In a bit of news that is tinged with irony, the Australian Securities and Investments Commission (ASIC) has been denied in court its record $35 million AUD fine against Westpac Bank.
Irony because the reason the court rejected the fine, in addition to the Commission’s failure to prove that Westpac was guilty of any wrongdoing, was that the Commission did not demonstrate to the court how it had calculated the fine – and the fine was in relation to Westpac’s alleged inappropriate calculations of consumer eligibility for mortgages. Miscalculations or improper calculations all around, and the watchdog comes out of court with rip in its fur.
This decision follows one earlier in the year in which ASIC was rejected an even higher assessed fine against the same bank, that time for inappropriate handling of negotiations regarding the bank bill swap rate. In that case, ASIC wanted $58 million AUD but, due to Westpac’s legal challenge to the fine, Justice Jonathan Beach agreed with Westpac that just 3 trades were veritably manipulative. ASIC believed that Westpac should pay a fine for each trade that happened on three days but Westpac felt it should only pay for the individual trades which were provably manipulative. Other banks in the same investigation paid fines $50 and $25 million respectively, without a fight.
The judge in that case, according to reporting much closer to the subjects, was essentially offended at the attempted broad strokes ASIC was trying to use, specifically their counsel’s use of the word “affront” in describing Westpac’s behavior, saying:
I think you are exaggerating here, Mr Crutchfield. You are the model litigant. You shouldn’t use that language with me – you are not in the royal commission. All the other flowery rhetoric I could do without, Mr Crutchfield.
Last fall, Prime Minister Turnbull ordered an investigation into the banking sector, and part of the output from that was a Parliamentary Joint Committee on Corporations and Financial Services investigation and discussion of ASIC as a whole. One interesting tidbit, by James Shipton, who is chair of ASIC, reads:
I have said previously, and I say again today, that there is a demonstrable need for ASIC to immediately accelerate its interventions, supervision and enforcement in financial services and credit. This is critical to rebuilding the community’s trust in the financial sector. There are clear messages coming from the royal commission, the government, parliament and the community about their expectations of financial institutions and of ASIC. It is clear that ASIC is expected to utilise enforcement tools more often, particularly against larger financial institutions, because as the interim report highlights—and I’m quoting—’important deterrents to misconduct are missing.’ These missing market deterrents include meaningful competitive pressures, fear of failure or collapse of the institution and fear of failure of individual transactions. Accordingly, the absence of these deterrents means that there are limited market cleansing mechanisms to counter misconduct.
Shipton’s words echo in the agency’s actions regarding the largely alien world of Initial Coin Offerings. As CCN reported yesterday, an ICO associated with Cricket Captain Michael Clarke was basically bullied out of business and wound up refunding all its investments.
CCN also reported on ASIC noting ICOs as a “key focus;” its announcement of enhanced monitoring as regards ICOs and crypto exchanges; and a crackdown regarding “misleading” advertisements surrounding ICOs.
It seems that the more intractable ASIC finds the regulation of Westpac and other large banking institutions, the more it apparently wants to garner headlines from pushing around upstart crypto outfits and ICOs.
Accordingly, businessmen and entrepreneurs in Australia seeking to launch on the ICO model and/or operate in the crypto space should be wary – the Commission is widely viewed as wanting to rebuild its reputation as a sharp-toothed regulatory authority with an eagle eye for misconduct and sharp talons for fines and penalties. Its reputation as being soft or ineffective goes back much further than last fall. A blog from 2016 by Lindsay David reads, in part:
ASIC has the backbone of a chicken wing when it comes to enforcing the rule of law; this is widely recognised in Australia and resulted in a Parliamentary inquiry. If any politician believes that ASIC is a ‘tough cop on the beat’ they should seriously reconsider their opinion on this issue.
It’s still too early to tell whether regulations will have an overall positive or negative impact on innovative fintech like the blockchain. Australia is one of many jurisdictions tackling the issue, with France recently announcing clear intentions to get in the game and Estonia, Malta, and others remaining far and away the most friendly places in the world for cryptonaughts to handle their business.
Featured image from Shutterstock.