ASIC will continue to push for litigation when appropriate, despite losing its responsible lending case against Westpac and seeing the prudential regulator get chastised by Federal Court Justice Jayne Jagot for presenting an “unpersuasive” case against IOOF.

“ASIC’s enforcement policy remains as outlined in the Enforcement Update,” says a representative from the corporate regulator, before explaining that its core focus remains on deterrence, public denunciation and punishment. “We continue to pursue this work via our ‘Why not litigate?’ enforcement approach,” they added.

It’s appeal in the Westpac case is evidence ASIC will continue its staunch approach in the name of creating clarity for consumers.

“ASIC considers that the Federal Court’s decision creates uncertainty as to what is required for a lender to comply with its assessment obligation,” added the representative. “Nor does ASIC regard the decision as consistent with the legislative intention of the responsible lending regime.”

Both ‘twin peaks’ of financial services regulation have adopted a willingness to take entities on in court, facilitated by a combined $550 million boost in funding from the federal government in March and penalty increases for civil breaches and serious offences.

According to ASIC, between February 2018 and March 2019 there was a 15 per cent increase in the number of ASIC enforcement actions and a 65 per cent increase in enforcement actions involving the ‘big six’.

ASIC’s ‘why not litigate’ enforcement posture has been a ubiquitous presence in news cycles, and its case against Westpac was its first high profile display of a more combative new order.

Losing the case was a blow – ASIC is clearly keen to assert itself in light of the Hayne royal commission, which recommended close attention be paid to keeping the regulators accountable for their oversight actions.

ASIC and APRA run on separate tracks, and it’s unfair to conflate the activities of the two. Nevertheless, APRA’s loss in the IOOF case – with an appeal yet to be decided – builds on the narrative that the regulators are collectively running poor legal cases. Justice Jagot dismissed the case theory presented by APRA as “tenuous in the extreme”.

ASIC’s conviction remains strong, however, as evidenced by their decision to appeal the original court decision for Westpac.

In its notice of appeal ASIC outlined five reasons for its claim, including multiple errors by the primary judge.

ASIC Chair James Shipton provided more detail about the motivation for pursuing the appeal at the Parliamentary Joint Committee’s hearing last week, saying the regulator was seeking “judicial certainty” by pursuing matters in the court.

Shipton reminded the committee that this type of action is exactly what ASIC is expected to take.

“We’ve taken a matter very recently to the High Court, and we lost there,” Shipton said. “That’s just what we’ve been encouraged to do, as I understand, from the royal commission… to get clarity as to the extent of our own jurisdiction and to get clarity as to the extent of the rules and obligations that exist on financial institutions”

This prompted PJC Chair Senator James Paterson to quip that the recommendation from the royal commission was “’Why not litigate’, not ‘Why not appeal’.”

“With respect,” replied Shipton, “we’ve come to the conclusion in which we believe ultimately that the interests of certainty, and therefore the broader economy, therefore also consumer protection, would be served in relation to pursuing this appeal.”

For its part, APRA has also indicated that it remains committed to pursuing legal action when it sees fit despite the IOOF decision.

“Litigation outcomes are inherently unpredictable,” said APRA chair, Helen Rowell, in a statement on Friday. “However APRA remains prepared to launch court action – where appropriate – when entities breach the law or fail to act in an open and cooperative manner.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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