ASIC blows hot and cold on Storm Financial

Whatever ASIC says about its inaction over the collapse of Storm Financial, the FOFA reforms will not prevent history repeating itself, writes Mike Taylor.

The global financial crisis may have thrown up considerable challenges for the Australian Securities and Investments Commission (ASIC) but it also threw up considerable benefits in the form of increased powers and increased funding.

Notwithstanding the increased funding and the increased powers, ASIC’s chairman, Tony D’Aloisio, has made clear that, confronted by another Storm Financial, the regulator would not do things any differently. It would not close the company down and it would not seek to warn the investors.

Why? Because, adhering strictly to black letter law, ASIC does not have the power to do so.

Not only is D’Aloisio comfortable with admitting that ASIC could not and would not act on Storm. He appears entirely comfortable with ensuring nothing happens to alter that situation.

However, this attitude seems to stand entirely at odds with the Government’s broad agenda for the financial planning industry and, in particular, the Future of Financial Advice (FOFA) reforms.

If the collapse of Storm Financial was the catalyst for the proposed FOFA changes, it should also be the catalyst for change with respect to how ASIC handles such matters.

By ignoring the fact that ASIC knew there were issues with Storm Financial but chose to follow the letter of the law and did nothing about it, the Government is addressing only a part of the problem and creating the likelihood that history will ultimately repeat itself.

Looking at the circumstances of the Storm Financial collapse and the manner in which it impacted the reputation and future of the financial planning industry, planners would be justified in feeling that they and their industry are being made scapegoats.

D’Aloisio is quite correct in his assertion that ASIC did not have the power to act on Storm Financial, but his motives need to be closely examined when he studiously avoids suggesting that, perhaps, the regulator might now be suitably empowered.

It is common knowledge that a number of senior figures within the financial planning industry urged ASIC officers to examine the activities of Storm Financial before it collapsed, and recent documentation released by a law firm suggest ASIC was well aware of the strategies pursued by Storm and the risks those strategies entailed.

It follows that if the regulator did not have a legal obligation to act on the issues about which it was aware, it certainly had a moral obligation to have done so.

Whilst ever ASIC is under no obligation to act on such issues, the FOFA reforms will represent only so much window dressing and will certainly not prevent history repeating itself.