November 19, 2020
The head of the Australian Securities and Investment's Commission (ASIC) says the regulator could have avoided being embroiled in an overpayments scandal had its former chairman agreed to change ASIC's governance.
ASIC acting chair Karen Chester appeared before a Parliamentary Joint Committee on corporations and financial services on Wednesday, primarily to answer questions about why overpayments made to two former executive were not addressed by the watchdog.
ASIC came under fire last month after the auditor-general raised concerns over almost $120,000 in payments to ASIC chairman James Shipton for personal tax advice and $70,000 to its former deputy chair Daniel Crennan for housing cost payments.
Mr Crennan has since resigned and Mr James Shipton has stood aside while his expenses claim is investigated.
Officials from the Australian National Audit Office (ANAO) said earlier this year they were concerned the payments may have exceeded limits set by the Remuneration Tribunal for both men's salaries.
On Wednesday, it was revealed the commissioners expenses were signed off by Mr Shipton, and Mr Shipton's expenses were signed off by the chief financial officer.
Senators on the parliamentary committee expressed frustrations that Mr Shipton's payments were approved by a staff member who worked below him.
House of Representatives MP Jason Falinski said he could not believe Mr Crennan and Mr Shipton had not received internal assurances the payments they were receiving were lawful.
Chair of the committee, Victorian Liberal Senator James Paterson, asked Ms Chester why the commission had not taken action on the overpayments earlier.
Ms Chester said she was informed of the overpayments "in an opaque way" with little detail by the accountable authority, who at the time was Mr Shipton.
"We were told [Mr Crennan's] were a relocation payment for his family. We asked ... what the issue was with the ANAO, no one ever told us it was ongoing rental payments because that would have been a red flag with me immediately," she said.
Ms Chester said the matter would have been solved had "there been full disclosure at that commission meeting last year and this year" and conceded the overpayments affair had identified issues with ASIC's governance.
Senator Paterson asked Ms Chester whether the overpayments were not flagged earlier due to "an issue that goes to Mr Shipton personally and his leadership" rather than being a "broader cultural problem with ASIC".
Ms Chester was brought into ASIC last year to oversee a change in governance per recommendations made in her capability review into the watchdog while at the Productivity Commission.
But she said former chairman Mr Shipton had refused to implement the changes to ASIC's governance.
She said ASIC had not yet "fully implemented the governance arrangements" to create a board of executive directors who reported to a chief executive officer that was separate from the commissioners.
"I think it indirectly contributed to the situation we are in at the moment," she said.
Former ACCC commissioner Graeme Samuel told the committee an organisation's "cultural tone starts at the top".
"Wholesale cultural change is not difficult. At CBA (Commonwealth Bank) the whole board was routed and a whole new board was put in place, which changed the organisation's values," Mr Samuel said.
"A culture of an organisation can be changed very, very quickly but it requires leadership and leadership from the top and an insistence that these are the values this organisation now adheres to and anything inconsistent [with that] will have severe consequences."
Professor Samuel agreed ASIC needed to split its leadership team into commissioners and an executive team headed by a chief executive officer in order for the regulator to be held accountable for its actions.
Professor Samuel said there was no question the current leaders within ASIC were people of integrity but warned that was not always enough if that integrity could not be implemented throughout the organisation's leadership team.
Auditor-general Mr Hehir and former Reserve Bank board member Ian Harper both agreed changes needed to be made to ASIC's organisational structure.
"ASIC's role is to ensure proper governance in the entities it oversees [but] it appears it's own governance is not adequate," Mr Hehir said.
Professor Harper said ASIC needed to have an independent board that was separate from management, similar to the Reserve Bank and ACCC's structure.
He said the separation of the commissioners from the board was "essential and is something that would improve the way ASIC operates" by being responsible for setting policies and ensuring the overarching performance of the management of the organisation.
"The board is to avoid getting involved in management questions. It's best to keep those things separate," Professor Harper said.
"When the confusion arises, the director becomes too involved in day-to-day operations of the organisation and loses perspective.
