‘Do or die’ for ASIC says Governance Institute

The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly growing and innovating.

In July, the Senate standing committee on economics released a report on ASIC’s investigation and enforcement activities, chaired by Senator Andrew Bragg. 

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The inquiry had been tasked with assessing the capacity and capability of ASIC to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct. This covered areas such as engagement and conduct, approach to investigation, resourcing and capabilities, and enforcement outcomes. 

In a statement, Bragg said: “Over the last 20 months, the committee has uncovered the dire state of ASIC – an organisation without transparency, few prosecutions and a litany of cultural, structural and governance issues. It is clear that ASIC has failed.”

Commenting on the report, which gave 11 recommendations, Daniel Popovski, senior adviser for policy and advocacy at the Governance Institute of Australia, agrees ASIC is struggling with its multitude of responsibilities.

The institute described the corporate regulator as having “one of the widest of any corporate regulator in the world”.

“ASIC continues to buckle under its own weight, with increasing pressure on its existing governance framework to monitor compliance and issue notices and enforcement provisions across an increasing number of regulated entities. It is do or die for the regulator coming under exceeding public scrutiny at a time of increased economic uncertainty,” he said.

“ASIC governance has not changed to suit the significantly expanded remit since its inception.”

Looking ahead, he said the need for ASIC to be working smoothly and efficiently would become even greater as markets transform and cyber crime becomes a greater threat.

“In years ahead, the administration and operational framework of ASIC will become even more challenging, as financial markets grow, innovate and transform, creating greater complexity in ASIC’s modus operandi and ability to tackle significant corporate and financial crime.”

Regarding whether ASIC should use artificial intelligence (AI) as a tool in its regulatory remit, Popovski said the use of AI by a regulator has both positives and drawbacks from its implementation.

ASIC has already detailed how it has been running two pilot programs using AI for multiple purposes, including to read public submissions and the use of Microsoft Copilot.

Joe Longo, ASIC chair, said in May: “We do use AI, the first is in a pilot Commonwealth program on the use of Copilot and the second is using AI technology to read submissions. In ASIC’s world we are often having to read and absorb submissions because we consult heavily with the market, so we ran a pilot to see if the AI could ‘read’ all those submissions and come up with accurate analysis to save hundreds of hours of human time.”

Popovski said: “AI can automate much of the regulatory reporting processes. However, these processes attract several critical risks. A key barrier is the inherent ‘black box’ of algorithmic decision-making creates the risk for unpredictable and potentially detrimental outcomes that could jeopardise the need for transparency and accountability, a fundamental cornerstone of effective regulation. 

“Bias also becomes an issue in automated decision-making systems that could inadvertently lead to a potentially discriminatory financial environment.

“However, this does not necessarily negate the potential effectiveness of AI systems to act as useful input in solving complex regulatory problems.

“AI systems may act as a primary gatekeeper in helping the regulator to sieve through less harmful instances of wrongdoing and effectively triage instances for more stringent enforcement approaches that prioritise litigation for all serious instances of suspected breaches of corporate law, particularly where consumer losses arise, or could have potentially arisen, from such breaches.”