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ASIC acknowledges ‘totally unacceptable’ delays

The financial services regulator has acknowledged the “totally unacceptable” delay it took in remedying breaches of remuneration limit, which has led to the temporary departure of ASIC chair James Shipton.

While addressing the House of Representatives standing committee on economics’ review of financial regulators on Friday (23 October), the chairman of the Australian Securities & Investments Commission (ASIC), James Shipton, revealed that he would need to recuse himself from the hearing as he had offered to "step aside" to federal Treasurer Josh Frydenberg*.

The move came following concerns over his relocation expenses from the United States to Sydney, which totalled more than $100,000 and largely stemmed from tax advice provided by accountancy giant KPMG.

ASIC approved three $25,000 procurements – along with smaller sums for initial advice – but was invoiced some $118,557 due to the “complexity of the tax affairs being managed”. 

KMPG invoices also describe the rendering of “assistance in respect of resolution of Massachusetts state tax notices and penalties due to late filing of 2017 Massachusetts state tax return”. Committee chair Tim Wilson questioned whether it was the responsibility of the Australian taxpayer to foot the bill for late filing of tax returns in another country. 

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During the hearings, Mr Shipton commented: “I have been expressing a willingness to repay the amounts that have been paid in relation to relocation services provided to me for my 2018 relocation from the United States for quite some time. 

“When it was apparent that concerns had been raised by the ANAO (Australian National Audit Office), I then cemented a request volunteering [to repay] that amount. And that was commensurate, as I said, with being made clear as to the ANAO’s concerns.”

He has now stepped aside while a review into the matter, headed by former public servant and current independent consultant and intelligence specialist, Dr Vivienne Thom, is conducted.

ASIC deputy chair Karen Chester noted that only Mr Shipton (and not deputy chair Daniel Crennan) has stood aside, adding that this was “consistent with the findings and the... letter that was sent to the Treasurer in terms of the accountability issues here”.

“[O]n behalf of ASIC and our colleagues, we very much appreciate Mr Shipton voluntarily doing that,” she said.

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The hearing also heard that the ANAO had looked into nearly $70,000 of rental reimbursements paid to Mr Crennan when he relocated from Melbourne to Sydney in early 2019.

Speaking during the hearing, deputy chair Crennan revealed that the correspondence between the Auditor-General and the letter to the Treasurer “doesn’t make any assertions about [his] conduct or [his] involvement in the process. 

“The offer of the provision of this rental assistance is in the letter and there are no assertions within that portion, or any of the letter, against me and any conduct by me,” he stated.

ANAO had flagged concerns in 2019

During the course of the hearing, it was revealed that a review of ASIC’s financial statements by the Australian National Audit Office (ANAO) last year had initially flagged concerns.

ASIC deputy chair Karen Chester was asked by the standing committee members why the issue had taken more than a year to come to a head, given that Mr Shipton’s relocation had occurred in 2018, media reports of the cost of Mr Crennan’s relocation expenses had surfaced in 2019, the ANAO had flagged the issue in 2019, and the regulator had been corresponding with Treasury on the matter from September 2020.

Ms Chester replied: “That’s the very issue that the Auditor-General has identified in his findings and we acknowledge those findings, and we support the recommendations of the Auditor-General. 

“In acknowledging those findings in our response to the Auditor-General, we agree that – with respect to the payments and the dealing of early concerns raised by the ANAO in last year’s financial statement review – that we have not dealt with this quickly enough, that there are failings of ASIC here and we’re not denying that. We’ve acknowledged that we’ve accepted that,” the ASIC deputy chair said.

“And we’re now focused on supporting the independent review. We’ve put in place some interim arrangements to make sure that the specific matters that were identified cannot occur in the interim… We undertook to do so with the Auditor-General.  

“We now await findings at the independent review to find out if anything further is required in terms of improving our internal processes and our governance arrangements.”

Ms Chester also told the committee that while the ANAO had made an “observation” for the matter to be looked at in last year’s audit of financial statements, there were numerous barriers to addressing the issue quickly.

She explained: “Most of those activities commenced earlier this year... so I think it was in April that the matter was raised [by the chief legal office] with the Commonwealth Treasury, because there is an issue when the matter becomes retrospective and dealing with the rem tribunal. The only way that the matter can sometimes be dealt with by the rem tribunal is if there’s a letter from the Treasurer.”

The ASIC commissioner went on to say that the focus of the chief legal office shifted when COVID-19 hit, outlining that the office was “very much focused on supporting us completely recalibrating and dealing with the many issues that we were dealing with as a regulator”. 

It wasn’t until recently, with ASIC “coming up for air”, that the regulator sought legal advice on the matter from the Australian Government Solicitor (AGS), she revealed.

“We decided to get AGS advice, given that Treasury and the ANAO suggested that that would be a good course,” Ms Chester told the committee.

“We received the legal advice recently... It was on the point of receiving the legal advice and the juxtaposition of the ANAO’s reviews of this year’s end-of-year financial statements that we became aware that there were definitive issues that needed to be addressed with regards to those rental payments.

“Deputy chair Crennan immediately and voluntarily opted to repay them. But you’re right, it’s 12 months down the track,” she said.

Deputy chair Crennan later told the committee that he had “requested that the rent payments cease after considering the legal advice which was provided to [him] about a week after ASIC received it”. 

“And then after considering the ANAO concerns, which was a few days later – perhaps a week or two later – I volunteered to and agreed to pay the full amount as a debt to the Commonwealth and that relates to it having been a breach of the determination by the remuneration tribunal,” he said.

While delivering his opening statement, ASIC chair James Shipton also voiced disappointment around the “inadequate” processes around relocation expenses

Mr Shipton said: “ASIC acknowledges the processes supporting the approval of these relocation expenses were inadequate and, given the high standard ASIC holds itself to, it is disappointed that such a situation has occurred.

“ASIC anticipates the independent review will assist it to make appropriate changes to key policies and processes. 

“In the interim, ASIC has implemented changes to procedures associated with approval of expenses relating to geographic relocation for statutory appointees to ensure that there is commission oversight of those expenses and that the arrangements for new statutory appointees are clearly documented prior to them being made.”

* This story was updated on 26/10/2020 to reflect that Mr Shipton has "stepped aside" while a review is undertaken rather than officially resigned his post.

[Related: ASIC chair 'steps aside' over relocation expenses] 

ASIC acknowledges ‘totally unacceptable’ delays
ASIC acknowledges ‘totally unacceptable’ delays
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Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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