The Australian Securities and Investments Commission (ASIC) now has the power to smash the big four ASX bank profits.
Hot on the heels of Commissioner Hayne saying that APRA and ASIC needed to get their acts together and enforce existing rules, the Senate has passed new sanctions for 'white-collar' offences, according to the AFR.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) executives (and all corporate leaders) face potential jail time if they commit criminal offences, and their companies face huge fines for civil offences.
Executives face a maximum jail term of 15 years and companies could be liable for fines of up to $525 million per civil violation. Considering the big banks each make less than $10 billion in profit, a single $525 million fine would be very painful if applied to one of them.
ASIC deputy Chairman Daniel Crennan said "Without this bill, very significant aspects of the law lacked sufficient penalties to properly punish corporate wrongdoing in Australia. In part, the core obligations owed by banks and other financial services licensees to the citizens of Australia did not carry any penalties. The legislation is the culmination of ASIC's recommendations to government and will provide the legislative regime for it to far better enforce the law."
To me, that sounds like a regulator that has been both chastised and been giving new teeth to bite into the banks for wrongdoing.
Over the past decade we have seen UK banks in-particular being fined for scandals, along with huge remediation as a result. Just look at the PPI scandal and the LIBOR scandal, which hurt profit growth for years. With the ASX big banks facing huge scrutiny over the next few years they can't afford to put a foot wrong, particularly with the falling house prices acting as a drag on earnings growth.
Based on ASIC's warnings, I think it's worth avoiding the shares of all the big banks for the next couple of years.
