her way. Supporting the commission today are senior executive leaders Warren Day, Louise Macaulay, Tim Mullaly, Michael Saadat and Chris Savundra. Deputy chair Peter Kell is unable to attend today and he sends his apologies. He is actually in Sydney hosting the annual National Financial Literacy forum on behalf of ASIC. I also addressed the opening of that this morning. On that note, today I would like to brief the committee on this very important event and update members and senators more generally on some of ASIC's work in the area of financial literacy.

The National Financial Literacy forum is a major national event which brings together all the key participants in financial literacy in Australia as well as overseas experts. At the forum today there are more than 150 representatives from the government, the community and the education and business sectors. The participants include members of the Australian Government Financial Literacy Board, chaired by Paul Clitheroe, in his 10th year as the chair. It includes the Department of Human Services, the Department of Social Services, the ACCC, the ATO and the Department of the Treasury. It includes representatives from state and territory education departments and schools; senior representatives from the banking, insurance, superannuation and advice sectors; and representatives from the community and consumer sectors such as financial councillors.

The forum is an opportunity to assess progress on the National Financial Literacy Strategy 2014-2017. As the committee knows, ASIC is responsible for leading the National Financial Literacy Strategy and this is consistent with our strategic priority to promote investor and consumer trust and confidence in the financial system. We run a strategic program of financial literacy initiatives in support of the national strategy, including, as all of you know, ASIC's MoneySmart website, which currently has around 500,000 unique hits a month or over six million hits a year. That actually provides trusted and impartial guidance and decision making tools for consumers. It also covers all aspects of personal finance for all ages and all life stages.

In a financial environment characterised by compulsory superannuation, access to impartial and trusted information is essential. Most importantly, ASIC's MoneySmart teaching program, which is aligned with the national curriculum, which supports and promotes financial literacy in schools throughout the country is absolutely critical. Attitudes established towards money matters at a young age are critical for the future. So far, we have reached 3,700 of the 10,000 schools in the country. So we still have a journey, and it is one we want to complete within the decade.

ASIC's work in this space complements and supports that of a range of other government departments and agencies. For example, we have worked with the Office for Women on developing an innovative women's tool kit to address the financial challenges faced by women. We have worked very closely with the Australian Defence Force on a dedicated financial education program for Defence Force personnel. And with the Department of Human Services we have developed a 'rent versus buy' calculator to help people understand the true cost of consumer leases and consider alternatives.

Many other organisations across the government, industry, community and education sectors are involved in implementing financial literacy programs or initiatives that support the strategic priorities. When we released the national strategy, it committed to reporting each year on progress. ASIC has gathered that information from the key stakeholders across all the sectors to prepare the National Financial Strategy annual report highlights for 2015. I am happy to table that today and I think we have copies available for everyone. I launched the highlights report in Sydney this morning and, hopefully, it is already published on the national strategy website. It provides a clear picture of the collective progress under the national strategy and tells a story of strong commitment across all sectors that are partners in this initiative. As I said, we will be sending copies of the strategy to all senators and members and to education, community and financial services stakeholders.

The highlights of the report include that over five million people visited ASIC's MoneySmart website last year. The number of unique hits was up 14 per cent. Importantly, it shows that over 80 per cent of visitors to the site have taken some action to improve their financial situation. So it is very powerful. Our MoneySmart calculators have had 4½ million views. We had 150,000 downloads during the year. We are continuing to expand school engagement. We trained 4,000 teachers during 2014-15, taking the total training over four years to 14,000 teachers. There were over 3,000 schools engaged. We issued 380,000 print publications and we reached 1½ million people through ASIC's MoneySmart on Twitter. So we are obviously focused on not just web based media but also other forms of digital media. We are happy to offer the committee and other interested parliamentarians a more thorough briefing on our financial literacy strategy. We are also happy to provide a demonstration of how the literacy tools can help the community. We have also today released a video that summarises what we do in the financial literacy space. I commend that video to the committee and I will have it distributed to the committee. Thank you.

CHAIR: Thank you for that and congratulations on the early intervention work that you are doing right down to the school level. Senator O'Neill.

Senator O'NEILL: As a former teacher, I was delighted to read about the level of engagement that you have with schools. Given our hearing into impaired loans, and with people's capacity to read documents being described as 'unsophisticated' even though they can run massive businesses, clearly financial literacy is a massive issue. So I applaud that work and I hope it may continue. Could I take you firstly to the Office for Women. Can you give me a little more information about the financial challenges facing women? From a Labor point of view, superannuation for women is a critical issue. Do you address that? What other issues do you address in that particular piece?

Mr Tanzer : You are absolutely right. For married women or women in a relationship, their period of employment will often be broken around childbirth and rearing children. That has quite a dramatic effect on people's contribution to superannuation. So one of the things we are addressing in this tool kit is a calculator that helps people understand the impact on their nest egg of breaking their superannuation contributions. In the research we have done we have found that, particularly with respect to self-managed super funds, while there may be more than one trustee—often a husband and wife in a relationship—one of those people tends to take the major role with respect to either the investment or the draw-down aspects once they get into the draw-down phase. Frequently, that is the man in the relationship. One of the issues that arises there is: what happens at the point when the active trustee either becomes uninterested or perhaps loses capacity to perform the function as well as they used to because of age, illness or a range of other factors? Another factor we are focusing on through this women's tool kit is the impact on women of decision making around superannuation taking into account this common characteristic of self-managed superannuation funds.

On the budgeting/credit/insurance side, many of the needs of men and women are not necessarily that different. Obviously, in a marriage break-up situation, there are particular needs, and particular difficulties are often presented to the female partnership in a relationship. That is the kind of thing we focus on in this.

Senator O'NEILL: What particular difficulties are you referring to?

Mr Tanzer : In those circumstances, subject to how the division of the assets works out, the woman, having taking the primary care giving role, may not be in a position to be as financially secure as she once was. In any case, there is always a loss of overall scale when you divide up the assets between the two parties. It is sometimes the case, though definitely not uniformly so, that the male partner tends to look after money matters. But that is not as regular as an occurrence as it might be in, for example, the self-managed super fund population, which is a bit older and tends to have a preponderance of the male taking the major decision making role with respect to the money.

Senator O'NEILL: I have many more questions I would like to ask about that but we have limited time. So I will go to questions around Trio—at least, what can be spoken of in public. I ask questions about Trio every time. Mr Price, can you give us an update on anything that has occurred since the last time we spoke?

Mr Price : Given the short period since our last hearing, there are no updates to inform you about on Trio on this occasion.

Senator O'NEILL: Is there anything we need to hear about in camera later?

Mr Price : No.

Senator O'NEILL: Mr Tanzer, thank you for your answer to my question on notice. I understand that we received it a couple of days ago. I had been travelling and had not read it. But I have read it now—the hard copy that has been provided today. When we last met, I asked about the difference in treatment of people who were within the APRA regulated funds that were caught up in the Trio collapse and others who were essentially in self-managed superannuation funds—some to their knowledge but many apparently not to their knowledge—who were not eligible for that compensation of $55 million which was distributed across those who lost. That was a payment from the superannuation sector to compensate those who were impacted negatively by the Trio collapse. Prior to the last federal election there was a commitment in at least a couple of press releases from the now Minister for Finance, Senator Cormann, about compensation for those who were not within the APRA regulated funds. The key groups would be the Victims of Financial Fraud, or VoF, the ARP unit holders and another group called VOICC. There was no action about compensation. The sector had communicated with me that they were very distressed that they were not going to receive any compensation at all. Yet there was a meeting, which you referred to at our last hearing, and you have provided on notice a list of people who were in attendance but not the date.

Mr Tanzer : I thought the date was at the top—or it might have been in the question itself. Was it 8 September? I will get that date for you.

Senator O'NEILL: It was prior to the change of leadership from Mr Abbott to Mr Turnbull, as I recall. Is that correct?

Mr Tanzer : Yes.

Senator O'NEILL: You have indicated that in attendance were the then Assistant Treasurer, Mr Frydenberg, and a ministerial adviser. Do you know who that was?

Mr Tanzer : Sorry, I cannot recall the name.

Senator O'NEILL: The general counsel of APRA was there?

Mr Tanzer : Yes.

Senator O'NEILL: Do you know that person's name?

Mr Tanzer : Yes. It is Warren Scott.

Senator O'NEILL: The senior manager of enforcement at APRA?

Mr Tanzer : Sorry, I cannot remember the name of that person.

Senator O'NEILL: The commissioner was there—that is you, Mr Tanzer. I am filling in the blanks here.

Mr Tanzer : Yes, and with me was Mr Savundra.

Senator O'NEILL: He is the senior executive leader of market enforcement at ASIC?

Mr Tanzer : Yes. There were representatives from the three groups that we mention there, but I do not recall the names.

Senator O'NEILL: Commonwealth Treasury?

Mr Tanzer : Yes, one of the advisers from the Treasury Department was there.

Senator O'NEILL: Name unknown?

Mr Tanzer : I cannot recall it off the top of my head.

Mr Medcraft : We can get those names.

Senator O'NEILL: If you can provide those names that would be helpful. As I indicated, you said it was important to ask the question of the minister. I will follow up on that now and I will hopefully communicate with the other people on that list as well. Could I go now to the Financial Advisers Register. Could you give us a bit of an update on the status of that—how it is going, its use and its impact?

Mr Tanzer : Certainly. The Financial Advisers Register provides key information on individuals who provide personal advice to retail clients on tier 1 products—investment products and life insurance, not standard banking products. The first phase of the register was launched on ASIC's MoneySmart website on 31 March. Phase 2, which includes some additional information fields, was launched on 23 May. The additional information fields are the qualifications, training and professional membership details from AFS licensees, and those details were populated between 25 and 30 May.

Phase 3 of the register was launched on 1 October. This phase introduced late fees, a late fee regime and incorporated the controlling entity notification as part of the AFS licencing process. As at 9 November this year, there were only—

Senator O'NEILL: Sorry, Mr Tanzer. Before you go onto the 9th, can you just take me through that last little bit so I understand it. The populating of the fields to include late fees, late fee regimes and…?

Mr Tanzer : It does not populate the register. It introduces a late fee regime for notification. The obligation is on the licensee to notify their advisers on the register; so, if you are more than 30 days late, there is a late fee that now applies. I mentioned on the last occasion that the late fee regime that we found in other parts of our registry operation would be a very effective tool to motivate licensees, other registrants or lodgers to make sure that they do lodge within time.

Senator O'NEILL: As I recall, I think Senator Fawcett might have asked a question about indication of where people had had any negative marks against them in the past. Has it been updated to include that?

Mr Tanzer : I can go through that in quite some detail. The question here was about what information is shown about people who are banned. If a person is currently authorised to provide personal advice—and therefore is shown on the register—and was banned at any time in the past, that will be shown on the register. If a person is authorised to provide financial advice—or was authorised to provide financial advice since 31 March 2015, which is when the register started, and was banned at any time—even if they are no long working, that will be shown on the register. If the person was not authorised to provide financial advice as at 31 March, and has not been authorised since, their details will not be shown on the financial advisers register. Their banning and disqualification will be shown on the banned and disqualified persons register, which is also a public register.

Senator O'NEILL: So people will have to look for both of those?

Mr Tanzer : The purpose of this register is really about active advisers, so, if the person is not authorised to act anymore, they should not be in business. But, as a matter of transition, yes, if a person was concerned that someone that they had dealt with before 31 March was banned, they would need to look at the banned register as well.

Mr Medcraft : As a related follow up, I presume that if you googled a name, it would come up under a search term normally. Is that correct?

Mr Tanzer : Certainly if there was a media piece relating the person—and they are most often subject to a media release. I cannot guarantee that it is 100 per cent.

Mr Medcraft : The metadata would be such that it would come up.

Mr Tanzer : And I think it does pick up the banned persons register.

Mr Medcraft : I think it does, because we have had issues in the past.

Mr Tanzer : There is some pretty clear signposting on the ASIC register. It terms of usage of the register, there are 22,624 financial advisers listed. We have also published the register as a dataset on This is a broad platform for publishing government-based datasets that then enables people to download and manipulate that dataset, so they are not stuck with the type of search that you can only do on the ASIC register. You can, for example, manipulate that data by reference to the postcode or the address or the name of the person. Since the register was launched, we have had 425,000 searches of the register completed on the MoneySmart website—that is as at 9 November this year. In the initial phase, it was something in the order of about 17,000 searches per day or week—Louise?

Ms Macaulay : I think that would be per day. The average daily number of searches is a little under 2,000 currently.

Mr Tanzer : It is about 2,000. But it has bottomed out—well, not bottomed out—it has become more consistent at about 2,000 searches per day which, frankly, is a little more than I expected.

Senator O'NEILL: When we last spoke you indicated that roughly 10 per cent of the workforce in the financial services area had come on since we put out our report around ethical standards and behaviour. And we were awaiting the government's response as part of the Murray report. That has happened now. What is the change that is imminent in terms of raising the education standards?

Mr Tanzer : I might let Louise speak to that.

Ms Macaulay : An announcement was made by the minister several weeks ago about the government's position. There is going to be the introduction of a minimum degree-level qualification, a professional year, an entrance exam and continuing professional development, as well as a code of ethics. I understand that the government is looking to consult on that implementation up until the middle of next year.

Senator O'NEILL: Okay. So at least until the middle of next year it will still be SIGNIFICANT 146 that will allow people to participate—

Mr Price : It is RG—

Ms Macaulay : RG—

Senator O'NEILL: Sorry—RG, yes. They have changed to the Senate numbers—SG, RG! Do you have any concerns about that time frame? And what protections are ASIC putting in place to try to lift standards in the interim?

Mr Medcraft : I think you are probably well aware of our wealth management project, that has pretty heavy surveillance on the financial advice in the large firms. Do you want to comment, Louise?

Ms Macaulay : Yes. We are looking at a number of aspects of advice provided by the largest entities. We are also, obviously, continuing our broader work that we do in relation to complaints that we receive about particular advisers or licensees. I think that within the industry there is a recognition about changing standards of education and professionalism and so the industry itself has moved to start to have its advisers improve their qualifications. So it itself is looking forward to these changes.

Senator O'NEILL: In terms of the quality of those education opportunities, how engaged is ASIC in monitoring the training that is going to be provided—particularly if it is offered in-house?

Ms Macaulay : The government's proposal is that there will be a standard-setting body which will set the standards that are required of advisers. That will determine what the exam will contain and the standard at which it is set, the terms of the professional year and what continuing professional development is provided. As I understand it, that will be a body which has a board with equal representation from industry and consumers and with a chair. And then there will be specialist educators staffing that organisation.

Mr Medcraft : Senator, if I am correct I think you were asking about levels of education now—pre-change?

Senator O'NEILL: Yes.

Mr Medcraft : Yes, I thought that was the issue. When we see issues of competency in our surveillance, to what extent do we ask if it is attributable to a lack of adequate training, where there is a training requirement?

Ms Macaulay : Licensees have obligations under their licence to provide adequate training for their advisers. That is clearly a licensee obligation that we follow up. We look at the conduct of the individual advisers, so complying with their obligation to act in the best interests of the client—to act without conflict and to provide advice that is appropriate.

Mr Medcraft : Do you want to give some insight into our large-firm surveillance? How we are approaching it, perhaps?

Senator O'NEILL: What do you see of what they do, in terms of training and—

Mr Medcraft : Perhaps just give some idea of—

Senator O'NEILL: How can you be assured that the quality of that training is adequate?

Ms Macaulay : You see that reflected in the quality of the advice that is provided by the advisers under a licensee. One of the things that we may look at during the course of a surveillance is the way that a licensee is run and what it provides to ensure that its advisers are at proper standards. We look at what monitoring it does of the advice, what assessment it does of the results of that monitoring, in terms of looking across the standards that are generally maintained by the advisers, and whether they are looking at addressing issues that have come out of their monitoring work.

Mr Medcraft : We look at the internal controls over the financial advice business. That is what we are testing at the end of the day. If they fall short, then we take action.

Senator O'NEILL: Do you give directions where you see failings in terms of training?

Mr Medcraft : We feed back to them. That is what we do in all of our surveillances. Where we see inadequacies, we highlight them to the management. If we see breaches of the law, we consider taking action, if appropriate.

Senator O'NEILL: What have you seen in the last several months in that field?

Mr Medcraft : I think we have some statistics of where actions were taken in relation to bannings and others in the financial advice space.

Senator O'NEILL: I think we got some of that data last time. But what I am asking is: you find the problem—

Mr Medcraft : We find a problem—

Senator O'NEILL: you advise—

Mr Medcraft : We elevate it to management to deal with the problem. But I can stand corrected on that. As I said, if need be, we take enforcement action.

Senator O'NEILL: But what about training that arises out of where you see these problems? How does that kick in?

Mr Medcraft : I expect that we would follow up to see if it is remediated.

Ms Macaulay : I can give you a recent example—it was in the last couple of years—of a large entity that we went in and did a surveillance of. We found that there were a number of deficiencies in the way the licensee was operating. An enforceable undertaking was put in place, and one component of the work that was done under that enforceable undertaking to bring the licensee up to standard was for the licensee to put adequate and appropriate policies in place and then to ensure that the advisers were trained to a standard where they were able to implement those policies. We had some oversight of the way that that training was conducted. It was conducted by an external firm. Much of it was done on a mandatory basis, and then there was some testing following that training.

Senator O'NEILL: Do you do that sort of thing without an enforceable undertaking triggering it?

Ms Macaulay : It would usually take place in circumstances where we have given the licensee some imperative to do it. So it may not be an enforceable undertaking; it might be licence conditions.

Senator O'NEILL: Right. So there are other triggers that you do use?

Mr Medcraft : Yes.

Senator O'NEILL: Until such time as a proper training regime is established, are you particularly watching training?

Mr Tanzer : At the moment, the focus of the wealth management program is, frankly, on some harder issues like money for nothing, advice fees being charged without a service being paid, bad apples, the controls in place in vertically integrated firms and so on. It is part of our regular surveillance to think about training issues, but at the moment the focus is on some slightly harder issues.

Senator O'NEILL: One of the things that strike me, in terms of change management, is that if you are going in and trying to sort out those issues and you have people who are coming in on this extremely thin qualification—the RG146—they are likely to be caught up in that culture very, very quickly if there is not an early intervention training opportunity that lifts the standards immediately. I think the change that training can possibly bring into contexts that are dangerous is also a significant thing.

Mr Tanzer : I can see the point. I can say that I think that what we are seeing, in the surveillances that we have undertaken, the EUs that you are aware of and the monitoring that is taking place, is a change in the sort of culture of these organisations around compliance-type issues. So that gives us some better feeling about whether or not there is a particular problem on the training side. But, as I said, our priority at the moment is on some slightly more direct issues. I should say, in answer to your earlier question, that the meeting was on 3 September.

Senator O'NEILL: Thank you very much. That is great.

Mr Medcraft : That project has resulted in banning of bad advisers, infringement notices, licence conditions for one licensee, and enforceable undertakings from two advisers. So we have been getting outcomes from that.

Senator O'NEILL: If there is time I would like to come back and ask you a few questions around that. But can I now go to questions around the commission's registry database.

Mr Tanzer : Yes.

Senator O'NEILL: Thank you. I understand that the tender process is underway for the privatisation of the registry.

Mr Tanzer : Yes.

Senator O'NEILL: There has been considerable concern about it from a number of points, because it is such an important thing for people to be able to access, and concerns about a monopoly. How many regional jobs are currently involved in the people who provide the registry through ASIC?

Mr Tanzer : A significant part of the registry's operations is based in Traralgon in the Latrobe Valley in Victoria. There is of the order of 250 staff at that location. There are slightly fewer than that in terms of full-time equivalents. We also have registry staff who are based in Melbourne and Adelaide. There are some other ASIC staff who substantially provide services to the registry—for example, IT staff—most of whom are based in Sydney, Melbourne or Traralgon.

Senator O'NEILL: You have probably visited Traralgon. Would you describe that community as low- or high-socioeconomic status?

Mr Tanzer : I am not an expert on that, but it is clearly a very important employer in the district. Through this process, the local council, local members and the local community have been quite active in voicing their concern about the prospect that the process will result in some loss of jobs in the area. The government has indicated, in the foundation documents around the tender process, its strong preference for the Traralgon operations, including the jobs there, to be maintained or enhanced and that, as it assesses bids and tenders going forward, it will take that strong preference into account.

Senator O'NEILL: But there is no guarantee that those jobs will stay? It is a strong preference but not a guarantee.

Mr Tanzer : It is stated as a strong preference at this stage, and I can quite understand why it is.

Mr Medcraft : But also there is a skill base there.

Senator O'NEILL: That is already established.

Mr Medcraft : Yes.

Senator O'NEILL: What was the revenue for ASIC in 2013-14?

Mr Tanzer : We do not get that much revenue; we pass it straight through to the government. But the revenue—

Senator O'NEILL: That comes through your agency—

Mr Tanzer : that we collected on behalf of the government was $824 million.

Senator O'NEILL: How much of that was from the registry database?

Mr Tanzer : A large proportion of it. The vast proportion of it.

Senator O'NEILL: Can you give me some broad numbers.

Mr Tanzer : I will take that on notice and give you some numbers. In fact, I think the annual report might say that the $824 million is registry.

Mr Medcraft : It is all registry. We collect $825 million, on behalf of the government, off the back of business names, corporate registrations et cetera—

Senator O'NEILL: So it is a big part?

Mr Medcraft : and it is then paid into appropriation. We then receive our own budget out of appropriation. We receive $325 million from appropriation, and we pay in, on collection of fees, the $825 million.

Mr Tanzer : Page 32 of the annual report indicates that the fees and charges raised for the Commonwealth—that is, the registry fees and charges—are the $824 million. There may be some other revenue that ASIC collects, which would be recovery of fines, or court things—

Mr Medcraft : It is very insignificant.

Senator O'NEILL: But this register is your main source of income?

Mr Medcraft : It is not our source of income. It is the government—

Senator O'NEILL: It is a major source of income for government.

Mr Medcraft : We are an agent of government. We bill and collect and pay that into the appropriation account, and then we receive—

Senator O'NEILL: You get some of it back.

Mr Medcraft : No. We do not get any of it back. We are funded out of appropriation by the government. There are two separate things. The two are very separate.

Senator O'NEILL: That is exactly how I would expect a person of your skill set to talk about it. I am doing the layperson's thing: you put money in; you get some out. You put a lot in and you get less out.

Mr Medcraft : What we bill is on behalf of the government and on behalf of ASIC.

Senator O'NEILL: The system has been part of the conversations throughout this year. The system is ageing and it needs some upgrading. What is the cost of that?

Mr Tanzer : There are two parts to the system. Well there are more than two parts but effectively there are two parts to the system. The company database was built 1990. It brought together all of the state and territory databases such as they were. It was the first time we had a national company register. Not surprisingly, when we built that database it was built on a mainframe. It was built of language that was available at that time and it is outdated. It is quite a functional system. It performs quite well. In terms of system availability, the availability is very high. In terms of the core performance outcome that you have about being able to turn around company registration, for example, within a day, I think we run it at over 80-something per cent. I was reflecting on the original annual report of the ASC back in 1991. It proudly reported that we had been able to process something like 30 per cent of forms within 10 business days. The system itself was a very good system. It is still qu8ite functional, but it is an old system and it does not have the flexibility that more open systems exhibit that have been built, for example, in the last 15 years. So when you search that system, the types of searching that you can do is not nearly as flexible—

Senator O'NEILL: As people may have become accustomed to now.

Mr Tanzer : as people are. Indeed, with the business name system, which we took on from the states and territories just two years ago and which was built on a Siebel system, we built the company system very much

on the basis—in fact, before there was widespread internet or any internet for people to use—that we would use intermediaries. We actually did not want individuals coming to us because they would likely be coming with paper, and to make this more effective it was much more effective to build in an electronic system. To do that effectively, you actually wanted to channel that through intermediaries. Whereas when we constructed the business name system, just three years ago, it is completely the reverse. Now, over 99 per cent of those transactions are done online and 30 per cent of those transactions are done outside of business hours. Clearly, there are benefits in this business from a technology upgrade. And that is where it is.

Mr Tanzer : Mr Medcraft, you indicated to bring that corporate register onto the Siebel system it would cost about $65 million over three years.

Mr Medcraft : The cost would be $65 million over three years to implement it.

Mr Tanzer : It was probably estimated about two years ago.

Mr Medcraft : Yes, it was two years ago.

Senator O'NEILL: So it might be slightly different now—

Mr Medcraft : Yes, that is adding to the Siebel system.

Senator O'NEILL: And the cash flow resulting would be well in excess of $65 million?

Mr Medcraft : Yes.

Senator O'NEILL: So you would believe it would be a sound investment. Has the government evaluated an option for internal funding of the upgrade to the ASIC registry database?

Mr Tanzer : We put forward proposals at different stages in the budget process about an upgrade to the registry.

Senator O'NEILL: And?

Mr Tanzer : That has been through the normal government processes. It has not been successful, given other priorities, but government has had that material to evaluate.

Senator O'NEILL: So we are pretty sure their evaluation was not for you to undertake this?

Mr Tanzer : Yes, the proposal was not successful.

Mr Medcraft : I think we have put it up every year for four years, or something like that.

Senator O'NEILL: Is there a report of an evaluation into internal funding of the upgrade?

Mr Tanzer : The only report I can think of would be something through the normal cabinet processes. So it would not be a report that is final.

Senator O'NEILL: If there is a report, it has not been released and it has not been made public?

Mr Tanzer : The only proposals that we have put forward on this have been in the context of the budget process, which is a cabinet process.

Mr Medcraft : New policy proposals.

Senator O'NEILL: Have you made any recommendations that it should be sold, or is this solely a government decision?

Mr Tanzer : From our perspective, we can see real benefits in the registry being focused on as a business. The needs of that part of ASIC's operation are quite different to the needs of the regulatory business. The types of staff that we employ are quite different. They have a significantly greater—and for good reason—customer service type of orientation than is necessary in much of the regulatory business, and, as I pointed out, there are significant benefits in terms of technology, because it is a very process-heavy business. It is a very large transaction, large volume business—unlike much of ASIC's regulatory activity, which, if not bespoke, tends to have a lot more variation—and it does not tend to be a process that can be as easily regimented as the registry. So we see particular advantages, and we have advocated the case that government should think about the business as a business. But we are completely—

Senator O'NEILL: That does not mean that they should sell it.

Mr Tanzer : We are completely agnostic about whether it should be privatised or otherwise.

Mr Medcraft : As Mr Tanzer said, we think it should be treated as a business, because, basically, it is a trusted data platform, and, in a digital world, that is very attractive to run as a business and potentially to try to merge it with other registers to create a single, much larger data platform. Creative businesses can then harvest that data to provide services. Even thinking about that then helps develop a new platform so that you can, online, completely incorporate companies digitally. That then obviously improves the efficiency of the country. We saw a lot of opportunity there as a business.

Senator O'NEILL: As a business for the Australian people or as a business for the private sector: that is the big question.

Mr Medcraft : We formed no view. We just basically said that this should be run separately as a business.

Senator O'NEILL: Are you aware of any decision-making processes from the government around why they would sell it, holus-bolus, to the private sector?

Mr Tanzer : The government did announce in the 2014 budget that it would undertake a scoping study into not just the ASIC registry but a couple of other—

Senator O'NEILL: Australian Hearing is another one.

Mr Tanzer : government business entities. Yes, Australian Hearing was one of those. That scoping study then led to a decision in the context of the 2015 budget that the government would proceed with a competitive tender process to test the ability of the market operator to operate and upgrade the operations of the registry. So the government has made that decision. At this stage, the latest announcement was an announcement by Minister Cormann, the Minister for Finance, I think in early November, about the completion of the expression of interest phase where he indicated that the government was pleased with the strong level of interest from the private sector, that more than 10 comprehensive expressions of interest has been received from a broad range of businesses as part of the EOI phase, that the EOI responses have reinforced the view that the registry is an important source of information for a wide range of users and that the responses received will now be considered and evaluated before making a decision on any further steps. The original decision in the budget context was that this tender process would be completed over 12 to 18 months. So that would be by June to December next year.

Senator O'NEILL: It is a business that the government currently owns that is making an awful lot of money for the government.

Mr Tanzer : Yes.

Senator O'NEILL: Is that why there are 10 private sector points of interest in purchasing?

Mr Tanzer : I assume so.

Mr Medcraft : In fairness, I am trying to think how they approached the sale, because the revenue that comes from the registry is already baked into the forward estimates.

Senator O'NEILL: I am concerned about that. If we are talking about Australia having a revenue problem, why would we be at the point where we are about to sell something that is actually making money for the government?

Mr Medcraft : But what I am saying is that the government would need to consider the revenue that they have already coming and compare it to what they may be offered for that as part of any decision. It is clearly a business decision.

Senator O'NEILL: We are back at the heart of the privatisation question.

Mr Medcraft : The issue is whether somebody can add more value to that asset. It is actually an infrastructure asset, a data infrastructure asset, and I guess it is a matter of testing the market to see what options there are out there.

Senator O'NEILL: I might have some more questions on notice around that, but I have one last one, Chair, if I may?

CHAIR: The last one.

Senator O'NEILL: Thank you. The committee has been hearing a lot in the last couple of weeks around the appointment of receivers to businesses, particularly around the Commonwealth-Bankwest takeover. Investigative accountants and their intimate links with the bodies that then come in as receivers have consistently been put to us as a major concern. We have had, I think, some preliminary conversations about this in the past. Does ASIC have a view, based on complaints that you have received, or you are aware of the public conversation now, around models of international best practice with regard to this sector—banking practice surveillance interaction with small businesses or commercial loan holders and the interrelationship with insolvency practitioners?

Mr Price : There are a number of insolvency firms that have related advisory businesses that provide services that complement the work they do around corporate restructuring, turnaround or insolvency practice. Those ancillary services include things like forensic accounting and real estate advisory and corporate transactional advisory services. That is a feature of the market at the moment, particularly with the larger insolvency firms. At the moment the Corporations Act does not require a receiver to notify ASIC, or indeed any third party, of any prior involvement by them or their related advisory firms with a borrower. I can fully understand—

Senator O'NEILL: Does that just mean nobody is watching this space because they are not required to report anywhere?

Mr Price : It is not required by the law for them to provide that information. That is what I am saying. I can see that the public might perceive a conflict of interest in situations where those ancillary services are provided. I can see that someone might say: 'I perceive there is a conflict because you are providing these services and then a receiver is appointed later.'

What I would say, just for the consideration of the committee, is this: when a secured creditor such as a financial institution, a bank, is exercising its contractual rights, then the receiver that is appointed—their duties lie back to that financial institution, not to the creditors more broadly. That is a difference to the appointment of a voluntary administrator or the appointment of a liquidator.

Senator O'NEILL: I am sorry, Mr Price; I just need to go back. I did not quite get that concept.

Mr Price : At the moment, if a voluntary administrator is appointed or a liquidator is appointed then that person has a duty to all the creditors of the company to which they are appointed. If a receiver is appointed by a financial institution, say a bank, the duty of the receiver is to the bank. It is not to the other creditors. Do you understand?

Senator O'NEILL: I do.

Mr Price : I would simply make the point that at the moment there is not a statutory provision which prohibits the appointments involving these ancillary services where the related firms are providing or doing the receivership. There is also no requirement at the moment to disclose that information to anyone.

Mr RUDDOCK: So if you became aware of a defect in the administrative arrangements that you are supervising and you are now justifying, you would bring that matter to our attention so that it could potentially be remedied, wouldn't you?

Mr Price : Of course.

Mr RUDDOCK: I am looking forward to the recommendations.

Mr Price : Of course. The question that this committee might want to consider is that if you did have a prohibition, that might increase the cost of insolvencies overall. You can make an argument that if related advisory services are provided by the same firm that is conducting the receivership, there are economies of scale; there are cost savings in that.

CHAIR: I am sorry, but you need to go and have a look at some of the evidence we have received, and from someone this morning. One of the associated advisory firms, a forensic accountant who was one and the same firm as the receiver, charged $1.4 million for several months work with half a dozen people.

Mr Price : Senator, I am happy to look at the evidence, but—

CHAIR: That hardly represents a cost saving, in my view.

Mr Price : Let me be very clear: there is no statutory obligation at the moment that prohibits that conduct. This committee may consider that that is inappropriate and there should be such a prohibition. You may want to consider whether that has an impact on cost. I am not expressing a view one way or another. This committee may want to consider whether those sorts of arrangements should be disclosed to provide further scrutiny.

Mr RUDDOCK: We may want to make an informed decision on those matters and we would look forward to your advice as to the nature of the problem as you assess it and how we might address it.

Mr Price : Again, if I can be very clear: because it is not directly covered by the provisions in the Corporations Act at the moment, we have limited access to information around that, but of course we are happy to provide it to the committee, to the extent that that information is available.

Mr RUDDOCK: I have been reading the material that you have submitted, and we are going to examine you on it on another occasion. I have asked the secretariat to ensure that you are apprised of the extent and the nature of the problems in relation to impaired loans that we have become aware of. When I read that you have identified 66 matters, and I read your justification for why there appears to be so little, I think, effective scrutiny, it seems to be that if we only have 61 murders a year, we should not do very much about it. That seems to be the reasoning. I see these as major defects. I think they are matters that ought to be capable of being reviewed. You are the only agency that has that capacity. The ACCC does not; it has been taken away from it. It is with you. I am looking to ensure that as we address these issues we do so in an informed way. I am asking that we be permitted to apprise you of all of the matters that have been raised with us in the same way that the bank that we think has been primarily involved in these matters should be apprised of those matters so that, as we examine them, they can be dealt with in an informed way. I wanted you to be on notice because I am going to slip away and get a plane back to Sydney.

Mr Medcraft : That is fine. Thanks, Mr Ruddock.

Mrs SUDMALIS: Thank you, Chair and thank you, gentlemen and ladies. As a little follow on to that, one of the more heart-rending submissions that we heard this morning was when, at the end of the discussion, two of us here said: 'And did you report that to ASIC?' That person looked in stunned amazement, like 'Who?' They did not know that they actually had the right to do that. I would think that there would be many more out in the general public who have not come to you with the very issues that they need to come to you for for help and for evaluation and investigation. I think that is something that needs to be addressed at a much greater level, because it would have been a point of recourse for him and I think some of the other submitters this morning as well.

The other thing relates to a very minor situation which is sort of connected. With the company register that will, hopefully, become part of the digital age, will there be a cross-referencing of companies under receivership, voluntary administration or anything else, so that when not-so-ethical individuals go to set up another company to then steal the assets away from a company and re-establish, there will be some way of mapping that to ensure that cannot happen?

Mr Tanzer : The company register already records the status of a company, so if the company is in receivership, it will record that the company is in receivership. The fact of the status of a company is already recorded. We have certain powers to deal with what is called phoenix company activity, where a company or the company's officers deliberately and fraudulently take assets out of one company and transfer them to another.

There are some provisions in the Corporations Act and, indeed, general fraud provisions that might apply in that situation. We also take action to ban people who have been involved in two or more failures of a company within the last six years, I think it is—the particular amount of time is set out in the legislation—if the company has failed to pay 50c in the dollar: if it has paid less than 50c in the dollar. That is an active program. We take action within the resources that we have. Generally speaking, I think that last year we banned in the order of 60 directors for that particular issue.

Mrs SUDMALIS: The reason I asked that is, of course, that I actually have a case that I have been chasing for 2½ years where that specific situation has occurred. They did not even bother to change the name of the company; it was still based on their last name. They put two phoenix companies in, ripped off all the assets from the other one and then did not pay all the subcontractors who were owed money. Clearly, whatever the red flag system that should have been in place for that circumstance was, it did not happen.

Mr Tanzer : I understand. I am very happy to look into the circumstances of it. It might be that the case you are talking about is something that we are aware of, but I am not sure—

Mrs SUDMALIS: No, I have a seven-page letter coming to you very shortly, with a lot of information.

Mr Medcraft : We will take it and respond.

Mrs SUDMALIS: I am hoping that will be rectified in the new system.

Mr Tanzer : Sure. What is displayed on the system and what linkages can be made are actually set out in the legislation. The extent to which the authorities can match that up is different to what might be on public display. One of the options that could be considered is making more of that information publicly available, for example. The information that a company is in receivership or that a company is in liquidation is already available. The information that says, 'All of these people who are the directors of those companies have now started another company,' is part of the searching capacity that I am talking about with the existing system—you would have to search for those particular people to find that out.

Mrs SUDMALIS: What about if they have parked themselves into voluntary administration?

Mr Tanzer : If they are in voluntary administration it is also shown in the system that they are in voluntary administration—

Mrs SUDMALIS: Does that disallow them from registering a new company with the same set of directors?

Mr Tanzer : No.

Mrs SUDMALIS: It doesn't?

Mr Tanzer : No.

Senator O'NEILL: What has to happen?

Mrs SUDMALIS: What has to happen to fix that?

Mr Price : The legislation needs to be changed.

Mr Tanzer : The legislation permits a person who has been involved in a previous company that is insolvent or in voluntary administration to register another company. There are powers to ban people if they have been involved in two or more failures of a company that pays 50c in the dollar, but that requires two or more companies to have failed and liquidators' reports attesting to that. It is what the legislation says.

Mrs SUDMALIS: Okay. Coming from my very everyday person's role—

Mr Tanzer : I understand.

Mrs SUDMALIS: what do we need to do, to put in place, to prevent disreputable people from doing precisely what I have just described, which is put themselves into voluntary administration, strip the assets, sell them off and then give 4c in the dollar back to the creditors?

Senator WILLIAMS: How lucky—

Mrs SUDMALIS: We would like to have that given to us so that we can start pushing that through as legislation.

Mr Tanzer : Sure.

Mrs SUDMALIS: Thank you.

Mr Medcraft : Basically, the issue of phoenixing—

Mrs SUDMALIS: Yes—I thought that was disallowed.

Mr Medcraft : No, it is a major issue—

Mrs SUDMALIS: Well, listen, I have only been in the game for two years—

Mr Medcraft : Sorry—if you talk to the ATO about phoenixing it is a major issue.

Mr Price : Major.

Mr Medcraft : With companies that do this, it is not just the contractors—they actually avoid their tax liabilities as well.

Mrs SUDMALIS: Okay—can I please put this is a priority issue? It is destroying communities.

CHAIR: Mr Medcraft, could you come back to the committee with a proposal for what you think would need to change in the legislation to enable ASIC to take more timely action to prevent that? And while we are on the topic: coming to your last six-monthly enforcement outcomes report, I notice in paragraph 40 that you have identified approximately 2½ thousand directors—2½ thousand directors—who meet the criteria for triggering the director disqualification provisions under the Corporations Act, and that these directors currently operate over 7,000 registered companies.

Mr Medcraft : Yes.

CHAIR: Can you just talk the committee through people who have met the trigger to be disqualified and yet are still running companies?

Mr Medcraft : As we mentioned, it is not an automatic ban. It requires ASIC to take action to disqualify the person and that involves an assessment of the particular circumstances. Typically, what we will have is two liquidator reports that attest to the fact that the person has failed to pay 50c in the dollar. The legislation does not permit us to disqualify a person if those two companies were related. So, firstly, we will decide that. But, basically, it is a question of how much resource we put into that particular type of activity.

CHAIR: What I am reading here when you say they have met the trigger, I am reading into it that they have met those requirements.

Mr Tanzer : I think what that refers to is: if I have the context right, it was in the context of some work that we were also doing to target those people and go and visit some of them in particular industries. This was something, actually, that we talked about at our June hearing. You might recall, we had a program where we were testing that type of data against other data that we might be able to obtain from credit reporting agencies, for example, which might suggest that the current company that they were involved in was in some sort of financial distress—they were seeking additional loans, they were loading up their personal credit cards, and that type of thing. We were going out and visiting them, and making clear to them that if they were in financial distress the appropriate course was to go into liquidation not to seek to phoenix. I think I mentioned to you on the last occasion that that program, while it was a smaller scale, I think we visited 200 directors, focusing on the construction industry and, I think, the transportation industry. I can check on the details. The initial results of that were actually quite positive. People may well have gone out of business but they did not phoenix. They wound up their companies appropriately. Our program basically looks at complaints that are made about exactly this type of activity, and we look at the circumstances in which the company became insolvent—whether it seems to us that this is something that the person is doing actively or with real intent to defraud their creditors. There are also circumstances where their company fails not necessarily through any sorts of turpitude on their part. Then we prioritise them and, according to the resources that we have, take action accordingly.

Unidentified speaker : Sorry, Mr Day, did you want to comment?

Mr Day : Yes. I want to pick up on something that Mrs Sudmalis raised. There is a Senate inquiry at the moment into phoenix activity that, I think, Senator Williams is a member of. You are not?

Senator WILLIAMS: The Economics Committee is doing it, I think, Mr Day.

Mr Day : Yes, that is right. Sorry.

Mr Price : With Senator Edwards and Senator Cameron.

Mr Day : Yes, Senator Edwards and Senator Cameron. So we have given quite a wide-ranging submission in that inquiry. We have given evidence there.

Mr Price : So we should provide a copy of that submission to this inquiry.

Mrs SUDMALIS: The executive summary, please.

Mr Price : It is short.

Mr Day : Similarly, some of these issues are also covered in relation to the Productivity Commission review into business entry and exits, as well. So there has been a lot of information that ASIC has already provided in different forums in relation to these issues.

Mr Medcraft : We will respond to the chairman's request. It is quite a big issue. It is an appropriate thing to focus on. It is, frankly, really unfair to those companies involved. I totally agree.

Senator WILLIAMS: Just following on from Mrs Sudmalis' point there, if you put a company in liquidation—when the company falls belly up and, of course, the money is never returned with surplus—are the directors pursued for bankruptcy?

Mr Price : Sometimes they are.

Senator WILLIAMS: If they are, and if they are bankrupt, does that forbid them from being a director of another company?

Mr Price : Yes, it does—automatically.

Senator WILLIAMS: In relation to receivers, Mr Price—and tell me if I am right or wrong—if I am a bank or a finance institution, I can send a receiver in tomorrow of a company that I have a mortgage over their assets. Is it correct that I do not have to notify that company—I can just send them in?

Mr Price : Appointment of receivers is really a matter of contract. Typically, the rules that govern the appointment of the receiver, and so forth, will be governed by the terms of the loan agreement.

Senator WILLIAMS: Would it be common practice that a bank could send a receiver and, in that contract, they do not have to ask any questions or give any orders—just send them in and the locks can be changed and the proprietors just kicked out? Is that how it works?

Mr Medcraft : Normally, you have events of default under a loan document and you are enforcing your security. For one, if there has been an event of default, that gives you the ability then to enforce your security. Those events of default could be monetary events of default or they could be non-monetary events of default. When you think about it, a receiver is actually put in to protect the value of the collateral securing you loan. So you would have to demonstrate—

Mrs SUDMALIS: Can you say that again?

Mr Medcraft : You would actually have to demonstrate there is a basis to do it.

Mrs SUDMALIS: No. The 'protect' bit.

Mr Price : Yes. In short, it really depends on the circumstances and the type of asset. For example, if you are talking about assets that include land, there may be notice requirements under state legislation—for example, the Queensland Property Law Act. So it is very hard to generalise.

Mr Medcraft : But generally, as I say, it starts with the lending document and the events of default under that document.

Senator WILLIAMS: We are hearing a lot in this inquiry—I am probably raising it all the time—about section 420A.

Mr Price : Yes.

Senator WILLIAMS: We have heard some shocking evidence. Today we heard from a bloke about a valuation of $31 million for one block, and I think it was sold for $11 million. We had a fellow in Sydney yesterday who set up a development in Gordon. He bought the block of land for $7½ million; he paid $4½ million in cash and borrowed the other $3 million. He then spent about $12 million on it. The project was not completed. It was close to $20 million, and the receivers went and sold the block, with the whole project not completed, for $6 million, less than he paid for the block of land. Then it was finished, and some Chinese investor cashed it in for $55 million. We get some disgraceful stories about the sale of these assets. What needs to be done to make it work?

Mr Price : Section 420A is a provision that governs a receiver's power of sale. One of the things about that provision that have evolved over time with various legal decisions is that it is very much focused on there being a proper process in place, rather than the outcome in terms of sale proceeds.

Senator WILLIAMS: So we must advertise and we must be competitive—perhaps put it to auction or put it to tender. There is a process they can skip through scot-free.

Mr Price : It is quite a process-focused provision. I do not actually have a copy of it but, if my memory is right, in our submission to the loan impairment inquiry, at which ASIC is appearing on Monday, I think there is a suggestion—it might have been from a previous parliamentary committee—about a possible amendment that could be made to section 420A. So it is mentioned in our submission. I will endeavour to draw out the relevant—

Senator WILLIAMS: Have you ever known anyone who has been hauled over the coals, punished or reprimanded for breach of 420A while you have been in the job, Mr Price?

Mr Price : I have read of a couple of cases over the years, but certainly they are less common. Because it is a section that focuses very much on process, really it has to be a situation where there has just been a complete failure of controls within the firm and they have just sold it out without going through the necessary steps that you would think any prudent person would take in trying to get a good value for a property. So, yes, I have seen some cases, but I would not say that those cases are typical or common cases.

Senator O'NEILL: The process without ethics can still lead to a very bad outcome.

Mr Price : Yes. It is very difficult when you talk about issues of valuation and what something is really worth. As the committee would appreciate, valuation is an art and not a science. It depends on there being willing sellers and willing buyers in the market. At one point in time, after the global financial crisis, there were not so many buyers, so assets that people may have thought were worth a lot prior to those events may not have been worth that much at all after those events, simply because people are scared and they do not want to buy assets.

Senator O'NEILL: That is the defence we are getting from the banks all the time, but we had evidence this morning about a $31 million valuation on a property that had an offer of $36 million, which was made known to the liquidator the day before they were closed, and they ended up selling the property for $11 million.

Mr Price : Yes. I think it is important. There are offers and there are offers. Before I worked at ASIC, I worked in private practice on the Gold Coast, and I have seen all sorts of valuations, and they have been on all sorts of bases. You can have an offer that is subject to finance and to a whole raft of things happening that are highly uncertain, and you will read that offer and say—

Senator O'NEILL: 'Really?'

Mr Price : Yes, that is it. So there is a value judgement there. To give you a simple example, you might have an offer from someone at $15 million that is cash and payable within 10 days. You might have an offer for $17 million that is dependent on finance and a whole raft of other conditions and is payable within 90 days. It is a judgement exercise about weighing what is the best for creditors, because if the finance does not come through you are not going to get the $17 million.

Mrs SUDMALIS: Especially with a falling market price.

Mr Price : Exactly.

Mrs SUDMALIS: Then doesn't that fly in the face of process?

Mr Price : In terms of process, the question is: what process did they go through to get the offers in? Then there is a judgement on the part of the practitioner about what is in the best interests of the people for whom that practitioner acts. What the courts have said, over a relatively long period, is that they are very reluctant to come in and second-guess the commercial judgement of someone who is experienced in the area and has gone through the right sort of process.

Mrs SUDMALIS: That is something that needs to be challenged anyway, because who is watching over the receivership industry?

Mr Price : It is not so much a question of who is watching over the receivership industry, because that is clearly ASIC. The question is: what standards are they held to account to? That is really something that is set out in the legislation.

Senator WILLIAMS: What punishment do they face if they have done the wrong thing? That is the question I asked Mr Medcraft. I think we are a very soft-punishing country, aren't we?

CHAIR: Before we disappear into the impairment of loans inquiry, which is for another evening, Mr Price, can I just ask if you are the responsible commissioner within ASIC. The Hansard records from yesterday and today should be available by Monday. That does not give you a lot of time. I am happy for you to provide some advice after Monday, but it would be useful if as well as looking at the submission—which I assume you have done, from the comments you have made in your own submission—you could look at the evidence that has been presented during these hearings and provide any additional comments—given the caveats you have just identified about what is an offer versus what is an offer—about behaviours and perceptions, whether you see a role for ASIC, and how we could work with industry to lift the standards. As you say, you have to identify the standards before you can assess someone's conduct around that. The evidence from some quite credible witnesses identifies a number of behaviours that appear to be quite unethical.

Mr Tanzer : This is, in particular, with respect to receivers and liquidators?

CHAIR: Yes—well, any of the behaviours, but specifically those in the context of this conversation.

Mr Price : I am happy to do that. I should indicate, though, that for Monday's inquiry I actually will not be in Australia. There will be a senior executive that reports to me who is an expert in insolvency. He will be attending that inquiry in my place, and so will Deputy Chairman Peter Kell.

CHAIR: Thank you. Going back to the oversight and questions on notice that you took last time, we had quite a discussion around evaluating enforceable undertakings and how that linked up with your KPIs and the ANAO report. I am a little surprised to see that, in your answers on notice, it is a one-liner saying you would like to undertake further research on this question before providing a comprehensive response. I come from a world of tests and evaluation where one of the fundamental lessons is that you do not try to specify something unless you understand how you are going to assess it. How on earth have you come up with the concept that an EU is a useful enforcement and behaviour-modifying and standards-lifting tool if you do not know how you are going to evaluate it? That seems to be a pretty fundamental question.

Mr Tanzer : Sure. I understand. I can quite understand that from the background that you have, particularly where a lot of this has more to do with scientific outcomes or engineering outcomes. I have been working in this field for many years, but we are learning as we go. Part of the reason that we advocated quite strongly for enforceable undertakings to be introduced in the act was to provide greater flexibility with regard to the regulatory tool kit than we had previously with respect to civil action or just administrative action. Part of that was based on our view about evidentiary concerns; part of it was based on the amount of resources that we had to impart to get to particular results; and part of it was also about the lack of flexibility that you tend to get out of a court process, because the court process tends to work best when you have a very defined problem that you are trying to deal with and you end up with an order that deals with that. Enforceable undertakings are a much broader and more useful tool in that.

I agree with you, Senator, that we need to do more work to try to link the outcomes from enforceable undertakings which tend to be: 'You will implement this type of system. You will implement this remediation program and ongoing change in behaviour further down the track, including the deterrent effect on other parties.' I have to tell you that in our scan around the world of what other regulators do, apart from doing perception surveys, stakeholder surveys, which we do, the extent to which you can come up with something that is very measurable in terms of linking enforceable undertakings, civil actions and other actions to discernible outcomes or the strategic goals that we are setting is difficult. It is an iterative process. That is the best I can tell you.

CHAIR: I completely understand why you wanted EUs. I get the theory that leads to that. But you said the key word 'useful'. If they have a use then they have an intended purpose and outcome. And albeit during this iterative process your initial take on that may not be comprehensive, it may not even be accurate in terms of having academic rigour, but surely ASIC has some framework that you are hoping to achieve and some measures that you are hoping to assess before you actually agree an enforceable undertaking.

Mr Medcraft : That is correct.

CHAIR: If not, what is the point of having it?

Mr Medcraft : What you said is absolutely correct.

CHAIR: Well then, Mr Medcraft, why, after giving you some weeks since our last oversight hearing, do I get a one-line answer saying you need to do further research before you can provide me a response asking you how you evaluate enforceable undertakings and how they link to your KPIs. That does not appear to be an academically challenging question.

Mr Medcraft : I think that perhaps it was a misinterpretation of the actual question. I can only presume that because we have been doing a lot of work, as you know, around enforceable undertakings in recent times in terms of responding to other inquiries. I am happy to take on board to come back to you on this and look into it a bit further, frankly. If you look at the annual report, what we say about enforceable undertakings is that basically the fundamental reason we do them is to make sure we get sustainable remedial action taken by management. That is one of the key things we try to get from enforceable undertakings. What you have just said is actually correct. I think we should go back and ask the person who focused on it, and come back to you with more detail.

CHAIR: If you could come back to us in a couple of weeks with a response to that, that would be most useful.

Mr Medcraft : Sure.

Mr Price : If I could raise two quick points. Firstly, the paragraph that talked about potential changes to section 420A is paragraph 125 of ASIC's submission into the impairment of customer loans. It talks about a recommendation that the Productivity Commission had made in a draft report it issued recently. Secondly, just to correct the record: I think I indicated that Peter Kell will attend the hearings on Monday. That is not actually correct. It is a range of ASIC senior executives rather than Peter.

CHAIR: Thank you for that. Can I bring you back to your last six-monthly enforcement outcomes report running through to June 2015? I refer to page 48, inappropriate lending. As we go back and look at the financial advice scandals and the inquiry into that, what we found in the Senate and what you found in your inquiries was a degree of inappropriate advice where, to the extent sometimes it was fraudulent, people were actually forging signatures and giving people inappropriate investment advice. Do you do similar kinds of audit activities around lending? A lot of your focus has been on payday lending recently. As we look at people, whether it is a residential loan or a commercial loan, particularly in vertically integrated structures, we still have remuneration structures that drive numbers and values and things. What audits have you done around the lending practices and the occurrence of fraudulent or inappropriate lending practices?

Mr Saadat : We have done a range of work in the various sectors within the lending industry, looking at fraudulent conduct. That ranges from looking at the activities of mortgage brokers and finance brokers to looking at the conduct of people who are employed directly within banks. We have taken a range of enforcement action, ranging from banning individuals to other action. Most of the work we do in this space is as a result of receiving complaints or reports of misconduct to ASIC, so it is reactive work. We also use intelligence that is sourced from a range of other parties, including from industry itself. So there is a range of activity on that question in relation to fraud, but our work is broader than that, because we conduct industry reviews looking at how lenders are complying with their responsible lending obligations, their other conduct obligations under the national credit act, and other things as well. We can go into more detail about any of those if you like.

CHAIR: I am happy to put this on notice unless you can tell me now, but I am interested to know what is the level of fraud that you are finding. This comes to the broader focus you are having now on culture, Mr Medcraft. Just as we have identified in the financial advice that some of the culture and the remuneration structures have been poor and have led to poor practice, what is the occurrence you have found in the lending world—from the banks through to brokers—around remuneration and culture that are inappropriate, and what level have you identified in the audits you have done—albeit I take it they are reactive? That is one question. The second question is: do you find many whistleblowers coming out in this area compared to the financial advice sector?

Mr Mullaly : No, not whistleblowers in the fraudulent loan area.

CHAIR: What about culture? Do you have any whistleblowers who speak up and say, 'I'm working in an environment where I feel pressured to do stuff that isn't appropriate'?

Mr Tanzer : We have a few that we are dealing with at the moment. I do not want to be specific about whether it is in credit or financial advice or elsewhere. We do get complaints of that nature, normally associated with something that they are directly concerned with.

Mr Mullaly : Further to Mr Saadat's response, we have investigated 97 different matters relating to false or fraudulent loan applications, and there have been 93 outcomes that we have achieved since we took on responsibility for that. We have banned 25 brokers and two former bank home loan managers permanently, and we have banned another 20 brokers in total for a period of 112 years overall. We have cancelled 15 credit licences, suspended two other licences and put conditions on two other licences. In conjunction with the CDPP, we have convicted seven mortgage brokers of providing false and misleading information or documents. We also have a number of other matters before the courts, including a substantial conspiracy matter involving false loans to the value of about $100 million.

CHAIR: I think you mentioned a couple of bank managers there. Part of your annual report talks about looking at systemic issues, so, where you identify an individual who has done something wrong, does that automatically trigger an audit of the institution's systems, looking for systemic breaches?

Mr Tanzer : It does not automatically trigger that. We consider that in the context of the particular investigation. There are a couple of investigations that we have talked about in this committee before that fall into the category where we have been looking at a series of particular allegations, and we are certainly considering that in the context of the broader control systems that they have in place. We have not yet got to the stage of finalising those inquiries, but we certainly have in mind that, as part of that outcome, we would go back to, for example, the board and talk to them about our concerns, to the extent that we have concerns, and why we have them and where we think the controlled efficiencies lie, not just in respect of the particular matter—because, as you can understand, with some of those matters you may end up in litigation directly with the entity, so they are not necessarily going to be all that amenable to that sort of discussion, but there might be others where you are dealing with an individual and where that type of discussion and approach makes sense.

CHAIR: This goes to your comment in your annual report that you are looking at poor risk management, particularly in large, vertically integrated institutions. Again I come back to my question about efficacy. As you have your dialogue with the boards, what are you doing to try to wrap around that some kind of assessment framework to say whether it is in six months time or 12 months time or a four-year exercise? How and when are you going to evaluate whether this approach is effective? If it is not, are you developing your alternative approach?

Mr Medcraft : Generally what we indicate to them is that, if we identify a problem that is systemic, probably within the next 12 months we would revisit it to have a look at whether in fact there is an improvement. Is that a fair comment, Michael or Greg?

Mr Tanzer : That is right, and it is something we have done with respect to a couple of the firms that we have talked about here before. As we have our meetings with the boards and senior management further down the track, we revisit the overall set of indicators, what we see from our perspective and what seems to be working better—what cultural indicators we can see that seem to be working better. But I have to say this is still pretty early days for us. We would not say we have that licked by any means.

With respect to a point that you raised on an earlier occasion, around whether there might be value in some work with the AICD or other entities to see if there is some sort of structural work, we have started having some of those discussions with those entities. I cannot give you a time frame on finalising all of that, but we have been advancing that, in discussions both with some of the boards themselves and with entities like the AICD.

Mr Medcraft : Equally, if we went back and the systemic issue had not been solved, obviously we would be looking to take action such as licensing conditions or an EU directing them to that. The more cooperative approach would be that the entity itself, without us even doing that, would be taking remedial action which they would be highlighting to us and which we would be going back through. I think it really depends on what the response is from the appropriate entity. To complete that discussion, that is basically the way we approach it. Generally speaking, big companies generally take action.

CHAIR: To go back and make that assessment, obviously you need to do some level of audit activity.

Mr Medcraft : Correct.

CHAIR: I notice that in your key outcomes for 2014-15, looking at investor and financial consumer trust and confidence, that the number of your high-intensity surveillances has dropped from the mid-800s over the last few years down to the mid-500s.

Mr Tanzer : Yes.

CHAIR: Why the drop? Is everyone better behaved? Are you running out of resources?

Mr Medcraft : We have had a 20 per cent cut in resources.

Mr Tanzer : It is also that in that area we have devoted quite a lot of attention to the wealth management project that we have talked about on a few occasions here. We have devoted quite substantial resources to that. In particular, that is taking up a lot of the time of the financial advisers team—less so Michael's team, but the financial advisers team particularly—which has given rise to a drop-off in the number of other types of surveillances that we are doing in our cluster.

Mr Medcraft : The third factor is that the scope of the surveillance may vary. Looking at those numbers, you have to look at the scope of an individual surveillance, because one would potentially take a lot more time than others.

Mr Tanzer : Correct.

Mr Medcraft : So there are really three bits of noise in those figures, but we think it is important to at least show that so that we give an idea of the level. As you have requested previously, we have tried to give you a lot more of the performance over a number of years.

CHAIR: Yes, and that is good, which leads me to my next question. I am surprised to see that in terms of the outcomes of your criminal actions on fines, as I read this table, the fines you achieved last year, in 2013-14, were $5,000. There is no million or other figure that I am missing there?

Mr Tanzer : This is investment and financial consumers. That is because the number of matters where we are seeking a fine in a criminal outcome is actually pretty low. A fine tends not to be a very good outcome. With a lot of those we are really seeking custodial outcomes. As you will have seen from the enforcement report that you were quoting, there were some very significant criminal outcomes. A witness got 7½ years and those types of things. The level of fines that we tend to get in investor and financial consumers, particularly at a criminal level, probably more accurate represent the fact that we are less likely to take that type of action against an entity and seek a fine. We take civil penalty action instead, or there may be some licensing action that requires some other type of remediational payment. You are right, the level of fines is very low. In fact, you wonder why we put it there, actually.

Mr Medcraft : We put it there because we thought it was important for you to see all the various outcomes, whatever they are.

CHAIR: It is good to get that perspective. Page 40 of your annual report under the paragraph 'Deposit-takers, credit and insurers: responsible lending it says:

In November 2014, we updated our regulatory guidance for credit licensees to help them meet their responsible lending obligations.

Obviously, again, this context here is a link to payday lenders, et cetera. As we look into broader sectors we are constantly being pointed at codes of conduct that people have, yet, with the evidence we get from a lot of consumers, codes, application and efficacy appear to be in the remit of those with the lawyers with the deepest pockets and interpretations. Has it come to your regulatory guidance about their guide on how people should into regulation?

Mr Tanzer : Yes.

CHAIR: Do you find that by updating guides you are actually seeing increased compliance and behaviour change with regulation, or does the regulation itself often have to change, or the penalties associated with regulation, before you see substantial behaviour change?

Mr Tanzer : It is a fair question, and it is difficult to answer in the generality. There are cases where we definitely see change from clarifying ASIC's view of the law, because sometimes you will find that, which has been the result of an amount of consultation landing on something and then saying, 'We will regard it as misleading unless,' or 'We regard the appropriate treatment of this type of cost as being something of this nature.' There are definitely cases where that works quite well. With just doing a regulatory guide about, for example, competence of financial advisers with respect to their advice to SMSF advisers, we do not necessarily see an immediate change in that. Often what happens though is that that gives us a better basis for being able to tell people what change we expect when we have undertaken surveillance, or indeed if it comes to licensing action, or before the court. The fact that we have expressed our view, while not necessarily being probative, or what the law actually requires, can be influential. In that area of codes of conduct, I should say that we do have some regulatory guidance that goes to the things that we will take into account in considering whether we will approve or endorse a code of conduct. One of the things that we think is very important with respect to codes of conduct—and quite frankly is often the issue—is its enforceability and the extent to which it really does bite and produce the outcomes for consumers. I would commend that particular regulatory guide to you, or perhaps it is a discussion for another day.

One of the things we are very keen to do is to say that, if we are going to endorse a code, we want to see two things. One is that the code actually involves some improvement in the rights of consumers over what the general law does because, if all it does is state the general law, we do not see that that is really signing up to very much in terms of an endorsement. The second part is: what is the enforceability mechanism with respect to this code? One of the things we are dealing with at the moment is that the Financial Planning Association has put forward its code of conduct for endorsement from the opt-out type provisions. They would like us to endorse that code so that it can work for the purposes of opt out in FIFA. One of the things we are talking to them about is: what sort of evidence is there about the sort of enforceability that they can build around this.

CHAIR: My final question before we break comes back to your statement in section 2.1 about enforceable undertakings. You say:

In accordance with our policy introduced in February 2015, we have commenced reporting publicly on compliance with undertakings given on or after 9 March 2015.

I am assuming that, given on or after 9 March 2015, at the moment there is nothing to actually report. Or do you actually have some reports in that time frame that you are making public?

Mr Tanzer : We report on enforceable undertakings through the enforcement report, as you mentioned. I think the reference to 9 March specifically was about committing to publishing the report of the particular enforceable undertaking.

CHAIR: I am expecting to see at least a summary of the independent expert and their assessment of the efficacy of the report.

Mr Tanzer : That is right. There is one coming up reasonably shortly with respect to Commonwealth financial planning. A second report from the independent expert, KordaMentha, will be under the enforceable undertaking. We published the earlier report, which I think was in January, which predated that I think. The second report is due to come out. That is an example.

CHAIR: Being an optimist, I went to your website to see if I could find a red flashing light or some link that would point me to published reports. Specifically I went looking for CFPL to see if I could find anything. I am reasonably savvy with websites, but I must confess that I could not find anything easily. It may well be there, but it is not particularly transparent. Could you (a) let me know if it is there, and (b) could you lift ease with which even a somewhat interested person can actually find those reports, otherwise it is a little bit like Douglas Adams in TheHitchhiker's Guide to the Galaxy if it is down the end of along the corridor.

Mr Medcraft : We will take that on board. I am interested to get that feedback.

CHAIR: We were now suspend for a few minutes.

Proceedings suspended from 15:32 to 15:48

CHAIR: Welcome back.

Mr Tanzer : Would it be appropriate, in opening, to correct my last answer with respect to that report?

CHAIR: It will save you submitting something in writing, Mr Tanzer, so please go ahead.

Mr Tanzer : The report that I referred to, the first KordaMentha report with respect to the Commonwealth financial planning, is on the website. It is report No. 431. It is not in the enforceable undertakings part and that is because I mistakenly said it was under enforceable undertakings. It is extra under licence conditions. That is why it is not in that part of the website. Your point that it could be more obvious is well taken.

Mr Medcraft : We will look at the metadata and the elevation of that, so it is a good point. You should be able to look and find it more easily than it was.

Senator O'NEILL: I want to ask you couple of questions about the financial ombudsman, and I understand that there are some important matters going to be traversed around CBA, IOOF, et cetera, by my other colleagues on the committee. Large companies such as 7-Eleven have reporting obligations as matters of governance. One of the critical failings in their reporting processes was completely inadequate scrutiny for the board of practices around wage payment. There are a number of theories afoot about how much the board knew, but certainly in terms of the reporting in the annual report I think there are about four lines and that was it. Clearly that was inadequate. Have you any views around the reporting structures and the clear line of sight of directors to the basic responsibilities? I would think the responsibility of any ethical company is to actually pay the wages, superannuation and other entitlements of their employees.

Mr Medcraft : John, do you want to sponsor this?

Mr Price : My apologies, Senator, can I just ask you to repeat the question briefly?

Mr Medcraft : Sorry, the issue is with 7-Eleven and the governance of the reporting and the fact that they were underpaying their staff.

Mr Day : If I might start. You might recall, Senator, that you asked a similar type of question on the last occasion. I think the answer that Mr Price gave at the time was a good encapsulation of our view about, say, using 7-Eleven as an example. There are a lot of matters that get raised with ASIC in relation to activities done by companies. It could be across a range of areas of industry and endeavour, so maybe it relates to matters that might more properly be dealt with by the ACCC, a fair trading organisation, the ATO and those types of things. The question really is that this is being done by a company therefore the directors should be seen to be at fault or they may be seen to be at fault, so what does ASIC think about that and should ASIC hold them to account.

A point of perspective on this is that there are over two million companies in Australia. Just like people, because companies are legal entities and legal persons in their own right, they can do lots of bad things across a whole range of legislation. Our position on that, not always but generally speaking, is that matters are raised with us where companies have potentially acted badly, broken the law, undertaken misconduct. We think, ordinarily, the best place for those things to be dealt with is the agency who has responsibility for the primary act that they may have contravened. In circumstances like this it is probably a matter for the fair trading agencies or the Fair Work Ombudsman or Fair Work Australia. Our relationships with those entities are then that, if those agencies think that the nature of the breach or the conduct by the directors is of a nature, or so inherently involved that it warrants looking at from a directors' duties perspective, we expect them to report those things to ASIC—and they do regularly—and then we consider that from that point on.

Senator O'NEILL: My next question is, given the detail that is now available in the public place around the directors of 7-Eleven, what investigations are you undertaking?

Mr Day : We have no investigations on foot in relation to that at this time. However, there have been some awareness of us obviously through open media sources and others about what the circumstances are. Also we have constant liaison with the Fair Work Ombudsman and Fair Work Australia and we will take it up with them in due course if they think there is something that warrants our involvement.

Senator O'NEILL: Can I express concern at that point though. There is an awful lot of information already out in a public place. Those agencies certainly are involved. There is sufficient energy and heat in this for the Fels panel to have been established. There are intimate interactions between franchisees and head office with regard to the payment of wages. Part of the problem is that that board was able to function, fulfil its requirements, with four lines around wages, and tens of thousands of people impacted with nobody apparently watching. I think that it would be immediate action in that area.

Mr Price : Senator, if I can explain a little further. To establish a breach of directors duties where there is a breach of other legislation, generally speaking we would need to establish three things. Firstly, we would need to establish that there has been a breach of that other legislation. Bear in mind, we are not experts in every piece of legislation that is flying around the world or indeed in Australia. What we prefer to do is actually work with the agencies who have primary responsibility for enforcing those laws otherwise there is a real question around resources that might be expended in an inefficient manner. So that is the first thing: we need to establish there has been a breach of the other legislation. The second thing we need to do is establish that the directors knew or ought to have known of that breach. The third thing we need to do is say that as a result the company has suffered damage.

The critical point here is that first point. For example, someone might breach workplace health and safety laws. They might breach some laws that are relevant in particular states. We are not legal experts in those laws. What we think is important to do is let the responsible regulatory authority establish there has been a breach of that law, and then we can see whether we can establish the next two things we need to prove—that is, firstly, that the directors knew or reasonably ought to have known that it was a breach of that other law and, secondly, that it actually caused damage to the corporation. That is the sort of legal structure we need to go through when you talk about these director duty cases.

Senator O'NEILL: I hear what you are saying, but I guess I am thinking, having seen this and in the knowledge that a four-line statement can cover up so much, that it would trigger across all the companies a pretty fatal flaw in terms how much scrutiny a board can have of what I think is a fundamental part of their responsibility as directors to ensure that the workers are paid.

Mr Price : The critical thing is: has there been a breach of that other law? We are not experts in that area, and were we to start investing that area we would very likely be tripping over the inquiries that the Fair Work Ombudsman and other regulators are making. That is why, as a general rule, our preference is to let those regulators maintain the front line in terms of their investigation and then, if they refer matters to us at that stage, that is when we will become involved. But I hear your concerns. I understand where your concerns are coming from.

Mr Medcraft : We have been working with the Fair Work Ombudsman on this case.

Mr Day : No. We are in constant discussions with the Fair Work Ombudsman and where those matters have been raised we have been discussing those with them, but there has been no referral at this stage.

Mr Medcraft : There has been no referral, but we have been cooperating with them; that is the point I am making—

Mr Day : Absolutely. We assist them in relation to concerns they might have or information they might need from us as well.

Mr Medcraft : A similar thing applies on bribe and corruption, where AFP has to prove whether it has occurred or not. If it is proved then it becomes a director's duties issues as another example of that.

Senator O'NEILL: We talked, though, about the power of the media on a number of occasions to raise people's awareness, Mr Medcraft. It would seem a very opportune moment to make some comments around the responsibilities of governance, not just in terms of compliance with obtuse elements of the law but certainly in terms of ethics, and particularly with regard to payment of wages. This is a fundamental element of business responsibility: not just to look good to the banks but to be liquid and effective enough to be able to pay their wages.

Mr Price : You raised this issue the last time we met, and I indicated I would see whether there is an opportunity to write an article for the AICD, which is the relevant professional body of which directors are a part, and we are looking to take up that opportunity. We have taken that opportunity.

Mr Medcraft : We are going to pursue some advice to do with the directors.

Senator O'NEILL: Very good. I will ask one further question. We have a hearing tomorrow and I will be asking a few of these questions, but I understand that the Fels panel has established another company through which money will be paid to people who are putting claims. The directors of that company would be registered with ASIC, wouldn't they?

Mr Tanzer : If it is set up as a new company, it would be registered with ASIC.

Senator O'NEILL: Would there be any regulations or restrictions around this being set up as a parallel company? Is there anything uncertain or dubious about that?

Mr Tanzer : I think we have seen similar types of approaches where a particular entity is set up to deal with claims, and sometimes an amount of money is provided to that entity. I think that was the case in the James Hardie matter, where we litigated largely around whether it was enough. I think we have seen that type of structure, so I do not see anything particularly alarming about setting up a separate company for that purpose.

Senator O'NEILL: When you just said 'James Hardie' and, 'Will there be enough money in there there?' I will tell you what: I am feeling a little anxious immediately. If that is the model that was used for James Hardie, which clearly was inadequate—

Mr Tanzer : I do not think it was this company's structure. It was the issue of inadequacy.

Senator O'NEILL: It was the determination of how much money went into that company's structure.

Mr Tanzer : That is right.

Mr Price : If you are transferring assets or obligations and so forth, then a way that companies sometimes do that is through a thing called a scheme of arrangement, which actually has court supervision, so it has to go through a court process. But I do not know the circumstances well enough around 7-Eleven to know whether that is what is thought about there.

Senator O'NEILL: I will just put on notice that I expect that I might forward some questions to you around the detail of that—

Mr Price : That is okay.

Mr Medcraft : That is okay.

Senator O'NEILL: because whether the parallel entity is full of the same board members or it is different will perhaps make a difference as well. I would like to understand more closely and more fully what that means.

Mr Price : Generally speaking, there is a great deal of freedom in Australia for people to be directors. There is not a great deal of up-front checks—for example, identity checks when you become a director.

Senator O'NEILL: So criminals can become directors pretty easily?

Mr Price : On the one hand—

Mr Tanzer : No, if you think of a serious offence, if it is an indictable offence involving a term of imprisonment, you are not entitled to be a director, just like a bankrupt is not.

Senator O'NEILL: Okay.

Mr Price : But what I am saying is that there is no identity checking. There are a number of recommendations from various parliamentary inquiries at the moment that do suggest some form of identity checking for directors, but I think that is still going through the process of consideration.

Senator O'NEILL: This is my last question. We spoke earlier about the privatisation of the business register. One problem that seems to present itself in many of the occasions we have talked about is the capacity of different systems to talk to one another. I guess I have a concern, if there is a privatisation of a key piece of information holding for ASIC and for the general public, about how much more difficult that timely response, use of that register and variation of ways in the use of that register might be, possibly. We want to pull a legislative lever here. At the moment we can go to ASIC, and we can say, 'Make it happen.' If it is a private company, that is somewhat concerning to me. Is my fear ill founded, or is that a possibility?

Mr Tanzer : No, I do not think the fear is intangible or illegitimate or whatever. It is definitely one of the things that need to be taken into account as the process proceeds. From ASIC's perspective, for example, a number of our existing systems are very tied up with the existing registry systems, and one of the key things that we are doing in providing advice to the team working on it is to be very clear about what our needs are in terms of maintaining or improving or, if there is to be a change to those registry systems, making sure that that information flows through, that the integrity of the information is as good as the ASIC registry provides and that the privacy of the information is respected in the same way that the ASIC registry respects the information. That is one of the things that does need to be taken into account in the transaction.

Senator O'NEILL: But, at the moment, if the government say, 'We want something to change, ASIC,' we tell you, and you make it happen because that is an intimate relationship. At a distance—

Mr Tanzer : Subject to resources being available, yes.

Senator O'NEILL: That is right. I am sure that there is more you could do with more. The next step, though, is that once it is removed one would assume that a private company would ask a fee for service. Therefore, if there were a request for something to be done by ASIC and you had to require that company to do something for you, there would be a cost immediately for that to happen, which could be prohibitive and prevent the enacting of a legislative reform. Is that possible?

Mr Tanzer : The issues that you are raising are all issues that are relevant to whatever the end form of the transaction might be. All I can say is that the issues that you are raising are live ones that are being considered through the process.

Senator O'NEILL: Yes, they are very concerning to me, given how important scrutiny is and the challenges that we already face. Just making it that much further removed seems to me extremely risky. In a situation where we are asking for more transparency, we are actually privatising part of it. It could potentially become very much a blind spot.

Mr Tanzer : I do not think I have anything that I can really add to my earlier answers.

Senator O'NEILL: You are not required to give an opinion, Mr Tanzer.

Mr Tanzer : I am not.

Senator O'NEILL: Thank you.

Senator WILLIAMS: Mr Medcraft, excuse my ignorance, but is there somewhere in the Corporations Act where companies must pay the award at least?

Mr Medcraft : No.

Senator WILLIAMS: It is just all on the industrial relations side of things?

Mr Price : It is other legislation.

Senator WILLIAMS: I just want to take you to the recent Commonwealth financial planning whistleblower issue. You would be very familiar with Russell Phillips. He has been out there publicly. Is ASIC looking at that or taking any issue with it?

Mr Day : On Mr Phillips: we are aware of and we know the evidence. I think it was given in a hearing. We will review that and see what steps we need to take.

Senator WILLIAMS: Thank you.

Ms Macaulay : In relation to the Open Advice Review program that the CBA is running, ASIC has no involvement in that. We have no oversight. We were not involved in any way in its setting up or its implementation.

Senator WILLIAMS: Do you wish to comment about anything on IOOF, or would you rather leave that until we have a private conversation?

Mr Tanzer : It is difficult to put more on the record than we have at this stage. I have not got anything else that I can say publicly about the matter, but the matter is still under review.

Senator WILLIAMS: You have got funding. You established your Serious Financial Crime Taskforce.

Mr Tanzer : Yes.

Senator WILLIAMS: Who is handling that? Can you give us an update of where it is up to?

Mr Tanzer : It is a task force that is being run under the auspices of the Australian Federal Police, but we are participating in that task force, yes.

Mr Medcraft : And Mr Tanzer is overseeing it from a commission perspective.

Mr Tanzer : I am sorry, Senator, yes. I am on a steering committee for that Serious Financial Crime Taskforce. Mr Mullaly also participates in it

Senator WILLIAMS: Do you have anything to add about the task force, how it is performing and how it is progressing, Mr Mullaly?

Mr Mullaly : It only commenced in July of this year. From my perspective I think the cooperation between the relevant agencies that are part of the task force is working very well. To date it is meeting, I think, the expectations, if not going beyond.

Mr Tanzer : It does have the advantage of building on the foundations of the Project Wickenby task forces, which were primarily more directed at tax evasion issues, a matter that the committee has had an interest in and that I know you have had an interest in before. It is a similar sort of model that we are using here. ASIC's experience with both Project Wickenby and seeing how this Serious Financial Crime Taskforce is working is that it is very, very important to be able to smooth the capacity to exchange information on these types of things. The task force does that, and it also provides a capacity where you can jointly come to a view about an operational priority. That is a terrific advantage.

Senator WILLIAMS: Mr Medcraft, have you heard of property investment advisers?

Mr Medcraft : Yes.

Mr Tanzer : Yes.

Senator WILLIAMS: I am sure you would have! You do not require any education or any licences or oversight of them; is that correct? Let me put it another way, Mr Tanzer. If I were to walk down the street of Inverell tomorrow and put a sign up, 'John Williams, Property Investment Adviser,' I could do that without any training, without any expertise and without any oversight of me; is that correct?

Mr Tanzer : No regulatory oversight; that is right. That is correct.

Senator WILLIAMS: No standards are required?

Mr Tanzer : Subject to there being something under state or territory law that I am not aware of, I think there are regulations around calling yourself, for example, a real estate agent, which is administered at the state and territory level, but, as we have discussed before here, investment in real property is not investment in a financial product per se.

Senator WILLIAMS: No, it is not.

Mr Tanzer : ASIC's jurisdiction is enlivened if the investment is channelled through a financial product such as through a self-managed super fund or a managed investment fund.

Senator WILLIAMS: That is the point I am coming to. We are hearing that there are a lot of self-managed super funds where these people are saying: 'Pull your money out. Put it into a self-managed super fund. We'll advise you where to invest your money into property.' I am very concerned about it. We have the Reserve Bank saying, 'Is this a bubble about to burst with property sales?' and this is a nest egg for people's retirement.

Mr Tanzer : Absolutely.

Senator WILLIAMS: I just think it is a situation where this committee needs to look at that very issue because, if it all turns to tears, it will be too late then.

Mr Tanzer : I agree absolutely with you. We are concerned about the potential for self-managed super funds, which are a critical part of the superannuation system. We have a compulsory system which requires people to contribute to superannuation, so it is absolutely critical that they have the ability, if they wish, to choose how they invest it. That is why self-managed super funds are a really important part of the superannuation system. But we are very concerned that self-managed super funds, being such an important part of system—now something like over 30 per cent of the assets in the total superannuation system are in self-managed super funds—do not become the target of property spruikers or other investment scamsters.

Senator WILLIAMS: Exactly.

Mr Tanzer : Indeed, we have been taking a lot of action around advertising and most recently, as I outlined at the last hearing, successful action in the New South Wales Supreme Court in the matter of Park Trent, where we took action against a property investment promoter that was promoting the establishment of self-managed super funds to invest in property sourced through that promoter. We are awaiting orders out of that matter.

Senator WILLIAMS: Yes, it is very concerning, especially, as an example, if I were a property investment adviser and I just happened to tell you where to invest your money, and it happened to be the property where I got the biggest commission back from the person selling the property. There is nothing to do with the best interests test that is the best investment for the people. I think it is something that this committee needs to look at next year when it catches up a bit.

On the ASIC capability review, Mr Medcraft, I read a story. Is there a conflict between a Ms Karen Chester being part of that three-person review, that committee, given that her husband, Peter Boxall, I believe, is a former commissioner at ASIC?

Mr Medcraft : It is really a matter for the Treasurer and the Treasury to assess whether a conflict of interest exists.

Senator WILLIAMS: When does that capability review wind up; do you know?

Mr Medcraft : The review, I believe, is scheduled to report to government at the end of the first week of December.

Senator WILLIAMS: Pretty soon.

CHAIR: Mr Medcraft, I know ASIC has a number of advisory committees, external committees and other groups who provide industry advice and perspectives. Could you just talk the committee through what guidelines you have in place to avoid conflicts of interest by both sector and potentially individual company? If a request is made of ASIC to look into a given issue, do you ever refer it to those committees? If you do, how do you avoid conflicts of interest to determine whether or not something is a priority for you to look into?

Mr Medcraft : Do you want to comment on that?

Mr Price : Sure. The various external committees or advisory panels to which you refer, first of all, are of an advisory nature. I cannot recall an instance where specific commercial transactions or specific transactions involving commercial entities were considered by those committees. They tend to look at issues more on a thematic basis. The panels themselves have an advisory focus rather than a decision-making focus. In addition, generally speaking, when people are appointed to those committees, they are appointed in a personal capacity rather than as a representative of any particular organisation.

In terms of how they are appointed, we typically try to work out what business skill set or qualifications we are seeking to get advice from, and then we will consult other members of the existing committees to try to work out—and also speak to people outside to see—who are respected experts in the industry.

Mr Medcraft : Typically, with conflicts, the members are actually asked—clearly—to treat information and materials that they get from ASIC in confidence. The members are also asked to notify the chair of the committee prior to each meeting of any real or perceived conflicts of interest with a particular agenda item. They generally will exclude themselves from any agenda item unless the chair decides otherwise. That is the rule.

Mr Price : I should make one final point, and that is that we have a number of disciplinary committees as well, rather than advisory committees, but the conflict requirements around them are substantial and quite robust, given that you are considering transactional type matters.

Mr Medcraft : The conflict-of-interest approach we have is what you would normally expect in such an institution. Remember that the words I said were 'either actual or perceived'.

Senator WILLIAMS: Mr Price, you may pay attention to the evidence that our committee got from ARITA yesterday as far as the insolvency practitioner industry goes. From reading what they are saying, you can drop any surveillance of industry; it is perfect! However, hearing what we are hearing in relation to a lot of the activities of receiverships, perhaps it might pay to continue your work on them!

Mr Price : Obviously, I have not seen the transcript of yesterday, so I have not seen exactly what was said. Since the Senate inquiry into the insolvency profession we have invested quite a deal of resources to try to remove some of the bad eggs from the profession, who give decent insolvency practitioners a bad name. To give you an indication of what our results have been, if you look back to around 4½ years from September of this year, we have achieved 37 enforcement outcomes compared with 16 outcomes in the previous period, going about—

Senator WILLIAMS: Thirty-seven outcomes in insolvency practitioners in the last—

Mr Price : Thirty-seven outcomes in about the last 4½ years.

Mr WILLIAMS: How do you define 'outcome'?

Mr Price : I define 'outcome' in terms of an enforceable undertaking; someone voluntarily cancelling their registration; taking action at the Companies Auditors and Liquidators Disciplinary Board, the CALDB, which is a disciplinary body; applying to court and seeking a review of the conduct of the liquidator; criminal actions against liquidators.

I will give you some examples of some of the actions we have taken. We cancelled the registration of a liquidator, Mr Pino Fiorentino. That went before the Companies Auditors and Liquidators Disciplinary Board and they found that he dishonestly used his position as a liquidator and that he failed to act in good faith and in the best interest of creditors. We also investigated a director, Mr Hammoud, as part of that same work, for his part in the circumstances. He was charged criminally and sentenced to a total period of imprisonment of two years. We cancelled the registration of another liquidator, Mr Fernandez, following a successful application to the disciplinary board. We obtained orders prohibiting the re-registration for five years of a fellow called Mr Dunner, and the court also ordered the repayment of over $600,000 in remuneration. They were not happy that was charged. We cancelled the registration of a Sydney liquidator, Mr Levi, following an application to the board. Recently the CDPP charged Mr Levi criminally for various activities, as a result of our investigation. We have cancelled the registration of a fellow called Mr Grealish. We have cancelled the registration of a fellow called Mr Paterson. I could go on and on.

Senator WILLIAMS: I wish I had had those details yesterday. I named a few. But well done and keep up your good work.

Mr Price : Thank you, Senator.

Mr Medcraft : You had better enshrine that! Senator Williams, please enshrine that.

Mr Price : It is important for the committee to understand that the vast majority of insolvency practitioners are good people who are just trying to make a living in their business. What I am about is removing the bad eggs from industry, who give the entire profession a very bad name.

Senator WILLIAMS: The same as financial planners, Mr Price.

CHAIR: On that, we will finish. Thank you, Mr Medcraft, to you and your team for being here today and for your evidence. Could you return to the committee by 11 December the things that you have agreed to take on notice. We look forward to seeing you on Monday night for the next matter.