Regulating wrongdoing

That old boy scout joke about the person looking for his shilling where the light was best, rather than where he’d lost it, is so funny (partly) because it’s such a good take on human psychology. And any good joke about a the psychological foibles of someone acting alone is likely to be an even better joke about groups of people.

I think thinking about regulation needs to be very strongly divided between stopping serious wrongdoing and ‘guiding’ the law abiding. Alas, that’s not what we do. In an area close to my heart, consumer groups are constantly bemoaning all sorts of very nasty financial practices which hurt their own constituents. The resulting cry that ‘something must be done’ ends up with more (almost invariably) silly regulation for the law abiding.

As Amanda Vanstone gave me a nice (though somewhat bizarre) ‘hook’ on which to sally forth on a matter I’d posted about here a few weeks ago, I took up the bait in this week’s column.

I tried to check the facts as closely as possible. The Department of Transport were very helpful, confirming in short order there policy of letting all people who don’t consent to airport screening for traces of explosives go home so they can plan their next trip to the airport after a proper scrub up.

ASIC unfortunately is an altogether different kettle of fish. Try ringing them to talk to someone who knows what’s happening the way one would with most government departments or large companies and you are asked if you’re a journalist or 1 a member of the public.

A while back (on another matter) I answered the latter, and was told someone would ring me back but they never did. On persevering I said I was writing a column and the person then said ‘I thought you said you weren’t a journalist’ and became even more triumphantly unhelpful.

On this occasion I started out saying I was writing a column. I was then put through to a ‘media person’ who couldn’t answer my questions. The media people have a fine time sounding very proper and saying that they couldn’t possibly answer any questions about ASIC’s conduct because ‘the matter (its always a ‘matter’) is subject to legal proceedings’.

Anyway, on my persevering, I got a more senior media person who said the same things, and then another media person who said the same things, and then another call from her saying that someone who was in the area would ring me back. Alas, no such luck. So they can’t say I didn’t try . . . Here’s the column.

Feeling better now?

I don’t know if Amanda Vanstone reads this column but, she’s recently shared her own thoughts on the farce of airport security as I did here in May this year.

However bizarrely she expressed them, her concerns are right on the money. As she said: “to be tactful . . . a lot of what we do is to make people feel better as opposed to actually achieve an outcome”.

This problem costs us billions maybe tens of billions each year. We seriously inconvenience the law-abiding, but with strictures that remain a walk in the park for those bent on wrongdoing whether they’re terrorists or financial scammers.

Provoked it seems by the inconvenience of having to use plastic knives on planes, Minister Vanstone told a no doubt startled Rotary audience of a conversation she’d had with the Prime Minister, in which she’d explained how easily harm could be done despite the lack of metal cutlery. She told him that she could grab his head, stab an HB pencil into his eye and wiggle it around inside his brain.

I’m not joking. Perhaps this is standard conversational fare within Ms Vanstone’s Immigration department famously incompetent one day, inventively nasty the next.

In any event, as response to my earlier column indicated, everyone’s got their favourite airport security farce. To recap mine, despite the inconvenience and delays they cause, airport metal detectors still allow me to pass undetected with far more metal in my key-ring than the September 11 perpetrators needed for their box cutters.

Recently airport security ‘spot checked’ me for traces of explosives. If I’d refused the test I was free to leave. That’s the standard procedure about as useful as a sign reading “terrorists please report to police”.

Regulation endlessly repeats this pattern whether it seeks to protect our lives, our wallets or the government’s coffers. Providing ID to open a bank account is a substantial inconvenience, repeated with each bank you deal with. Yet one can have one’s ID documents certified by an ‘acceptable referee’. And since their details are rarely checked, there’s little trouble getting round the system.

And though we’ve dramatically beefed-up financial regulation, the problems that matter most shonks running off with your money remain largely untouched.

Take the recent collapse of Melbourne firm Money for Living. Enticed by ads featuring figures from their own ‘demographic’ – wholesome Aussie hero Dawn Fraser and wholesome Aussie faux hero Paul Cronin, elderly Australians sold their homes to Money for Living for around $50,000 plus the promise of $500 to $1,000 per month ‘money for living’. (By my rough figuring, payment at the top of this scale looks like not much more than half the residual value of a $400,000 house).

The scheme was fronted by someone who’d recently done three years in the clink for fraud.

Where was the Government’s ‘watchdog’ ASIC?

ASIC staffing has grown by nearly a third in the last four years to enable it to administer a quantum leap in regulation particularly under Financial Services Reform (FSR). This was sold as delivering more integrity to financial services. Thus costly and lengthy product disclosure statements and statements of advice are now required. But they’re so detailed that investors often don’t read them.

Of course we can’t prevent all possible frauds. Consumers own vigilance must always be the first and last line of defence. And ASIC can’t be blamed for doing its legal duty in implementing the many ridiculous requirements of FSR. But all that having been said, the Money for Living ads screamed out serious consumer risk. Not risk of excessive bank charges, or bad advice, or ‘soft dollar’ commissions. But risk of financial ruin for the elderly. And a few phone calls might well have uncovered enough to ring serious alarm bells. One of the solicitors conveyancing the properties noticed that the name of the man fronting the scheme was the same as the person who’d been put away for three years for fraud.

As if on cue, ASIC has just produced a report on ‘Equity Release’ schemes financial products that allow people to access the equity in their homes. In addition to ‘reverse mortgages’ that includes ‘home reversion’ schemes just like Money for Living. Without a hint of irony or self doubt, ASIC reports its gallant actions in pursuit of Money for Living after the event, that is. And it calls for more regulation in the sale of such products. (Declaration of interest I run Peach Discount Mortgage Broking which is largely unaffected by FSR and, despite invitations to do so, never went anywhere near Money for Living).

Life would be so much easier if crooks could be persuaded to market their scams with this disclosure: “Caution: Run by convicted criminals”? Until that happy day dawns, stopping criminals by detecting warning signs before the event will remain a very different kettle of fish from disclosure requirements and ‘enforcement’ after the event.

The Money for Living scandal provides yet another example of Minister Vanstone’s suggestion that a lot of regulation is more likely to make people feel better than to improve outcomes. It’s about as much use as a poke in the eye with an HB pencil.

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2024 years ago

A fool and his money are soon parted. How the fool got the money to lose in the first place is what we pay legions of civil servants to ponder sympathetically with him.

2024 years ago

Of course, the other problem with the money for living scam was the failure to obtain independent legal advice. Money for Living hooked most of the participants up with a firm to act on behalf of the investor, which just happened to be upstairs from them. Subsequent litigation will demonstrate whether the firm is guilty of anything, but at the very least attempting to independently advise clients in their dealings with a significant referrer of work creates the perception of bias.