THE DISTILLERY: Lounging watchdogs

Scribes say market regulators need to lift their game, with one singling out ASIC's shadow banking surveillance.

The annual forum for the Australian Securities and Investments Commission has attracted the attention of two respected business scribes with an eye for regulation. Also in this morning’s shot from The Distillery, there’s been some further reflection on the Leighton Holdings board blow-up and one writer has pointed out what should have been an obvious silver lining.

Firstly though, The Australian’s John Durie says there remains a worrying failure from global regulators and market participants to improve.

It comes down to a lack of ethics. Elisse Walker from the US SEC, Malaysian corporate cop Ranjit Singh and ASIC chief Greg Medcraft all bemoaned industry not fulfilling its obligations honestly. Not surprisingly, industry representatives at the conference were not in furious agreement with the claims that they hadn’t done their bit since the GFC. Some said risk management was a new religion in financial markets.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd is similarly concerned for the lack of insight, and indeed coordination, between these global regulators, something that ASIC chairman Greg Medcraft desperately wants to do something about; particularly in the wake of the $700 million collapse of LM Investment Management.

“Unfortunately, the collapse of LM Investment Management is a black mark against ASIC’s surveillance in a segment of the financial system that has been flashing red lights for about seven years. That area is called shadow banking, which refers to entities that operate outside of the normal regulatory supervision of the Australian Prudential Regulatory Authority. There have been many shadow banking disasters in Australia. Chanticleer covered one of the better known shadow banking collapses of the 1990s, Estate Mortgage…Shadow banking involves being an intermediator of funds between retail investors and commercial projects, usually in the property industry and usually in projects with no income.”

Fairfax’s Adele Ferguson argues that the share price reaction on Friday to the resignation of three independent board members of Leighton Holdings was an overreaction for one very important reason.

“The brutal reality is board renewal at Leighton has been a long time coming. It is also the latest manifestation in the group’s complex shareholder structure that changed in 2011 when its major shareholder, Germany’s Hochtief, had a change in ownership. For this reason a potted history of what has gone on at Leighton over the past couple of years helps put the latest machinations involving Johns, Ian Macfarlane and Wayne Osborn into context. What it can’t fully explain is how Bob Humphris has been elevated to the role of Leighton’s new chairman.”

That’s not to say that the newly discovered independence of Leighton’s board is a good thing, which is how Business Spectator’s Stephen Bartholomeusz describes it.

“For the independent directors, three of whom, including the chairman, resigned on Friday, the protocols that Leighton’s majority shareholder, Hochtief of Germany, publicly committed to enshrined an independent majority within the boardroom and meant that the independents ultimately had the decisive say in the group’s affairs. For Hochtief, those protocols were informal and non-binding principles which it was free to reconsider at any time if it chose.”

In other company news, Fairfax’s Elizabeth Knight notes the explosion of Australian banking transactions via smartphones – now Commonwealth Bank is doing more on its mobile network than its ATM network – as a sign of how important it is for banks to invest in technology.

The Australian’s Barry Fitzgerald says Australian-listed FAR Limited has really gone the extra yard for the offshore acreage hotspots on East and West Africa, which is now paying off via a farm out agreement.

Elsewhere, Fairfax’s Tim Colebatch makes the rather elementary but important point about the funding questions over the east-west tunnel proposed for Melbourne. If taxes don’t rise, the government has to borrow to pay for it. If the voters won’t go for either tax rises or government borrowing, the user has to pay, which means tolls.

Otherwise, the project isn’t built and traffic jams remain.

And finally, if you want a bit of a chuckle this morning, have a look at The Herald Sun’s Terry McCrann this morning, who is mad as all hell at the Gillard government.

McCrann likens Prime Minister Julia Gillard’s press conference yesterday to a 1985 sequel. No risk of hyperbole ventriloquising George Orwell.

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