Senator Andrew Bragg has released the final report of the ASIC inquiry after a 20-month assessment of the regulator.
Bragg, who has been chairing an inquiry through the Senate standing committee on economics into ASIC’s investigation and enforcement, released the report on 3 July.
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.
This followed 197 submissions and five public hearings since the inquiry began in October 2022.
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.
“We need regulators to be responsive and transparent but most of all to be focused on enforcement. These measures, if adopted, would provide Australians with the protection and confidence which is sadly absent.”
Report recommendations:
Recommendation 1
The committee recommends that the Australian government should recognise that the Australian Securities and Investments Commission has comprehensively failed to fulfil its regulatory remit.
Recommendation 2
The committee recommends that the Australian government should recognise, based on the finding of recommendation one, that the Australian Securities and Investments Commission’s regulatory failures call into question whether its remit is too broad for it to be an effective and efficient agency, and the government should strongly consider separating its functions between a companies regulator and a separate financial conduct authority.
Recommendation 3
The committee recommends that the Australian government urgently address the shortcomings in Australia’s system for handling reports of alleged corporate misconduct. In doing so, the committee recommends that the Australian government make it a legislative requirement of the Australian Securities and Investments Commission or future regulatory authorities to investigate reports of alleged misconduct at an appropriate rate. Further, the committee recommends that:
- the regulator develop consistent standards to transparently report data to the public on the handling of reports of alleged misconduct; and
- the regulator establish service standards to require that people who submit reports of alleged misconduct are provided with clear, detailed and timely information on the tangible actions taken in response to their report.
Recommendation 4
The committee recommends that the statement of expectations which is currently issued for the Australian Securities and Investments Commission:
- contain, among other things, expectations and priorities relating to transparency; and
- be provided in draft form to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry and report.
Recommendation 5
The committee recommends that the Australian government make it a legislated regulatory objective of the Australian Securities and Investments Commission or other regulatory authorities to establish and maintain a high-level of transparency of investigation and enforcement outcomes. Additionally, the committee recommends that these transparency objectives be supported by:
- establishing a searchable public register of civil or criminal outcomes arising from reports of alleged misconduct received and the outcome of the proposed regulatory authorities’ handling those reports, subject to appropriate thresholds, similar to the approach taken by the US Consumer Financial Protection Bureau; and
- developing a consistent, long-term public reporting framework that quantifies and assesses the proposed regulatory authorities’ performance and capacity to undertake its regulatory functions of investigating and enforcing breaches of corporations law.
Recommendation 6
The committee recommends that the Australian government investigate amending the whistleblower protection provisions in the Corporations Act 2001 to include pecuniary incentives and compensation for whistleblowers who make a substantiated disclosure. The committee recommends that the pecuniary provisions be examined with a view to:
- establishing a financial incentive for whistleblowers to make a disclosure in circumstances where addressing the misconduct would result in a significant public benefit; and
- establishing a financial compensation mechanism for whistleblowers who are unable to make a disclosure in the public benefit without experiencing significant personal detriment, such as loss of career prospects.
Recommendation 7
The committee recommends that regulatory authorities adopt an enforcement approach which prioritises the litigation of all serious instances of suspected breaches of corporations law, particularly in cases where consumer losses arise, or could have potentially arisen, from such breaches.
Recommendation 8
The committee recommends that the Australian government review a new governance structure for the Australian Securities and Investments Commission or any new regulatory bodies. This structure would have a chair or chief executive officer as sole statutory appointee and accountable authority and the appropriateness of the commission structure entirely should be explored.
Recommendation 9
The committee recommends that the Australian government should ensure that a legislated code of conduct be included as part of the governing documents of ASIC or any alternative regulatory bodies, and that the chair and any other statutory appointees can be sanctioned for workplace misconduct that is found to have breached this code. Further, the committee recommends that the Australian government establish a mechanism by which an alleged breach of this code of conduct by a statutory appointee can be examined by an appropriately independent and qualified panel.
Recommendation 10
The committee recommends that the Australian government reverse its decision, announced in the 2023–24 budget, to reduce the frequency of Financial Regulator Assessment Authority (FRAA) reviews from every two years to every five years. Further, the committee recommends that the FRAA undertake an inquiry into the effectiveness of the oversight mechanisms of corporate regulators.
Recommendation 11
The committee recommends that the Australian government reassess the funding arrangements for the Australian Securities and Investments Commission or any alternative regulatory authority so that:
- a greater level of funding can be directly resourced with the proceeds of regulatory fines – including late fees, court fines, penalties and infringement notices;
- all reasonable steps are taken to ensure levies charged on industry subsectors under the industry funding model are reduced commensurate with increased resourcing to the regulator through the proceeds of fines; and
- it is ensured that regulatory authorities are accountable for the level of resourcing linked to cost-recovered activity, and face obligations to rationalise surplus resourcing to reduce costs on the industry subsector participants.
