Address to the Australian Institute of Company Directors

Address to the Australian Institute of Company Directors - South Australian and Northern Territory Division by Mr David Knott, Chairman of the Australian Securities and Investments Commission, Adelaide 23 May 2001.


Ladies and Gentleman, distinguished guests.

Thank you Charles and also Angela for your welcome. I am delighted to be the guest of the South Australia and Northern Territory Division of the AICD today. I can say with some feeling that is delightful to have enjoyed the calm beauty of this city over the last 24 hours.

I would also like to acknowledge the presence today of three senior ASIC officers: Greg Tanzer, National Director and Regional Commissioner for Queensland; Mark Drysdale, National Director and Regional Commissioner for Victoria and, of course, our South Australian Regional Commissioner Karen Axford who is known to many in this audience. It is also nice to see a number of familiar and friendly faces from the Adelaide community. Friendly faces are always appreciated by regulators.

My foremost thanks, however, are owed to the Federal Treasurer, the Hon Peter Costello. I have perused the front pages of today's Advertiser without finding any reference to ASIC. This is a compelling reason for me to support this year's budget.

I want to live up to the title of today's talk by canvassing some of the directions and expectations I have set for ASIC.

However, at the outset, I wish to make some comments in respect of the recent events concerning the collapse of HIH Insurance.


As you are all aware, the Prime Minister announced on Monday night that the Government has decided to establish a Royal Commission into matters relating to the HIH collapse. The detailed terms of reference of that Commission and its implications for ASIC's investigations will be announced in due course.

Last week, when I spoke on the HIH matter I made it clear that it was not appropriate for ASIC to express a view in relation to a Royal Commission or a Judicial Inquiry.

ASIC's investigation, commenced in February, was never intended to inquire into anything other than possible breaches of the Corporations Law. I specifically acknowledged last week the possibility of a wider-ranging inquiry.

However, the decision to convene a Royal Commission was obviously one for Government. I did say that if such an enquiry were commissioned it would raise complex issues of how to proceed with both investigative and broader inquisitional functions. These are the matters now being worked through by officials.

Yesterday's media carried comprehensive reports concerning my own so-called 'technical' conflict of interest which I want to say something about.

Directorship of APRA

Given that I have been a director of APRA since November last year, it has always been patently clear to me that I could not be involved in any investigation into APRA. If APRA's role was to be included as part of an inquiry it necessarily had to be a separate or supplementary inquiry. However, it has always been my view that I had no conflict in relation to ASIC's investigation into potential breaches of the Corporations Law.

On Monday the Government announced that it had received advice from the Solicitor-General to the effect that there was a technical conflict of interest between my position as Chairman of ASIC and my membership of the APRA Board. This advice covered not only a possible investigation into APRA but other investigations which ASIC might pursue under its normal powers. As I understand it, the Solicitor-General has not advised that I do have such a conflict, merely that at law I could have one.

For that reason, on my own volition, I decided to immediately stand down from any further involvement in ASIC's HIH enquiries.

I did so because it is imperative that the momentum of ASIC's investigations be maintained and that they should not be distracted by any further speculation of conflicted interest, however remote or technical in nature.

Matters to note

It is not appropriate, nor is it my intention, to discuss details of the opinion received by the Government, except to emphasise the following points.

  • My role in helping the Government to establish APRA was concluded almost two years ago and did not involve me in any prudential supervision responsibilities;
  • I was never CEO of APRA and was not responsible for the appointment of any of its executives who oversee prudential supervision;
  • Prior to my appointment as ASIC Chairman last November I was never a member of the APRA Board;
  • My appointment as an APRA Board Member was made pursuant to the APRA Act as a consequence of my ASIC Chairmanship. It is not a remunerated position;
  • On 27 February this year, three months after my appointment as Chairman, ASIC initiated action which resulted in the seizure of material not previously disclosed by HIH and which led to the suspension of its trading on the Australian Stock Exchange. This was followed two weeks later by the appointment of a provisional liquidator;
  • Between the time of my appointment to the APRA Board and ASIC's action against HIH, only two Board Meetings of APRA were held.
  • Finally, I should record that the Solicitor-General has stressed that he is aware of nothing to suggest in any way that I could fairly be criticised for any acts or omissions in relation to either ASIC or APRA.

I want to emphasise to the media that I will not make any further comments about these matters until the Royal Commission has been convened. In the meantime in order to avoid any ongoing conflict which may arise between my primary office as Chairman of ASIC and my role at APRA I yesterday resigned from the APRA Board.

These legal complexities are an unfortunate distraction from the main issues.

Since the appointment of the provisional liquidator to HIH, ASIC's prime concerns have been to assist the Government Task Force in preparing arrangements for a compensation package; and to allow the provisional liquidator priority access to HIH records, and personnel, for his difficult task in recommending the best means of managing this insolvency.

These matters have been critical to the interests of policy holders, creditors and shareholders and have rightfully taken precedence over the less time-sensitive issues of legal accountability.

However, with the passage of more than two months and with each of those matters substantially advanced, ASIC has more recently been able to accelerate its core investigation work.

The immediate challenge ahead is how to achieve the twin objectives of ASIC's investigations under the Corporations Law with the broader objectives of a Royal Commission. I do not think that will be easy. However, whatever the outcome, we will do everything possible to assist the Government in meeting its objectives for the Royal Commission.

ASIC priorities

Turning more specifically to today's topic I want to give you a flavour of some of the expectations and directions I have set for ASIC over the last few months. I have to say at present I feel that we are living through that famous line in John Lennon's song "Life is what happens to you when you are busy making other plans".

  • I expect ASIC to be more visible in enforcing the Corporations Law; to be more strategic in its enforcement activity; and to meet the public expectation that we should be a vigilant and effective corporate watchdog;
  • I expect these outcomes to be delivered without compromise to ASIC's long-held commitment to due process and fairness; or to the exemplary standards of the model litigant; or to the transparency of our enforcement processes and results. We will not employ a cynical use of the media; but neither will we do deals behind closed doors.
  • I expect that on the regulatory front we will discharge our role to facilitate business and that our dealings with industry will be constructive and professional. With the Financial Services Reform Bill now in Parliament, there will be a very high level of consultation and collaboration with the financial services sector as we work together to implement the Government's blueprint for product and services delivery. This is a massive regulatory undertaking.
  • I expect that our relatively new consumer protection role in the finance sector will continue to test our capacity to balance consumer and industry agendas - and require us from time to time to help bridge those agendas. From 1 July this year our structure will include a national directorate of consumer protection which will be better equipped and resourced to deliver on this part of our mandate. We have a number of priorities in this area, including the further promotion of access by financial consumers and investors to honest, competent and non-conflicted advice.
  • I also expect that we will be called upon to play our part in the ever more complex issues arising from globalisation. The challenges in this area are as formidable for us as they are for many of you in industry. They will pre-occupy our regulatory oversight of the ASX as it continues to explore relationships with offshore markets; and they will become increasingly challenging as demands for cross border regulatory harmonisation grow louder. At an AICD function in Melbourne early this month I was able to discuss some of these challenges in the context of dual listed companies, which are an emerging part of our corporate and regulatory landscape.

Concluding comments

Ladies and Gentlemen, you will readily see from this that ASIC has a wide-ranging regulatory mandate including, but by no means contained to, a number of significant enforcement activities. Some of these arise in relation to insolvencies. We have already discussed HIH. We are also running significant civil penalty proceedings in Melbourne arising from the Waterwheel collapse; in Perth on Monday three people were committed for trial on 46 charges relating to the failure of the Farmer Furniture group; and of course here in Adelaide we are actively investigating the problems at Harris Scarfe. Although we do not comment on operational aspects of our investigations, I can assure you that the Harris Scarfe affair is receiving the high level of priority that you would expect from the Commission.

Other investigations previously announced include the failure of a number of solicitors mortgage schemes around Australia; scrutiny of disclosure of some high techs; some unresolved issues of disclosure and governance at NRMA; and possible insider trading in Qantas securities ahead of the Impulse announcement.

At last count we had over 80 criminal proceedings on foot; 35 civil actions; and almost 200 active investigations being resourced.

Our success rate in proceedings is high, which is not always recognised. For example, the sentencing earlier this month of Geoffrey Dexter in Queensland for 10 years imprisonment over the Wattle scam was, by any measure, a very significant result - but it attracted little interest nationally. Mr Dexter's conviction followed the earlier conviction of another person involved with Wattle; the banning by ASIC of 10 investment advisers for periods of between 1 and 5 years for their involvement in the scheme; and the committal of a further 13 people for trial on ASIC charges. These are very significant outcomes in our work to promote investor and consumer protection in this country.

There is certainly no shortage of work for ASIC to do and we are getting on with it. I am pleased to say that we generally receive encouragement and support from industry for that work. Our relationship with the AICD is highly constructive and positive; and I look forward to that continuing throughout the remaining 4.5 years of my term as ASIC Chairman.

Thank you for your attention this afternoon.

End of address


Last updated: 23/05/2001 12:00