First, the recriminations. Then the tough talk.

Barnaby Joyce's admission that he was wrong to oppose a royal commission into banks was quickly steamrolled by Treasurer Scott Morrison's resolute and defiant shift, quickly upgrading the corporate regulator's legal arsenal.

Admirable maybe, but somewhat belated. Worse than that, in his hasty attempt to take control, Mr Morrison has overlooked the fundamental reason for the shocking revelations taking place under the steely gaze of commissioner Kenneth Hayne.

It's not that the Australian Securities and Investments Commission (ASIC) is in need of added muscle. It needs to grow a spine.

ASIC is the law enforcement agency that shies away from enforcement, particularly in the top end of town.

From awful to shocking Extraordinary deception. Atrocious behaviour. No concern about consequences. This week's evidence was consequential and now the political environment has shifted, writes Dan Ziffer. Read more Read more

Ask yourself this — when was the last time a major corporation or executive was hauled before the courts? If you're having trouble coming up with an answer, you're in good company.

In the past decade, our banks have been responsible for multiple breaches of the Corporations Act.

They've admitted to rigging interest rate and foreign exchange markets. They've repeatedly stolen from their customers. They've happily charged premiums and then refused payments to legitimate insurance claimants.

Since the financial crisis, they have forked out more than $1 billion in fines and compensation for their misdeeds. But not one senior banking executive has faced a court room for any of this.

A gun-shy regulator

Since its inception decades ago, ASIC has had the power to launch criminal and civil proceedings against big business. But for the past 15 years, it has deliberately chosen not to.

Instead, it's opted for what's known as "enforceable undertakings" — effectively a slap on the wrist and a hollow threat that it may take real action if it ever happens again.

Why? One explanation is that it became gun shy after suffering a series of humiliating court defeats prior to the global financial crisis.

But a more disturbing possibility is that it is increasingly concerned with its own financial performance. In fact, in recent years ASIC has become a significant source of government revenue.

Its data base, which holds company and director records, reaps around $720 million a year for the Federal Government through access fees, more than double the cost of running the regulator.

That's not all.

Following federal budget changes two years ago, the corporate sector — and particularly the financial sector — now picks up the $330 million tab for funding the corporate regulator.

"The banks are paying to ensure that ASIC has the resources and powers it needs to be a tough cop on the beat," Mr Morrison announced at the time.

Indeed, it does. But that raises an important question. Is ASIC's role to provide the Federal Government with revenue or is it an enforcement agency?

ASIC's green light to the banks

ASIC has had the power to launch criminal and civil proceedings against big business. But for the past 15 years, it has deliberately chosen not to. ( AAP: Dean Lewins )

As shocking as last week's revelations were — charging clients, even dead ones, fees for not delivering any services — there's nothing new in any of it.

Back in 2006, AMP became embroiled in what then appeared to be the scandal of the decade. It was caught overcharging thousands of customers, switching them into expensive and poorly-performing products designed to enrich planners and the organisation, at the expense of clients.

Despite the obvious criminality — it's known outside the corporate world as theft — no-one faced charges and the AMP was never subjected to a civil damages case.

ASIC instead forced AMP to sign "enforceable undertakings".

If the highly-publicised action had any effect, it was to send a message to the financiers that financial planners and the wealth management industry could operate with impunity.

Perhaps that explains why our banks, obliged to immediately inform the regulator of breaches, routinely have taken years to do so. Or why the AMP and its board didn't think twice about meddling in a so-called independent report from law firm Clayton Utz on 27 different occasions.

Between them, the four banks and AMP in recent years have gouged more than $220 million from clients for services they never even intended to provide.

And the penalty for this theft? Just over a week ago, a few days before all this blew up in the royal commission, ASIC had the CBA, the worst offender by far, sign an enforceable undertaking for overcharging clients $118 million.

No court case. No-one personally held to account.

And it's part of a repeating pattern.

Less than 18 months ago, CBA signed an enforceable undertaking over its role in rigging foreign exchange markets. As part of the settlement it made a $24 million "donation" to a program to improve financial literacy.

So much for deterrents.

Ratcheting down the regulator

It wasn't always this way. The rot set in about a decade after ASIC was established in 1991, when then-chairman David Knott announced a new tactic. Rather than run criminal cases, ASIC instead would launch civil action against the top end of town.

The burden of proof was lower, he argued, allowing for greater court success. And with a wider approach, the enforcement agency could then hone in on specifics on criminal matters.

Shortly afterwards, One.Tel — the telco brainchild of James Packer, Lachlan Murdoch, Jodee Rich and Brad Keeling — collapsed.

What ensued was one of Australia's longest-running civil court cases. The poorly run case was a disaster, costing the regulator $20 million in legal bills.

It went down in a highly publicised insider trading case against Citigroup and blew $30 million in an ill-fated attempt to prove Andrew Forrest misled investors.



If its reputation was tarnished, things only deteriorated further when former Telstra director and alleged comedian Steve Vizard struck a deal with ASIC over his use of confidential Telstra information.

He admitted the charges, but in exchange for a deal where he would only be subject to civil penalties.

If there were any doubts ASIC had gone soft, the judge in that civil case, Justice Ray Finkelstein, took it upon himself to double the penalty recommended by the regulator.

Similar comments were made by Justice Dowsett last month when he imposed what even he believed was a lax penalty on Storm Financial founders Emmanuel and Julie Cassamatis.

The pair, who helped destroy around $880 million for low income vulnerable investors, were fined just $70,000 each and banned from managing a firm for seven years.

"I am inclined to think that the penalty sought by ASIC is on the low side, having regard to the cases to which I have been referred," he told the pair.

Smaller fish to fry

ASIC boasts an impressive track record before the courts with success rates of up to 97 per cent.

There are two reasons for that. The first is that doesn't take on many cases. And the second is that it generally only goes for soft targets, small operators or individuals without enough money to fight a case.

In 2012/13, in the wake of billions of dollars in corporate collapses, it ran just 25 criminal cases and only 15 civil cases.

Last year, it charged 22 people with criminal offences.

As a consequence, investors have been forced to take matters into their own hands running class actions through law firms that take a huge slice of any winnings.

Effectively, ASIC has outsourced its enforcement role to the private sector.

If the Treasurer wants to beef up ASIC, perhaps he should think about appointing an experienced investigator to head up the organisation instead of the endless procession of bean-counters, investment bankers and corporate lawyers who have sat at the chief's desk.