Senate Economics Legislation Committee, , 42:07 to 1:33:20
ASIC provides updates on enforcement actions regarding Equity Trustees and the investigation into audit misconduct at KPMG.
Topics: Integrity, Whistleblower protections, Privacy
Speakers: Ms Sarah Court, Speaker 4, Senator Deborah O'Neill, Scott Gregson, Senator Matthew Canavan, Alan Kirkland, Chris Savundra, Senator Barbara Pocock, Senator Lisa Darmanin, Senator The Hon Tim Ayres
>> Thank you. Cheers. Um uh does um asset collect information how many new company registrations there were in 25 26 and how many exited?
>> Sorry can I ask you to repeat the
question? Do you collect information on how many new company registrations there were in the last financial year and how many actually exited?
>> Uh so we have the number of company registrations. Um and >> but I think to your question about exit uh when we were speaking earlier do you mean dregistration of companies? Well,
whatever. I don't know how you classify it, but >> um I suppose I'm getting back to this claim that there's 30 times more businesses opening than closing. You know, obviously you've got the the openings, you got the registrations. Do you have the closing? Do you have a full list of those closing?
>> Uh so we've got the um information that I described earlier in relation to external administration and I think I offered to take on notice anything I can assist you with with dregistration statistics. So we'll be able to assist you with that. Um but sometimes as I said people close a business and um there's a lag before they dregister that business. So um we'll assist with what information we can on that um that part of our registry.
>> It doesn't appear the government has any substance for the claims it's been making publicly including on a on a on on post that say get the facts. Uh and it doesn't actually have the facts uh at hand. So but pretty typical. Um um I I understand that liquid's report to ASC on how many people uh are employed for failed companies. Of the companies that did enter insolveny last year, how many employed staff?
I'm afraid I don't have that particular detail to hand.
>> You do. You have it, but you don't have it at hand.
>> I I believe that's right. I think if if it comes in an insolveny report from the liquidators then yes we have it because um that those data feeds do come through to us. If through the course of this I can assist you with that of course I will otherwise we'll take it on notice.
>> Um yeah um okay. Um well could we get that data on notice if that's okay? Do you actually collect data on how many to people uh like total people were employed in the companies that entered insolveny? Do you add it up if you like?
>> Um I'm not sure that we have um done that but again if we have we could take
that on notice and if you do have the data if we could get it the last 5 years on notice that >> great um I believe a recent asset review found the median age of a company entering liquidation was >> [clears throat] >> uh 7 years. Uh is that correct? And does that mean that a lot of the businesses failing are are pretty established
businesses? Yeah, we did recently um prepare a report and publish it in relation to um court and um creditor uh nominated liquidations. Um and I think you're right. I suspect that's where you're quoting that statistic from which included the seven the seven years.
>> Okay. Um have you is that is that data longitudinal in any way? Can you go back over time or is that just a one-off review you've done?
>> Uh no, that that um sorry, let me um bring that report up. It's it's a it's a a report that does have longitudal data in it as well.
>> Is that is that figure decreasing or increasing the median age of companies
>> that one I think we just that figure we just provided as a snapshot but we can um I can get that do the work backwards to get the trend data as well.
>> All right. Well, if we could have that on notice too. Has um given this that we have seen this significant increase in insolvenies the last few years. Has the treasur the assistant treasur of the small business minister asked you for any analysis of what's driving that
um uh we've provided some information at the back of um this last hearing uh in relation to um some of those drivers. Some of the um fields that we include um in the data when it comes through to us from insolveny practitioners or otherwise has some information. So I can direct you to the question on notice that um if that would assist. So um it was asked by Senator Price um and the topic question number is 26 uh 0000272. So in that so this was the data that was at June 2026. Um so some of the causes of failure that under the external administration um administrators nominate and receive as inadequate cash flow or high cash use poor strategic management of business trading losses. There's some of the examples. So the you can nominate more than one. Um so in that case people nominated 56.8% were uh an administrator nominated inadequate cash flow or high cash use. So they're the sorts of things that that the data that we collect. Um and so as I said we gave that information in June and I'd be happy to prepare a updated version of that but that those categories haven't changed in terms of what we collect.
>> Right. So have you provided briefs or or face toface briefed any of those ministers on these issues?
>> Um I'll take on uh yes uh in the sense that we share the the reports that we've prepared. So I think um you were quoting earlier from our review of court and credit to voluntary liquidation process that was just published a couple of days ago and so um a brief describing that report um has been provided to the
ministers. I suppose going back to my question that was did the brief go to analysis of the causes of the increase.
>> Um I think when I look through this report so the brief matched what was covered in the report. The report was not about causes. It was about the processes and the statistics and including that statistic as you said around the age. Yeah.
>> Oh sorry that information goes to the small business minister as well those briefs.
>> Ah that's a good question. and I'll need to double check.
>> Okay. I mean, we we do um obviously pay attention to these reports. I think the report I'm right, the report you're talking about is 843, which is the review of court and creditors voluntary liquidation processes from 21 to 25. Um and it does contain some useful uh information. sets out that insolveny data reflects a normalization of insolveny activity that aligns with the expiry of temporary CO 19 insolveny measures and it is important to kind of have some caution about month-to-month uh insolveny data. So, for example, the recent I never know quite how to say it. The New South Wales senators might help me. Bath ba uh was not just one insolveny but but a a group of you know more than a hundred firms. So has a kind of impact. Um uh uh so it's um it's important to understand them in that context. Of course, um the report says uh you know while liquidation appointments have increased, the Australian corporate population has also grown significantly over time when appointments are considered relative to the number of registered companies. The rate of companies entering liquidation in recent years was within the range observed in years before 2020 and as I've said about half the rate during the period of the Howard government. Um now I take your point that um you know it's not the only figure the insolveny figure that's important here but it is an important indicator of what's going on uh in the
>> Okay. Um has ASC had discussions with Treasury about the drivers of increased
insolvenies? Uh so when we um engage with treasury about the work so I should say as well as this work on liquidation um that you've described we have published recently a report on voluntary administrations and deeds of company arrangement and a separate one on small business restructuring. So we do have data that we share um we publish and we share and and discuss with treasury as as issues arise on the work that we've done. The other piece that's um as you'll be aware live is the productivity commission is considering business dynamism. So to the extent that ASC's been um having discussions with the productiv productivity commission about um the insolveny aspects of that or the wider parts that ASICH um we've connected in with treasury in relation to those sorts of issues as well.
>> Okay. U tax debts a common uh reason for a business to go insolvent? Um I
mentioned earlier that when we collect information from um the insolveny practitioners, we sometimes have uh they have an opportunity to identify what they perceive to be. So that is not one of the categories um that's described there. So as I mentioned earlier, inadequate cash flows and high cash use was the one that was most nominated. Poor strategic management of business was the second. traded loss trading losses was third. So there there's 10 and it's that detail is in that quan that I mentioned the question on notice before um if that would assist.
>> Do I believe though the statistics record unpaid tactic sorry unpaid taxes owed by failed companies if that's correct could you take on notice how many failed companies owed tax how much tax they owed and information about recent trends
>> if we've got that um information. Uh I'm conscious when we we we've done recently work on the small business restructuring um which is an opportunity for companies to restructure and continue to trade. So in that process they have um that we have recently published a report on that. So that's an opportunity to to move past distress into continuing to trade. And in those small business restructurings, the ATO's overwhelmingly the largest creditor and so they are the ones that um make a decision usually as to whether or not to accept a compromised position from that small business which um and we've had successful increasing numbers of people using that small business restructuring um opportunity that exists under the Corporations Act to then go through. So I can share with you the small business restructuring report on that. >> Um and that so that's one angle of that tax debt as an aspect of it but in that circumstance it's one that's um worked past.
>> Okay.
>> Yeah.
>> Um of the court ordered liquidations last year how many was started by the
Uh so yes, I think you're alluding to the fact that this report covers both creditor voluntary liquidations and and the court ordered ones as well. Uh I'm not sure which creditor often it is the ATO that's the primary creditor. Um we've got that data in this report. Um I'll I'll assist you with that after
>> on notice. Thanks. And and you said it was common the ATO is commonly the primary credittor.
>> I was describing that for the small business restructuring plans that we see. So in the small business restructuring so that's a statutory process which permits a small business with the benefit of um advice um so they need to nominate a particularly qualified person to assist them do a plan a small business restructuring plan that plan gets put to the company's creditors and those creditors can agree to the compromise that's described in the plan and then um if then trade on um so that's the it was in relation to that that I was describing in our statistics The ATO is the prim primaril is the largest creditor in most of those small business restructurings. I don't have the data on the larger ones. I'm sorry.
>> There's been large increases in the number of director penalty notices issued by the ATO in recent year of last year. [clears throat] Have you discussed with the ATO the impact on its debt collection and uh on small businesses small business insolvenies?
>> I think this um ATO um would be better able to assist you.
>> But you haven't had discussions with
them about that. We um we have discussions with the ATO um generally including on registry issues and um so yeah.
>> All right. Thanks chair.
>> Thank you Senator O'Neal.
>> Thank you very much. Um and and thank you for uh your evidence so far this morning. I just want to go to the ASICH announcement on the 26th of August 2025 um where you indicated you commencing civil penalty proceedings against Equity Trustee Superenuation Limited over its decision to allow members to invest in the Shield Master Fund, including allowing around $160 million of retirement savings into Shield over 2023 and 24. Separately, I understand there is also action against equity trustees over investments by its members in the first guardian fund. The corporation's financial service committee took evidence from equity trustees in a hearing in CRA here on the 10th of September this year where Mr. Michael O'Brien, the managing director of equity trustees and a director of equity trustee superanuation limited told our committee and I quote uh ETSL considers that it acted in accordance with its duties and obligations under the acts and met the requirements of a prudent trustee. >> We know that ASICH doesn't agree with that because it's taking legal action against ATSL over both First Guardian and Shield funds. On its website, Equity Trustees has a page where it provides updates on the first Guardian and Shield matters and it notes that on 19th of December 2023, Equity Trustees immediately stopped all new flows into Shield and on the 10th of January 2024 removed it from the investment menu for NQ Super and Super Simplifier. Is ASICH aware of that stop order being put in place by equity trustees on the 19th of December 2023 in relation to
>> Uh thank you for the question Senator. I must say I don't know off the top of my head. I mean I we as you know we've got a detailed um or had a detailed investigation in relation to equity trustees on in relating to both the first guardian and shield master funds um what equity trustees did back in late 2023. I probably would have to come back to you on that. Um, Senator,
>> um, thank you. That that could be very helpful. I don't know if you'll be able to answer my next question. Is ASICH aware of any further investments made by customers on the equity trustees platform into the shield into the shield fund after the date of that stop order?
>> Um, Mr. Sandra has joined me at the table, Senator, which means that he may have a um a better answer >> than I do. I don't know that I have that information but Mr. Sandra
>> for the hand side. Chris Sandra um executive director of Essex Enforcement and Compliance Group. Um Senator, I'm not sure I know the answer to your second question, but the answer to your first question is yes. Uh we're aware of uh that stop order.
And sorry Senator just coming back to your >> second sorry your second question was
>> the are you aware of any further investments made by customers on the equity trustees platform into shield after the date of that stop order? So,
my information in front of me, which we can clarify, um or or make sure it's completely correct, is that about $160 million was invested in Shield by about 2,890 members of equity trustees between June 2023 and March 2024.
>> Okay. Um, I understand that for a number of people affected by the first guardian and shield matters, they're required to access the processes of AFA to try to recover their lost funds. Does ASICH receive communications from AFA about the nature of complaints they're working with in relation to the customers of equity trustees?
Um, Commissioner Kirkland can answer this in more detail, Senator, but um, ASICH and AFKA are in very frequent um, communication and engagement um, at the most senior levels about um, the position of the investors in the in the Shield Master Fund. Um and certainly we get information on a regular basis about the number of complaints that are coming in. Um the nature of those complaints and indeed um we've invested considerable resources in um a communication campaign trying to reach [clears throat] those investors who have not yet lodged an Africa complaint.
>> Mr. Kirkland, Commissioner Kirkland, sorry.
>> Thank you. Um and just to add to what the chair said, um our focus has been in particular on trying to ensure that all consumers are aware of their right to make a complaint to AFA. And just as recently as last week, we sent a further wave of communications to all of the investors that we've got contact details for in relation to Shield and First Guardian because we're aware there's still a number who um could make complaints but have not and um we're waiting to see how what impact that has on the number of complaints, but we understand it has resulted in a number of people um clicking through to the relevant information um which hopefully will prompt some of them to consider making a complaint and after is as the chair said in constant communication with us both about how we each communicate with investors about their potential riots but also about how it's working through the process of um considering those complaints.
>> Um I just want to table a document right now. It's from the AFR in the street talk. Um it's public document uh but I've got copies for you and for others. Given the heat around this issue and the concerns, the engagement at AFCA, the observation from ASICH, the ongoing it surprised me that TPG has scooped up 15% of the takeover target equity trustees. Are you watching what's going
Um at a at a high level, Senator, I mean, we're watching closely um all of the interactions involving the various respondents or defendants to our to our court action. And of course, equity trustees is one of those.
>> And just to add to the chair's comments, the other thing that's important to note is there are actually a number of companies in the equity trustees group. So we often use the general term equity trustees but that could be referring to any one of a number of entities. I understand uh the um report that's just been tabled refers to EQT holdings which is u perhaps best described as a hold the parent company or holding company um the action that the chair referred to as in relation to ETSs being the super the company that's a superanuation trustee.
>> Yeah. Thank you. Sorry. Would it affect the compensation that might be payable in the future if the ownership changes?
>> Got three minutes. Um yes, potentially Senator because our action is against as Commissioner Kirkland said um the ETSsl the um the superanuation trustee um at this stage EQT holdings the parent company is not indicating um any willingness to meet the liabilities of the superanuation trustee but um you know you may have seen U media reporting of another transaction that we've been most concerned about in relation to the proposed sale of Interip. Yeah. >> Um and our concern about that very much was that that would um potentially or or whether the motivation for for that sale is to avoid the extensive liabilities Inter has for these uh for these collapse for the members being advised to put their monies in these funds.
I'm thinking can I just check has Africa communicated any very particular concerns about matters that they're in investigating with regard to equity trustees and investments in the shield
>> I would need to take that on notice. There are no um concerns that are that that have been reported directly to me but there may well have been um other discussions that I'm not aware of. But AFA does keep us updated on the the nature and number of complaints that are working through its system.
>> Okay. So, I'm just going to put some another document to you. Um I'm thinking of following up with equity trustees and I just want to give you these questions and see what you think about them as well. Um perhaps you could provide some guidance on these. So, um noting that on the 19th of December 23, equity trustees placed that stop order on new investments. Were there any new investments made into the fund by members of equity trustees platforms after that date? That's I think that's critical information. Um I would hope that you might investigate this too. The second one, how many members were uh made new investments in the shield fund by equity trustees after the 19th of December? Um 23. What's the total value of additional investments made by members of shield fund after 19th 2023? 19th of December. and what steps has equity trustees taken to compensate customers who are permitted to invest. So um perhaps you might get to them quicker than I will but I'm going to put those questions to them directly. Could I ask you in a couple of minutes that remain to give us a bit sorry an update on divers uh and the interrax sale that
>> indeed. So on divers um first senator as um we've talked about before we have um one set of proceedings against diversa in relation to the onboarding and monitoring of the first guardian uh master fund. Um so that matter is in the court and proceeding. We're seeking compensation for those members uh that were impacted and we have a separate investigation uh that is continuing in relation to the deferral of a write down of value in the first guardian master fund to 1 July 2025. that matter is still in um an investigation phase and we haven't made any decision about whether or not um liability uh sorry the um enforcement action will follow in relation to the interra sale which is a separate um issue uh as you're no doubt aware in earlier this month Seoia Financial um announced that it had completed a share sale agreement for the disposal of 100% of the issued share capital in into practice financial planning um to an entity called Belbird Australia and that Sequoia had revoked and this is the issue that we're concerned about the deed of cross guarantee between it and Interpre. Um now we weren't notified of that sale. Um we have previously taken action to prevent another um uh attempt at a sale of Interact by Sequoia. Uh and that matter ceased. uh that's out and proceed. Um and we are considering all options um that are available to us and >> We're considering all options um as we speak Senator about um whether there is action that as can take in relation to that attempted sale.
>> So that was a very wholesome answer. Thank you very much. But for people who don't understand the system, a lot of people who've been caught in it basically, can you just explain the process that Interra are attempting here with Sequoia? You indicated they had two go like this is a second go unless you stop them from proceeding in the way that they're proposing. What does that actually what does that actually mean? And what sort of a game really like this looks like a bit of a scam run for me to run away from responsibility for what they have been doing. And we've got very exposed investors who deserve better from people who are pro supposedly providing them sound financial services and products.
>> Yeah. At at a um at a really um broad level senator, Interpro was an Australian uh was a financial advice firm perhaps I put it in broad terms. Um it was responsible for the highest proportion of people's superanuation that was invested in both the shield master fund and the first guardian master fund. It was responsible for about 6,800 clients who put about $677 million into the funds. Um Interra is is wholly owned by a company called Seoia Wealth. Seoia is ASX listed. There is a deed of cross guarantee between SEOIA and Interip
>> which means what?
>> Which means that um SEOA is at least arguably liable for the liabilities or losses of Interra.
>> So for those 6,000 Australians that
that's why ASICH has been taking action where in a very prompt way to uh disrupt the first sale process which we were able to do and we are currently uh working I think that was announced about two weeks ago as I said we were not given any notice of it which is disappointing um and we are looking at all options that um are available to us in relation to
>> so the message is it's ASX listed but it's dodgy is all get out. They're having a second go now at trying to move away from their liability. So, people should be very very aware. You know, just being on the ASX doesn't guarantee that people are doing the right thing. Thanks, chair.
>> Thank you. I'm going to rotate the call now. Senator Bragg.
>> Thanks very much. Um and just out of respect for colleagues, I'm going to try and cover three quick topics in >> short amount of time. So, brief answers would be grateful for. So, look, um in terms of the offsets, you did a report on offset accounts which hadn't been linked to mortgages. Uh I think you found that there was going to be 55 million in compensation so far. You identified that uh one bank had accounted for 77% of the reported offset failures. You didn't name which banks had made the worst transgressions here. Uh why didn't you name and shame the banks that had done the wrong thing >> in terms of not linking their offsets to their mortgage accounts? Senator, every
time we do a surveillance report of this kind, we make decisions about whether or not to name individual entities um that are subject to those to to our findings. And as you say, we found a number of um significant um what we considered to be significant deficiencies. We made the decision um in this particular matter. Um the eight banks represented about 70% of the two half million trillion dollar home loan market. It [clears throat] didn't cover the market completely senator. Um we took the view that we would not uh identify particular institutions there because of that. We had se selected them for various reason but it did not cover the field. Um and obviously the you know the various issues that we identified there we are continuing to uh to look at.
>> Okay. Has the treasurer or minister for financial services requested a briefing
Um, I'd have to I don't certainly not from me personally, Senator, but I'm happy to take that on.
>> You haven't discussed you don't recall discussing the mortgage offset scandal with Treasurer Charmers.
>> Uh, I don't recall. I mean, I met with the treasurer occasionally. Um, I don't know that this was a matter that I raised specifically, Senator.
>> Okay. Thank you. Onto the second issue. Um you are able to issue security clearances um as delegated by the government security committee. Is that
>> Uh yes it is.
>> Yeah. Is that right?
>> Yes.
>> Yeah. And who can issue the security clearances within ASICH?
>> Uh Senator Mr. Gregson um may be able to give you some more detail on that and if not we'll have to take it on notice.
>> Senator for the record Scott Gregson chief executive officer. That's right. We are able to issue security clearances. They're operated from within our chief risk office. We have a security team and a component of that is a security vetting team. >> Okay. So, how low down do the delegations go? >> Uh that the delegations go down to specific officers within within that team. Um uh it might depend on exactly which decision we're talking about there. Senator, I might have to take on notice the that the layers of of accountable officer for the issuance of security clearances? >> Senator, the chair is the accountable authority of the agency. So, we'll um power vests with with uh the chair who delegates. >> Okay. Have you made changes to the security clearance process at ASICH that deviate from the government security committee processes? >> Uh no. We we believe we're compliant with the uh the requirements of the PSPF. >> Okay. Have you had any public interest disclosures uh lodged or complaints? >> Uh Senator, as you know, there's um strict conditions around um uh references to PIDs. Um uh but yes, I can confirm there are matters uh relevant there. >> Okay. And it there's currently an OBMsman review being undertaken by ASEX into ASEX processes for security clearances. Senator, not quite as you've described there. Um uh as you know the ombbudsman has a role in relation to pit processes. >> Okay. So is there a process on foot where the ombudsman is looking at some of the asich issuance processes? >> Um senator uh again I'm treading carefully here because there are strict requirements in relation to pit processes. The the matter I referenced um has been referred to the ombbudsman >> has been. Okay. And any staff currently suspended as a result of this process? >> Not as a result of this process, Senator. >> So there's no staff currently suspended in relation to these matters. >> Uh not in relation to to to matters arising from that pit. >> Okay, that's the second issue. I'm on track chair here. Thank you. Um >> No, it's all good. I appreciate as efficiency. Very good. Very impressive. Um last thing is u prediction markets. Do you know about these?
>> Uh yes I do.
>> Great. Um so will Australia facilitate
>> Um Senator, the commission hasn't yet been required to make a formal decision uh about whether or not to grant a market license for the operation of a prediction market to retail participants in Australia. Um however we have talked about it um around the commission table of course um prediction markets as I understand them have um all the features um of a bet. So an all or nothing outcome often based on something that's got nothing to do with um an investment or a financial market. >> Um people are free in Australia to make bets on whatever they choose to within the framework of the the gaming laws. Um I'm not sure describing them as an investment product uh for retail participants um is something we'd be rushing into.
>> Okay. So clearly Australians will access these via VPNs and other other means. Um so if you effectively take that position, doesn't that mean that people will just access it through offshore providers?
>> People are free to access those things through off offshore providers. They won't have the protections of the Australian financial system.
>> Okay. So sounds like you're not of the view that this can be facilitated through the existing ASL system.
>> Yeah, I think our view is we, you know, we have to wait and see if we get an application. There's a statutory test that we would have to apply, senator, but um part of that issue, part of the test relates to, you know, the public interest. These kind of um transactions um uh are very similar to binary options. Those are um banned in Australia. So yeah, look, as I say, of course, we'll consider anything that comes to us. We've done a um we put a lot of information on our moneys smart website just so that um you know, consumers who want to get involved in prediction markets as I say, they're they're described as a market, but they're um as I understand it, and I'm not an expert, but um equivalent to having a bet each way, and you can lose all your money um in a single transaction.
>> Okay. Well, can you take on notice of the process you would go through if you were going to receive uh a license application because I think it's a it's a hypothetical, but it's probably a realistic hypothetical >> um and maybe it is similar to what you have dealt with in years gone by before there was a licensing regime for cryptocurrency uh which may be somewhat similar. So in the minute I have left, I just want to ask you one more thing >> uh before the chair um asks me to stop talking forever more um which is just um I asked you a question on the 8th of August 2025 uh about some matters in relation to Shield Master Fund, First Guardian Venture Egg, um etc. Um it am I right in saying it took two years to answer this
Uh, did you say
>> a year and a half?
>> 8th of August 2025. >> Yeah, Senator,
>> year and a half. Yeah. >> PQ25 000088.
>> Mr. Bson,
>> um, Senator, uh, you're right in the sense that that was received on the 11th of August and has only recently been tabled in response. >> Okay. So, >> it's not two years, but um, it's a long time. Sorry, just for the record, let's get get this right. The the I asked you the question on the 8th of August 2025 and you answered the question on the 11th of August 2026. >> is that right, >> Senator? No, no, I think the uh the uh the facts I have here, but um won't quibble those specific dates. It was August of 25 that you asked the >> I believe that has only recently been tabled the response. So when when was the answer provided? >> Uh we've been working with providing input for because the response comes from the treasurer as you know uh senator. >> Yeah. >> Um we've been working uh from early in that time to provide input. Uh we provided uh various um updates over time as you know there was a large number of questions there involving a continuing investigation and litigation. Uh and so that has required further engagement over that time. >> Okay. So you answered it in October this >> The treasurer has tabled that response in October this year. >> Thank you.
>> Thank you very much. Um I'm going to go to Senator PCO and just letting people know we still have quite a few um senators wanting to ask questions at this session. So it's likely we will go um quite a bit more overtime in this part of the program. Senator Chair,
>> um I wanted to go to the KPMG matter that you referred to in your opening statement, Commissioner. Um you refer to several investigations across three issues. Can you update us in with some detail about those three? The alleged misuse of confidential client information, the whistleblower victimization concerns, and the auditor transparency report.
>> Um thanks Senator. All of those investigations um are continuing and there's not a lot of update that I can give. I can certainly though just articulate the issues that we're looking at. So in relation to the first one which is the alleged misuse of confidential client information, we're formally investigating suspected misconduct by a number of KPMG registered company auditors. So that's the individuals involved in particular audits concerning the alleged mishandling of confidential client information relating to lend lease and octus and that matter is or that investigation is continuing. [clears throat] The second issue um it relates to an investigation as to where the KPMG may have breached the prohibition on victimizing a whistleblower. Now that is also um continuing. And the third investigation relates to certain statements in KPMG's 2025 auditor transparency report and whether or not those statements were false or misleading and that investigation is also continuing.
>> Can you tell us how many individuals uh registered company auditors you are pursuing in relation to the first matter?
>> Uh my recollection senator is it is three
>> individuals. Are they all still with the
>> I would have to take that on notice, Senator. I know at least one of them is not, but I should perhaps we can confirm that for you.
>> Okay. Thank you. Um, you referred to a whistleblower in relation to the second item. Is there still a single person you are um uh pH interested uh investigations around just one person?
Yes, that particular investigation um relates to one um one whistleblower.
>> Thank you. Um at a hearing of the PJC um on the 4th of September, you told us that you had received over 551 complaints in relation to audit misconduct by the big four accounting firms. Has the number changed since
>> Yes, Senator, it has. And Commissioner I can give you a bit more detail, I think. Um at the time our evidence was this was a very you know this is the broadest description and we it would take us some time to narrow down which of those um complaints referred to audit because of course they were across the the consulting and other arms as well but commissioner might be able to help with some more detail now.
>> Yeah thank you. So um it was a couple of months ago that we had um you had that hearing and at at that point those notices had been reasonably recently served and it was very early days with the receipt of that information. While we did make an effort to craft the notices to make them referable to audit related work, they nonetheless um captured quite a lot of information that was broader than attaches to our regulatory um sort of jurisdiction. And so what we've found is that there's um quite a number of those reports indeed the vast majority of them that may be have some sort of tangential connection to something that uses the word audit for example like it's internal audit or it's a employment issue associated with a group that includes people there. In fact, what we think the number of or um of those [clears throat] complaints that come actually down to conduct in relation to an audit like a statutory audit is less than 10% of that number. So, we're still working through exactly what the numbers are. We are proposing to um publish some information about the work and what we found before the end of the year. Um but it's um just to give you a sense of the the scale it's significantly smaller than the number that we described in the beginning of September.
>> So to make sure that I've understood you correctly somewhere around 55
>> or even less
>> or perhaps even less
>> it's less than 10%
>> that are to your investigation substantive audit related misconduct
>> We haven't got to the point where it's we can say that it's substantive. we can say that they are um it's less than 10% um are relevant to the conduct of an audit um a a statutory audit as opposed to an internal audit and and whether or not it's substantive or not that is the part that we're still working through as well as whether that number may be reduced even further. >> So that's why I wanted to just give you a sense of it coming down.
>> Y what confidence do you have? I mean employment matters can uh reflect concerns around the conduct of an audit. They are not mutually exclusive.
>> Absolutely acknowledge that as and and in and as do our team members who are conducting the review. So of course if there's there may be more than audit but as long as there's audit in there then that's the area and if there's additional things as well um or or or something is characterized as just employment we need to look into and understand it. That doesn't mean we've done back and forth on all of the ones that appear on their face not to be at all associated with our area. Um but we are alive to that um the issue that you've just discussed.
>> So you are looking in depth at the wide range just to make sure you aren't missing a significant audit.
>> We've we've reviewed them but um we're not going back and forth on in relation to all of them. We we hear you that there's an issue that we need to be careful in relation to but um we our effort has been to try and reduce or we know amongst those that we initially found to make sure we find the ones that we can um that are associated with the responsibilities and and the powers that we've currently got. Um so I hope that explains the the steps that we're taking. We're being careful. Yeah. Um
but it is possible that for example the whistleblower who is the primary uh source of the information about what's occurred in KPMG might have been characterized as an employment issue um and not come to you or be visible as an audit related issue. Do you recognize that?
>> We recognize that um we need to look beyond and and I believe we haven't just relied on the firm's character, you know, categorization of them into separate boxes. Some issues will have be in more than one box. So we we need to understand exactly and which ones or whether there's audit related work associated with um with a a a complaint that's um being assessed.
>> Question. Have you have you have you noted any NDAs as part of this process because when there's an NDA often that is an indicator that there's certain materials that are being attempted to be hidden. Thanks.
>> Yeah. So um this this um revealance work is looking at the complaints that have been received um rather than looking beyond at what the full process is for their um being resolved or addressed or this this downstream efforts in relation to all of them. It's a snapshot of what we've what the firms have received in relation to complaints in relation to the conduct of audits. And so I'll take on notice whether in doing that look looking at that topic there has been any information like an NDA that our our team has um seen but um that the focus has been on the complaints
>> rather sorry commissioner to interrupt but and just stepping back to remember what it is that we're doing with this particular surveillance which was given the issues that had been raised in relation to the KPMG whistleblower through the um the parliamentary joint committee. What we're trying to satisfy ourselves, excuse me, is whether there are any other complaints of that nature sitting within the um the audit firms that have not been actioned or dealt with appropriately. So, we're so we've got a vast amount of material. We we cast the net widely to call it complaints rather than whistleblower for example. And as Commissioner Rook says, the teams are um looking at those complaints with the lens, Senator PCO, that you are um suggesting we do, but that was really what we were trying to do is is is there a you know, are there a number of other people in the position of the whistleblower that the parliamentary joint committee's been dealing with that have made complaints that whistleblower complaints or otherwise that have not been appropriately actioned? Can I ask
you to um comment uh on the level of cooperation you're getting from KPMG in the first instance and are they still relying as they did in the early months of this scandal on legal professional privilege and similarly could you comment on the level of cooperation you're getting from the big four more broadly in relation to complaints and
>> Thank you. Um so uh we have um as I said served notices on the firms in order to secure this information and we did find across all four firms initially there was some uh challen uh some uh I think protracted and in some cases legalistic approach to responding to those notices but that was across all four firms rather than um any one in particular. um there was uh a lot of back and forth um about the notices about the terms of them. So when we said notices in any of our sectors we do have a preliminary discussion about how to craft it in a way that matches and despite that there was required discussions about the delay associated with the provision of some information in some cases that legalistic approach to it. I'm pleased to say all four of them over the course of time uh improved the way that they were dealing with ASICH, but it was disappointing at the beginning that that wasn't how they started.
>> And could you comment specifically in relation to the KPMG matter? Um how has been how has their level of cooperation been? >> So clearly our earlier conversations have shown real resistance and hiding behind legal professional privilege which wasn't always validly established. How are KPMG coming along in relation to their matters?
>> Um so when you refer to their matters I think I' I'd defer to colleagues about the um that enforcement those three enforcement one. So um I might ask Mr. Sandra to comment on those in relation to this work on the surveillances where we're looking at the complaints I've described the what I described was um across the firms.
>> Yeah. Thank you. I'm I'm specifically I
>> I I think it's fair to say Senator just broadly across both enforcement and the after some initial um rather protracted discussions uh we have seen improved engagement and responsiveness including from KPMG
>> but that resistance and then improvement does not mean good practice. Are we at good practice? Are we at the level we would expect uh you know if if you were a cooperative and helpful citizen of the
>> Uh Senator I I think we're we're heading towards good practice. Um uh the provision of information which is um legally privileged has been provided to us under a voluntary disclosure agreement. So um as is KPMG's right to maintain their claims for legal professional privilege. Um so my assessment of good uh entities which we serve notices on are entitled and well within their rights to claim and assert legal professional privilege. that's um that's the law um of this land and um so I think my assessment is um they're not handing over legal professional privilege material in a way that um we can use um freely. It's being provided under a voluntary disclosure agreement. So, we get to see um the legally privileged material, but we can't use it in an admissible way in proceedings.
>> And is that obstructing your investigation? >> And is that obstructing your
I I think talking about the KPMG matter specifically, um I don't think I'm in a position to make that assessment. I think we're still working through the evidence and um building the case. But but if I can speak more generally, um we do often see material which is subject to a claim of legal professional privilege which if it were admissible would make our life a lot easier. Um but legal professional privilege is a fundamental right and principle of our legal system um which is there to encourage people obtaining legal advice and being able to communicate openly and frankly with their legal advisor. Um so as frustrating as it is for me, I'd love to be able to use um LPP material and um in an admissible way before court. And I think it would change the outcome of matters where even where we've taken court action and in some cases been unsuccessful. I think if the court had seen that LPP material, the outcome might have been different. Um that's frustrating but that's just the system within which we operate um and the checks and balances um that need to be
achieved. a system that we have seen assertively managed and exploited by the big four and especially the KPMG and it is very unsatisfactory.
>> Thank you Senator PCO. Senator