The Australian Banking Association said ASIC shouldn't be locked into taking a bank to court if a settlement is possible.

"ASIC should retain the appropriate discretion, focused on a speedy and effective resolution for customers, including remediation, to choose the best response from their toolkit," chief executive Anna Bligh said.

Shift to trials

Regulators and lawyers are concerned that as a lawyer and ex-judge, Mr Hayne will push ASIC to pursue cases through to trials decided by judges instead of favouring the financial settlements approach that raised $1.8 billion under the previous ASIC chairman.

The change is already under way in response to community and political pressure generated by the royal commission, and is led by new chairman James Shipton.

"ASIC understands the community expects us to take much more and much stronger court action - something the Royal Commission has rightly emphasised," an ASIC spokesman said Sunday.

"ASIC believes in the effectiveness of court-based enforcement as the foundation regulatory tool."


Until now, the Commonwealth Bank of Australia, National Australia Bank and Australia and New Zealand Banking Group have generally preferred to settle ASIC's lawsuits, taking pragmatic decisions that it isn't worth the damage to their reputations and the distraction of fighting long court cases.

Westpac Banking Corp has been an exception, adopting an aggressive legal approach that ASIC insiders fear will be adopted by its competitors.

Less compensation

ASIC insiders are concerned less money will be raised in compensation and fines, and there will be more failed prosecutions because of the unpredictability of the court system.

"Pursuing a matter through to judgment is an inherently risky, time consuming and expensive process," said Philip Crutchfield, QC, the barrister who led ASIC's prosecution of Westpac over attempts to manipulate wholesale interest rates.

"The regulator has the onus of proof. Regulators have to make enforcement decisions based on a range of real world considerations, including their budget."

Westpac was the only one of the big four banks not to settle the interest rate allegations. ANZ and NAB agreed to pay $50 million each. The Commonwealth Bank paid $25 million. Westpac was fined $3.3 million by a judge who described the sum as clearly inadequate.


Mr Hayne's findings and recommendations, are expected to mark a major change in banking regulation enforcement. Brook_Mitchell

Concerns behind the scenes

There is huge political pressure on ASIC to be more aggressive. The regulator is this year expected to prosecute life insurer AMP for lying to the regulator about charging clients without providing them services. Prime Minister Scott Morrison last year said AMP executives could go to jail over the case.

Labor leader Bill Shorten's anti-bank rhetoric has been even stronger. "If you steal from a bank, you go to jail, but if a bank steals from you, they get a promotion and a bonus and a big car," he said in October.

Given the huge anger towards the banks generated by the royal commission, ASIC officials have been talking up plans to fund more court cases.

"The mantra at ASIC I can tell you going forward will be 'Why not litigate?'" new ASIC commissioner Sean Hughes recently told The Australian Financial Review.

Barrister Phillip Crutchfield, second from left, leaves the Federal Court in 2017 during the wholesale interest rate trial against Westpac. Wayne Taylor

Behind the scenes, though, ASIC leaders are concerned about the huge cost of going to court and the community backlash and loss of confidence in regulation if it loses cases.


"Some cases are going to be lost," the source close to ASIC said. "That's reality we have to accept."

"A case which is run and lost may send a much worse enforcement message than a reasonable settlement that enables the regulator to publicise its message to the commercial community," said Mr Crutchfield, who has also represented AMP.

Opponents of 'soft regulation'

Other experts don't believe what they call "soft regulation" through legal settlements and enforceable undertakings meets the community's expectation of justice. They say court cases, although difficult to win, can deter bad behaviour by exposing immoral and illegal behaviour by banks.

"If it is properly resourced and supported, I think it's quite important," said Scott Donald, the director of the Centre for Law, Markets and Regulation at the University of NSW law school.

"The public expect that the people they have serving them need to be seen doing the right thing."

But Mr Donald said more regulation would not necessarily be effective because it would punish banks who followed the rules and be ignored by those that didn't.

"I don't think the royal commission has found a lot of new behaviour," he said. "Most of it was well known to ASIC and the industry."