April 27, 2018 / 4:45 AM / 3 months ago

Australia watchdog has hardly used its punitive powers, misconduct inquiry hears

* ASIC has not used its powers to impose bans enough-ASIC official

* Only 10 out of more than 25,000 advisers banned this year

* ASIC has not pursued civil actions despite widespread misconduct

By Paulina Duran

SYDNEY, April 27 (Reuters) - Australia’s corporate regulator has not used its full punitive powers to tackle misconduct by financial advisers and their employers, including the country’s biggest banks, a powerful inquiry into the financial sector heard on Friday.

Louise Macauley, who heads the financial advisers unit at the Australian Securities and Investments Commission (ASIC), said under questioning that the regulator had not used its powers to impose bans sufficiently to deal with egregious conduct in the industry exposed by the inquiry.

The regulator also told the year-long inquiry, which is ending its second round of hearings on Friday, that it had not brought a single civil court action against a company for failing to act in the best interest of customers, as required by law.

“Do you think ASIC has used its banning powers enough to deal with misconduct in the financial advice industry?” asked Rowena Orr, the barrister assisting the inquiry.

“No, I don’t think we have,” answered Macauley. “I think we have used them to the best of our ability given our resourcing levels,” she added.

The Royal Commission, as the judicial inquiry is called, has been a political embarrassment for the government and a severe setback for Australia’s major lenders and AMP Ltd, the country’s largest listed wealth manager, which have come under share price pressure as a result of revelations of serious wrongdoing.

The second set of hearings was told that over the last decade advisers at AMP had misappropriated funds of thousands of clients by charging them without providing advice and that Commonwealth Bank of Australia had continued to charge some client accounts even after they had died.

The inquiry also heard that for many years Australia and New Zealand Banking Group have not had adequate controls to ensure its advisers were complying with the law, and that some National Australia Bank advisers had engaged in dishonest and illegal conduct such as misappropriation of client funds.

The banks have admitted to many of the misconduct instances mentioned in the hearings.

Macauley told the inquiry that in the last five years ASIC, which is tasked with enforcing corporate laws and overseeing the operating licences of financial services companies, had only suspended two company licences for legal breaches.

The suspensions had no practical consequences, Macauley said, given they had used a different licence to continue operations while suspended.

Out of the over 25,000 financial advisers in the country, only 10 people had been banned from the industry this year, she said.

Last week, the government vowed to double prison terms for financial crimes, dramatically increase penalties and ramp up the investigative powers of the corporate regulator.

The inquiry’s final recommendations could lead to criminal or civil prosecutions as well as greater regulation on the financial sector, including CBA, NAB, ANZ, AMP and Westpac Banking Corp. (Reporting by Paulina Duran; Editing by Muralikumar Anantharaman)

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