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Editorial: ASIC lacks sense, not money
By Mike Taylor
Will the collapse of Opes Prime prove to be as fundamental to the future regulation of the Australian financial services industry as the collapse, some six years ago, of HIH Insurance?
At first blush, the answer to that question should be an unqualified ‘yes’. If the measure of a financial services company collapse is the degree to which it wrong-foots the regulator, then Opes Prime can undoubtedly be viewed in the same context as HIH Insurance.
And, just as the problems that ultimately led to the downfall of HIH Insurance might be regarded as a manifestation of the boom times of the late 1990s and early 2000s, so too can the problems that led to the collapse of Opes Prime be seen as a manifestation of a post 2002-03 bull market, the ready acceptance of arcane structures and associated high levels of leverage.
It follows that as the regulators and receivers pore over the events and actions that led to the downfall of Opes Prime, the company’s principals and executives must contemplate facing much the same fate as the principals and executives of HIH Insurance.
Of course, what ultimately happens to the principals and executives of Opes Prime is a matter for the regulators and, eventually, the courts, but a precedent has clearly been set and cannot be ignored.
It seems axiomatic of events such as the collapse of HIH Insurance or Opes Prime that commentators begin questioning the competency and adequacy of the regulators and that, in due course, there are suggestions that the regulators might require additional funding to ensure that such events are not allowed to recur.
Funding for both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) was increased substantially in the wake of the HIH Insurance collapse, but there is absolutely no reason for that funding to be increased further just because there is the appearance of failure with respect to Opes Prime.
Funding is not the issue with respect to ASIC and APRA. Rather, the problem is a lamentable lack of appropriate expertise.
The simple bottom line is that the regulation of financial services requires a better than average understanding of the industry and the products it generates and there are too few people within both regulators who have that level of understanding.
What is more, the recruitment of people with appropriate levels of understanding places the regulators in competition with companies operating within the very industry they are trying to regulate.
A question that has not yet been appropriately answered by anyone of standing within ASIC is whether the regulator entirely understood the intricacies of the Opes Prime operation and the manner in which they impinged on the company’s obligations under the Corporations Act.
What seems more likely is that ASIC personnel held some concerns about the operation of Opes Prime but lacked sufficient information to act decisively before the company ultimately called in the administrators.
It is an absolute certainty that the collapse of Opes Prime and the performance of the regulators will be the subject of Parliamentary scrutiny over the next 12 to 18 months, and it is to be hoped that our elected representatives do a better job of getting to the nub of the issue than they did with respect to HIH Insurance.
At the very least, the Government needs to ensure that it understands why, precisely, Opes Prime collapsed before it begins throwing taxpayers’ money at solutions.
17 April 2008
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