Does ASIC have the power and resources it needs?
“Does ASIC have the power and the resources to fulfil its task as corporate watchdog?” is the question the Australian Senate is asking as part of its review of the regulator’s performance. As Jason Spits writes, not everyone agrees that it does.
More than 230 submissions covering six questions about the ability of the corporate regulator to oversee the sector may seem too much information for some and barely enough for others.
It doesn’t take much reading through the submissions to see that many have used the opportunity for a Senate Economics References Committee review of the performance of the Australian Securities and Investments Commission (ASIC) to air their particular grievances.
At the same time, a number of organisations have used this opportunity to reflect on the role of ASIC as it currently stands and what needs to happen going forward.
The comments have been submitted within a framework of six questions which ask if the regulator is suitably enabled to fulfil its responsibilities and obligations – and whether it is held sufficiently accountable for that work.
The framework also considers the level of ASIC’s collaboration with other regulators, its complaints management policies and practices, and the protections given to corporate and private whistleblowers.
Of the 239 submissions received, only 36 came from organisations operating within the wider financial services market.
Notable absences include the banks, with the exception of ANZ (which did not identify any issues concerning the operation of ASIC), and any licensee providing financial planning advice. (The Financial Planning Association had made a submission but it had yet to be posted on the Senate review website at time of writing.)
While the Senate review has six areas to consider, most of the comments in submissions from the financial advice industry related to the issues of ASIC’s ability and resources to cover the sector.
Only there to clean up the mess?
ASIC’s “mess clean-up” role was an area covered by the Association of Financial Advisers (AFA), which stated that ASIC’s powers were expanded under the Future of Financial Advice (FOFA) reforms following the 2009 Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Collapse of Storm.
The AFA also stated that the use of enforceable undertakings and bannings in recent years was also a demonstration that ASIC had the power to act appropriately when required.
Dr Marina Nehme from the University of Western Sydney, School of Law, stated that a review of ASIC’s sanctions indicated it held the required tools to influence market behaviour and enforce action against those who breach regulations.
“The regulator also has sanctions that will empower its strategy of enforcement, such as sanctions resulting from criminal and civil proceedings.
"The enforcement option gives the regulator an edge because if the persuasive approach does not work then ASIC can rely on its enforcement strategy,” Nehme stated.
“As such, no changes to ASIC’s investigatory and enforcement powers is needed as the regulator has the tools required to implement both persuasive and enforcement strategies.”
Other industry bodies were concerned that ASIC had shifted away from the industry and had become uncooperative.
The Association of Superannuation Funds of Australia (ASFA) claimed that ASIC needed to be clearer on its regulatory approach and style.
It said that ASIC’s powers “appear to act as a disincentive to establishing collaborative relationships with industry” – to the point where ASIC seeks rectification or enforcement rather than prevention of a breach.
Both CPA Australia (CPAA) and the Institute of Chartered Accountants in Australia (ICAA) stated the regulator needed to engage in more collaboration with industry and professional bodies to achieve better regulatory outcomes.
“To date, ASIC has not maximised the opportunity that is presented by a strong working relationship with co-regulatory stakeholders.
"There has been an apparent lack of willingness on ASIC’s part to work in an open and shared manner in order to secure the right outcomes in the marketplace,” ICAA stated.
“It is our view that ASIC is now defined by a combative, compliance-focused approach which, on its Chairman’s own admission, places a premium on “leveraging” media headlines over substantive outcomes,” CPAA stated in its submission.
“It is our experience that the response too often reveals a regulator with a glass jaw, content with shifting blame rather than responding in a considered or constructive way, or in the spirit of cooperation which previously defined the organisation’s approach.”
However these views were not shared by Industry Super Australia (ISA), which stated that ASIC engaged in proactive engagement with the finance industry and had consulted broadly on proposed regulatory measures.
“In the implementation of FOFA and Stronger Super reforms, ASIC has undertaken broad industry consultation and in our experience, all viewpoints presented during the consultation process are considered.
ASIC has also presented a balanced view in their final reports and decisions, with reasons being clearly articulated and communicated.”
A funding problem
A recurring theme throughout the submissions from individuals was whether ASIC was appropriately resourced to regulate the varied sectors it is called upon to oversee, a concern also expressed by ASFA.
ASFA stated that “the current structure and resourcing of ASIC limits its ability to influence industry, and the resultant criticism which ASIC receives in respect of delayed action can erode public confidence”.
“The potential inadequacies with respect to the ASIC legal resources budget may create difficulties for ASIC when pursuing legal remedies or enforcement action against entities or persons alleged to have contravened legislative obligations.”
The most recent annual report for ASIC stated that while it generated $717 million in fees, charges and penalties, it received $350 million in funding from the Federal Government.
In its submission, The Treasury Department stated that “the level of funding that ASIC receives is not, for the most part, related to the amount of fee revenue that ASIC collects on behalf of the Government. The vast majority of the fee revenue is collected as taxes”.
Nehme submitted that funding for ASIC had declined from a high of $381 million in 2010 while its role had expanded to cover four separate areas.
“Now this regulatory agency is the regulator of companies, financial services, markets and consumer credit.
"Further, it plays an important role in promoting financial literacy. Accordingly, ASIC may be viewed as a mega regulator,” Nehme said.
“To empower ASIC, it is essential to provide the regulator with the necessary budget to allow it to operate efficiently. To subsidise ASIC’s revenue, ASIC should be allowed to use the fees it raises for the Commonwealth.”
A similar view is also shared by ISA, who stated alternative funding options for ASIC should be considered in any future financial systems inquiry.
It suggested an industry levy model akin to that used by the Australian Prudential Regulatory Authority (APRA) would remove the cost from tax-payers.
“This idea, in principle, will give ASIC the ability to independently organise and plan its operation budget,” ISA stated.
“The idea is close to the self-funding agency model (or user-pay regulation), where the industry is levied to fund regulation activities. Essentially, the sectors that require the most supervision will be paying the most.”
ASIC staffers dish the dirt
The submissions also feature comments from a former ASIC staffer and the union which represents current ASIC staff members.
In her critique of the regulator, Anne Lampe – a freelance journalist who once worked within ASIC’s media unit – does not comment on ASIC’s capability to act but rather on what appears to be an inability to act.
Lampe said complaints were received, documented, filed and only acted upon when the volume of complaints reached a critical level or adverse publicity was being generated around the complaints.
According to Lampe, this was a top-down process, with decision making stifled by fear of court cases or having to justify them before public servants and politicians.
This was expressed in negotiated enforceable undertakings, usually after the events, instead of court cases and enforcement action.
Lampe’s view is not at odds with that of the Community and Public Sector Union (CPSU), whose submission provides an insight into the internal operation of the regulator under the previous and current chair.
CPSU claims that ASIC staffing has been restricted by both budget cuts in recent years but also by the internal deployment of staff and an unhealthy work culture during a period of expanding responsibilities.
In its submission, the CPSU states that the single enforcement directorate was split into eight teams, reducing its effectiveness.
At the same time, external contractors were used because the previous chair did not believe ASIC staff suitably qualified to senior duties, the CPSU claimed.
The union also claimed that further redundancies in the enforcement area and a freeze on new hires due to budget constraints have further affected the ability of the regulator to work well.
It states, however, that some of those changes have since been reversed, with two enforcement teams instead of eight, and that senior management had addressed a culture of bullying and harassment which had grown inside the organisation.
The contrarian view
It is not all bad news for ASIC, with some submissions praising the regulator where it was felt it had fulfilled its brief – but this was usually mixed in with criticism and recommendations for improvement.
Robert M.C. Brown, a 35-year veteran of the accounting and advice industry, skipped the criticism of the regulator’s handling of recent events and instead challenged it to address the underlying structural issues which he considered would hopelessly consign the industry to the same poor behaviour the Senate and the FOFA reforms had hoped to change.
According to Brown, financial planning had moved to a system of commissions paid by clients instead of third parties via asset fees.
Planners were being steered away from non-conflicted advice, and this would remain the case until structural change took place.
However, the submission from ANZ Bank was conspicuous for its total absence of criticism and a fulsome report of its relationship with the regulator.
The submission stated it was inappropriate to comment on the performance of the regulator regarding enforcement or its relationship with other government bodies – which was one of the main terms of reference of the inquiry.
“ANZ believes that ASIC operates with a high level of integrity and focus on the public interest. ANZ wishes to acknowledge that ASIC works constructively and positively with ANZ and the industry to implement many areas of new regulation or programs which manifestly improve consumer and market outcomes.”
The punters’ view
While financial planners may feel a review of ASIC and its involvement in the advice sector is required, it appears consumer sentiment is skewed towards another part of the regulator’s brief.
Of the 231 submissions received by the Senate at the time of writing, 190 are from individuals with more than 100 submitted with names withheld.
More than 100 of these personal submissions relate to concerns about low-document loans and claims of inaccurate information on loan forms, and loans being provided to those unable to service them.
Of those submissions related to investments, most concern complaints around the actions of share traders, while those related to fraud raise issues around company directorships and forged documentation.
That is not to say that complaints against financial planners are non-existent, but they appear not to have been raised at this time. An examination of the annual report of the Finance Ombudsman Service (FOS) and the Credit Ombudsman Service (COS) shows that planners continue to receive complaints about their service and advice.
FOS is also under review, with questions being asked about the ability of the service to adequately and fairly deal with complaints.
A number of submissions to the Senate inquiry raise this issue, questioning how FOS and ASIC have not managed to deal with many of the perceived problems of those making submissions.
The timing of both reviews is more coincidental than planned, with the FOS review mandated under its establishing regulations set out by ASIC.
The Senate review into ASIC is a response to the mainstream media’s late coverage of the Commonwealth Financial Planning advice failures – an issue which was covered in Money Management in 2010 and dealt with by ASIC in a series of actions during 2010 and 2011.
AUTHOR
Staff Writer
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