Audit Office cautions ASIC on investigations

The Australian Securities and Investments Commission (ASIC) has been receiving more reports about breaches of the Corporations Act, but has been acting on fewer of them, according to a report by the Australian National Audit Office (ANAO).

The ANAO report states that, over time, ASIC had acted on fewer statutory reports, both in absolute terms and as a proportion of reports received.

“For example, in the three years between 1997-98 and 1999-00, ASIC received an average of almost 2,700 statutory reports of alleged breaches of the Corporations Act and undertook investigation or surveillance activities on an average of almost 200 in each year,” the ANAO report said.

“In comparison, in each of the three years between 2002-03 and 2004-05, ASIC received an average of almost 5,300 reports of alleged breaches but undertook investigation or surveillance activities on an average of 27 each year.

It said that this was something that had generated a statement of concern from a parliamentary committee, which was worried that insufficient priority was being given to the assessment and investigation of statutory reports of suspected breaches of the Corporations Act.

However, the ANAO said that, in this respect, the significant reduction in activity with respect to statutory reports was not the result of a decision to act on fewer reports. Rather, ASIC had advised ANAO in December 2006 that the reduction had occurred mainly in surveillance activity (rather than formal investigations) as a result of a deliberate regulatory strategy to move from reactive to proactive surveillances in the area of insolvency.

The ANAO report noted that it was properly a matter for ASIC to determine where the balance lies in deciding whether to act upon reports of suspected breaches of the Corporations Act reported by external administrators.

“However, in light of the marked reduction in regulatory activity and of the concerns expressed by the parliamentary committee, it is timely for ASIC to review its current approach, including the opportunities for increasing the number of reports it investigates.”