ASIC chairman Greg Medcraft has fired the first salvo in the BBSW case. Credit:Christopher Pearce According to ASIC's findings, IOOF fell well short of this. Despite this, no fines, no sanctions, no banning orders, no enforceable undertaking or licence conditions have been imposed on IOOF. ASIC says it has "reached an agreement" that IOOF will appoint an external compliance consultant to "conduct an expanded, broader and more comprehensive review of compliance arrangements within all IOOF business units". Instead of conducting the broader investigation into IOOF itself, it has opted to outsource it to an "independent expert" paid for by IOOF, with IOOF setting the terms of reference – with ASIC's oversight.

Illustration: Cathy Wilcox When it comes to the allegation of insider trading, specifically a research analyst trading in shares before the release of IOOF research reports that related to those securities, ASIC said the reports had no material effect on the share price and "there was no other evidence to warrant the commencement of a formal investigation". Insider trading, including front running, doesn't always move the share price. Front running is also illegal. It can occur when stock is bought knowing a research report is coming out that could benefit the buyer of the stock. What was allowed to go on at IOOF was highly inappropriate. The last paragraph of the softly worded press release gave an insight into how the investigation was run: "ASIC will continue to monitor and work cooperatively with IOOF and the board to make sure the necessary changes are properly effected." The investigation took 12 months and during that time the regulator spent less than one hour with the IOOF whistleblower who handed over 52,000 documents and repeatedly offered to help in any way he could. Perhaps if the investigators spent more time to talking to him, or requesting a mud map to navigate the documents, it wouldn't be sending such a conciliatory message to the market that it isn't a tough cop on the beat.

The industry just keeps laughing at ASIC because they don't know how it all works. Industry Insider It prompted one well-regarded industry insider to say: "The industry just keeps laughing at ASIC because they don't know how it all works and they send out people to investigate that tick boxes. It's like sending a child to compete in the Hunger Games. How many more jobs will they throw at these so-called independent external experts?" During ASIC's investigation, IOOF hired PricewaterhouseCoopers (PwC) to conduct an independent review of its regulatory breach reporting policy and procedures and the control environment within its research team. ASIC said as a result, IOOF has made "significant" changes to their policies and procedures. But these so-called expert reports are only as good as the terms of reference. Their terms of reference are rarely made public by their paying clients. If access to computers, documents and staff is off limits, the independent expert will agree. If interviews are off the table, that's fine too. It means the results can be stacked in favour of the client.

This was very evident in a report commissioned by IOOF and released to a Senate inquiry last year. The report, written by PwC to investigate a series of allegations by the whistleblower, was full of qualifications and disclaimers and had narrow terms of reference that excluded key issues. For instance, PwC wasn't allowed to interview or request information from staff in the research department. IOOF didn't give PwC access to information from the client order book or the computer, hard drive, work emails or other trading facilities of the senior executive accused of improper conduct including front running. Not surprisingly, the report opened with a disclaimer: 'We do not assume any responsibility and make no representations with respect to the accuracy or completeness of any information provided by you and on your behalf." The report was used by the company to sack the whistleblower for making "vexatious" claims. His termination letter referred to the findings of the report, saying that his allegations had no merit. It was only later, when the report was released to the Senate, that even with the many limitations placed on the terms of reference, PwC found evidence of multiple trading breaches. It also identified a "potential" for the IOOF senior executive to have front run during his role as an asset manager for Questor from late 2008 to early 2009.

IOOF has commissioned other reports, which ASIC appears to approve of. But for the public's part, there is no transparency. ASIC has spent a lot of time talking tough about culture and the need to protect whistleblowers. Yet the role of the whistleblower in IOOF didn't rate a mention in its statement. Nor did it explain the culture at IOOF or what it has done to fix it. The IOOF scandal, a string of financial planning scandals at CBA, NAB and Macquarie, allegations of bank bill swap rate rigging, the CommInsure life insurance scandal and others are the reason why most sides of politics believe a royal commission is the only solution to rebuilding trust in the financial services sector. The Coalition stopped short of a royal commission on the basis we have a tough cop on the beat with all the powers of a royal commission. ASIC needs to show it has what it takes to instil fear and respect among corporate Australia. In 2014 a Senate inquiry into the performance of ASIC released a scathing report that found it was too trusting of the big end of town, too slow to act and lacks transparency. "The credibility of the regulator is important for encouraging a culture of compliance," it said.

"That ASIC is consistently described as being slow to act or as a watchdog with no teeth is troubling." ASIC said it had learned from the criticism. Its press release on IOOF certainly downplayed the issues. Let's hope this isn't a sign of ASIC slipping back into what it was criticised for two years ago.