Australian regulator under fire over banking misconduct

[SYDNEY] Australia's corporate watchdog is "litigation shy" and failed to aggressively pursue banking misconduct, the former competition regulator chairman said on Tuesday, as barristers continued to grill executives at a major inquiry into the financial sector.

Former Australian Competition and Consumer Commission (ACCC) chair Allan Fels said the regulator had opted to enter into settlements with the banks rather than prosecute them, reflecting concerns that the corporate watchdog had failed to prevent widespread misconduct exposed by the inquiry.

Australia's banks are facing tougher regulation, greater oversight and stiffer penalties for wrongdoing after testimony at the independent judicial inquiry has exposed fraud, theft, poor oversight and contempt for regulators.

"Where it does go to court, it tends to have a fairly heavy emphasis on small fry," Mr Fels said, referring to the Australian Securities and Investments Commission.

"If (large) firms know that after breaking the law all they face is an administrative settlement and maybe a promise by them to act properly in the future ... they're not going to try too hard to stop illegal behaviour."

Critics say ASIC, which is tasked to enforce corporate laws and oversee the operating licences of financial services companies, knew about many of the issues but failed to pursue them aggressively enough.

"ASIC has had a rather bad record on this for 20 or 30 years, and that's why I say they can't be trusted to solve all the problems going on at the moment," Fels said.

ASIC representatives were unable to immediately respond to requests for comment.

In January, ASIC took Australia and New Zealand Banking Group, National Australia Bank, Westpac Banking Corp and Commonwealth Bank of Australia to court for rigging a key interest rate.

It settled the case with NAB and ANZ without charging any individuals after the banks admitted the accusations, while Westpac and CBA are still defending the claims in court.

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

Current ACCC chairman Rod Simms on Monday lent his support to the push to increase penalties, saying banks should not be allowed to treat fines "as a cost of doing business".

A member of the 11-strong executive leadership team at NAB, the country's third-largest lender, fronted the inquiry on Tuesday and was grilled about the bank's failure to report the wrongdoing of some of its financial advisers to the regulator.

NAB has admitted to the inquiry that for years it charged advisory fees to hundreds of thousands of clients without providing them with services or allocating them an adviser. The bank has paid millions in compensation.

REUTERS