The Senate Economics Committee inquiry into the Australian Securities and Investments Commission (ASIC) has called for the corporate watchdog to be divided into two separate regulatory bodies.
Bad culture
The final report of the 20-month inquiry – which spanned five days of public hearings and 198 submissions from various financial, legal and accounting organisations, including the Australian Taxation Office (ATO) – criticised ASIC’s "bad culture" and inability to prosecute white-collar crime.
The report listed three overarching problems:
Impossibly broad responsibilities – the scope of ASIC’s remit is too broad and it is chronically underfunded compared to its counterpart in the US, the Securities and Exchange Commission (SEC). Along with this was a lack of accountability and governance failures, which meant that money alone wouldn’t fix the problem.
Being ‘gun-shy’ – the report points to an organisation that has taken its eye off the ball and is more concerned with public opprobrium than getting on with its job. It paints a picture of a regulator that champions its successes while leaving challenging cases untackled and evading accountability.
A flawed approach – ASIC enforcement activities have not increased alongside the increasing number of cases before it, and it remains opaque and silent to criticism and calls for accountability. The regulator dismisses claims of misconduct and fails to deliver information about its enforcement activity.
The report pointed to some worrying trends within ASIC, highlighting that it consistently failed to prosecute offenders and often took no further action on reports of alleged misconduct.
Paltry penalties
Even when enforcement action was taken, civil penalties were frequently inadequate compared to the scale of the offences, and criminal sanctions were rare.
"ASIC's current approach fails to deliver justice to victims of corporate crimes, undermines economic productivity and does not deter future poor behaviour," the report stated.
In its 11 recommendations, the committee’s report suggested radical changes to make the regulator more responsive and a tougher enforcer of the law.
These included that it be broken up and that the resulting entities adopt an enforcement approach that prioritises litigation for serious breaches of corporate law.
It also called for the establishment of a public register of civil or criminal outcomes from reports of alleged misconduct, similar to the US Consumer Financial Protection Bureau.
Scepticism about improvement
Committee chair Liberal Senator Andrew Bragg opined that it was unlikely these recommendations would be adopted within the current government term.
"This is the third inquiry into ASIC in the last 30 years and nothing has really improved despite all the inquiries and royal commissions," Senator Bragg said.
The report partially blamed ASIC's extensive remit, which has expanded significantly since its establishment in 1991, as a reason for its inefficacy.
ASIC's workforce of 200 is responsible for regulating 95,000 entities, including companies, markets, financial services, consumer credit and financial product professionals.
University of Wollongong Associate Professor Andy Schmulow supported the proposed split, arguing it would align Australia with other major economies and enhance crime prosecution.
He also emphasised the need for legislation ensuring regulators enforce the law independently of government interference.
The inquiry further recommended encouraging whistleblowers by amending whistleblower protection provisions in the Corporations Act 2001 and offering financial incentives to those who expose corporate misconduct.
Senator Bragg suggested the new organisations adopt a streamlined management structure with a CEO to improve transparency and accountability.
The report called for reforms in funding, suggesting that more resources come directly from regulatory fines rather than industry levies.
ASIC has stated it will "take time to consider" the report's findings, promoting its strong enforcement record and ongoing work with Treasury to act on recommendations from the Financial Regulator Assessment Authority's review.