Whistling up the watchdog

Mike Taylor writes that if the Senate Committee inquiry reviewing the actions of ASIC has achieved nothing else, it has has identified just how reliant the regulator has been upon whistle-blowers and tip-offs, very often from financial advisers.

Something which has tended to get overshadowed in the Senate Committee of Inquiry into the performance of the Australian Securities and Investments Commission (ASIC) is how often the so-called “financial services watchdog” has actually been reliant upon tip-offs from whistle-blowers.

Whistle-blowers, it should be remembered, played a role in the enforceable undertaking ultimately entered into by Commonwealth Financial Planning while a whistle-blower was responsible for alerting both ASIC and its sister regulator, the Australian Prudential Regulation Authority (APRA) to the illegalities which occurred within Trio/Astarra.

It is probably worth mentioning that a number of industry whistle-blowers were also seeking to gain ASIC’s attention with respect to the strategies being utilized by Storm Financial…the list undoubtedly goes on.

The reality, of course, is that as well-resourced as ASIC and APRA may be they are not the proactive policemen that many consumers believe them to be. Much of the enforcement action initiated by ASIC is the result of industry tip-offs or whistle-blowing, while many of the enforceable undertakings entered into with regulator are at the initiation of the financial services companies themselves.

Anyone who doubts this reality need only read the various submissions made to the Senate inquiry investigating ASIC and those filed by ASIC itself.

Indeed, any reading of ASIC’s submissions will quickly gain an understanding of just how highly the regulator values the actions of whistle-blowers and how willing it is to cooperate in ensuring that people are encouraged in such activities.

Within one of its submissions to the Senate Committee, ASIC has outlined the what it terms a “new approach” to whiste-blowers which it said “generally enhanced our approach to dealing with whistle-blower reports”.

It said this included:

1. Providing appropriate training and expertise in all stakeholder and enforcement teams for the handling of whistle-blower complaints; 
2. Establishing a coordinated, centralised procedure for the tracking and monitoring of all whistle-blower reports; 
3. Giving appropriate weight to the inside nature of the information provided by whistle-blowers in our assessment and ongoing handling of the matter; 
4. Providing prompt, clear and regular communication to whistle-blowers to the extent possible and appropriate during our investigations; and 
5. Maintaining the confidentiality of whistle-blowers within the applicable legal framework. 
6. The ASIC submission then went on to detail how, as a regulator, it would look to protect the identities of those providing it with information.
7. Our procedures to protect the identity of whistle-blowers include: 
8. Applying appropriate security to files and records; and 
9. Exercising caution when contacting whistle-blowers to ensure third parties are not made aware of the whistle-blower’s disclosure. 

“We have also provided an information sheet to assist whistle-blowers to understand their rights and the protections available to them, Information Sheet 52 Whistle-blowers and whistle-blower protection (INFO 52). All of these protections apply equally to whistle-blowers coming directly to ASIC’s offices as well as those who contact us via other means.  While financial planners may often feel that they are being targeted by ASIC, the regulator’s submission makes clear that planners are as often the source of an action as much as the target.

“Many of our whistle-blower matters are ones where an adviser raises issues, and some of these have resulted in regulatory outcomes,” it submission said. “In order to protect the whistle-blowers, we prefer not to name these matters publicly.” 

“We consider that reports from advisers are one of the most important sources of information (as are matters brought to our attention by other people in the industry). In all these cases, as with all matters, we consider them in detail against four key questions: 

• What is the extent of harm or loss from the misconduct? 
• What are the benefits of pursuing the misconduct? 
• How do other issues like the type and seriousness of the misconduct and the available evidence affect our consideration of the matter? 
• Also, and importantly, is there an alternative course of action? 

“Reports from financial advisers, and other industry members, provide us with valuable information and intelligence. However, not every matter will be one we take immediate or individual action. Many pieces of information and intelligence are recorded and considered in light of future information that may be gathered, or they may influence the choice of pro-active surveillance projects that we undertake.”