A former ASIC lawyer has made explosive allegations under parliamentary privilege yesterday and accused the watchdog of favouring big business.
James Wheeldon who worked at ASIC in 2004, appeared before the Senate Economics References Committee yesterday in order to expose parts of ASIC’s workings at the time, which he said were “tainted by corruption”.
Shortly after he joined ASIC, Wheeldon said he was assigned to a group of lawyers who were tasked with responding to an application for relief by the then Investment and Financial Services Association (IFSA), now the Financial Services Council (FSC), reported the Sydney Morning Herald.
In the lead up to “Super Choice” in 2005, online superannuation calculators were a key focus of the ISFA’s lobbying.
"In a nutshell, the Corporations Act required online super calculators to have a ‘reasonable basis’ for the outputs they produced," said Wheeldon.
"Starting in 2004, IFSA aggressively lobbied ASIC to issue a Class Order that would amend the Corporations Act so that IFSA's members could offer online calculators that did not comply with the Act's "reasonable basis for advice" standard. This would allow IFSA members to use online calculators as marketing tools, rather than as reasonable educational tools and would also relieve IFSA members from the obligation to include fees in their online calculators."
Wheeldon said that ASIC does not have the legal authority to grant reliefs that overturns the intended effect of an act of parliament, and any normal applicant would be required to comply with a formal process.
However, the IFSA never had to make a formal application, he said. Instead it sent informal letters addressed on a first-name basis to ASIC staff members.
In November of 2004, Mark Adams of the RPB, who had received such a letter, sent out an email to senior ASIC staff about the issue.
"In that email, Mr Adams stated that his intention was to ‘pre-empt’ IFSA's request for calculator relief,” said Wheeldon. “Mr Adams said that, based on IFSA's lobbying to date, he thought IFSA was ‘likely to seek’ Class Order relief exempting online super calculators from the reasonable basis standard, and thus Mr Adams had set up a team of five lawyers to progress IFSA's anticipated request.”
Wheeldon was then tasked with preparing a Class Order which would exempt online calculators from the Corporations Act.
"On more than one occasion, however, Mr Adams explicitly told me that ASIC had to produce a result for IFSA, and that if we didn't, IFSA would bring pressure to bear on the Commissioners of ASIC, and that he didn't want anyone to be able to say that the RPB was responsible for any delay in giving IFSA what it had asked for,” he said. "The message was clear: ASIC could not say no to IFSA."
Further, Wheeldon was also required to report to Grant Jones who was an employee of MLC, the wealth management branch of National Australian Bank, but was on secondment at ASIC.
MLC was an ISFA member, he said.
"Mr Jones specifically told Mr Adams that he thought he had a conflict of interest. Despite this disclosure, Mr Adams kept Mr Jones on the ‘calculator relief’ team," said Wheeldon. "He amended ASIC's internal issues papers on calculator relief to advance his employer's interests. He drafted emails to IFSA on behalf of ASIC. He actively lobbied ASIC lawyers, including me, to support changing the law to benefit his employer. He did this with the full knowledge of Mark Adams.”
Disgusted with the “improper” actions of ASIC, Wheeldon sought to unsuccessfully complain to a variety of staff members.
In response he left ASIC without giving notice in April 2005.
"In my professional opinion, the issuance of this Class Order was tainted by corruption, and the explanatory statement was deliberately misleading and contemptuous of Parliament."
In June 2005 ASIC issued a Class Order allowing online superannuation calculators. The explanatory statement said that ASIC did not undertake public consultation prior to granting relief because the relief was of a "minor and machinery nature", reported Sydney Morning Herald.
ASIC has issued a statement that “rejects completely” Wheeldon’s allegations.
“The matter involved ASIC’s granting of legal relief 10 years ago in relation to the use by super funds of generic online calculators. Such calculators are a common tool used by consumers to get an indication of the money they will have on retirement. Without such legal relief super funds would be unable to provide this useful consumer tool,” it said.
The watchdog said it would make a full response to the allegations when it appears before the Senate Economics References committee on 10 April.