Chapter 28
Concluding comments
28.1
Given the important roles that ASIC undertakes, an inquiry into its
performance is overdue. The committee is pleased that ASIC constructively
engaged with this inquiry and recognised the value of it, as the following statement
by its chairman demonstrates:
...we welcome the inquiry into ASIC's performance. This has
been a rigorous inquiry and it has allowed many Australians to have their say.
It is an inquiry that ASIC has taken very seriously, and it is one to which we have
devoted substantial resources. We are grateful that so many people have
provided submissions to the inquiry, and we have closely considered all of the
submissions in an effort, most importantly, to learn as much as we can from
them.[1]
28.2
In performing its regulatory roles, ASIC seeks to promote confident and
informed investors and financial consumers, fair and efficient financial
markets,
and efficient registration and licensing. These are challenging tasks,
particularly given the complex and difficult environment ASIC operates in. The
committee appreciates that a regulator like ASIC is always going to disappoint
someone. It will never have the resources necessary to act on every allegation
of misconduct. Nevertheless, it is vital that participants in the financial
system consider that the same rules will apply to everybody. Appropriate
regulations enforced by a tough and responsive regulator will help promote
public and international confidence in investing in Australia.
28.3
As a final chapter, the committee considered it would be useful to
provide some additional comments about the recommendations that specifically
relate to how ASIC operates. The majority of the committee's recommendations
are designed
to help ASIC become a self‑evaluating and self-correcting organisation: a
harsh critic of its own performance with the drive to identify and implement
improvements. The recommendations recognise the need for ASIC to become a
far more proactive regulator, ready to act promptly but fairly. With this aim
in mind, the recommendations are intended to strengthen ASIC in several key
ways.
28.4
A main objective is to improve ASIC's understanding and appreciation of
Australia's corporate environment and those it regulates, and to ensure that
ASIC has access to independent, external expertise. ASIC needs to be alert to
emerging business models or new financial products and to match the
inventiveness and resourcefulness of those in the industry who seek to
circumvent the law. In this regard, the committee considers that ASIC should
more effectively tap into the experience, knowledge and insight of retired and
highly respected business people, legal professionals, academics and former
senior public servants to help it identify and minimise risks that have the
potential to cause significant investor or consumer harm.
28.5
Recommendations are also aimed at encouraging more information to be
provided to ASIC, and for this information to be utilised more effectively.
Building the analytical skills within ASIC necessary to discern early warning
signs of unhealthy trends or troubling behaviour is a key goal. Australia needs
a corporate and financial services regulator that has the analytical and
investigative skills required to identify and act on problems early. ASIC
should establish an internal system and encourage
a receptive internal culture that will ensure that misconduct reports or
complaints indicative of a serious problem lodged with ASIC are elevated to the
appropriate level and receive due attention. The committee also believes that
the corporate whistleblowing regime needs to be strengthened to encourage
whistleblowers to come forward. Informed individuals need to be confident that
they can report alleged misconduct, potentially unsafe products or dubious
practices in Australia's corporate world.
28.6
Given the resource constraints and knowledge gaps that a body like ASIC
will always encounter, the committee has also designed recommendations intended
to make the regulatory system more self-enforcing, allowing ASIC to concentrate
on key priorities and trouble areas. To achieve this, first ASIC needs to work
effectively with other industry and professional bodies that share ASIC's goals.
In particular, ASIC needs to ensure it has strong, constructive and cooperative
relationships with all of the financial system gatekeepers. ASIC could also
work with companies
to strengthen their internal compliance regimes and their systems for reporting
non-compliance to ASIC. Finally, ASIC should be primarily funded through a
user-pays system of industry levies designed to reflect the cost associated
with regulation and incentivise sectors to minimise the attention the regulator
needs to devote to them. Again, more effective self-regulation will allow ASIC to
focus on and more effectively deal with egregious misconduct.
28.7
ASIC's communication with members of the community needs to improve.
In particular, the evidence taken by this committee reveals that ASIC must
be more responsive and sensitive to the concerns of retail investors and
consumers. Expectations about what ASIC can do also need to be appropriately
managed.
In this regard, steps to improve the level of financial literacy in Australia
will, in the long‑term, help to limit the number of people that encounter
difficulties and turn
to ASIC. The committee acknowledges ASIC's existing work in this area and urges
ASIC to intensify its efforts.
28.8
ASIC's enforcement role is one of its most important functions. ASIC
needs
to be respected and feared. It needs to send a clear and unmistakeable message,
backed‑up and continually reinforced by actions, that ASIC has the necessary
enforcement tools and resources and is ready to use them to uphold accepted
standards of conduct and the integrity of the markets. However, the resolution
of a particular matter through enforcement action is not the end of the
process—ASIC needs to ensure that a culture of compliance results from the
enforcement action. For example, when ASIC accepts an enforceable undertaking, it
needs to have a mechanism in place that will provide assurances to the public
that the desired changes have indeed taken place and that the entity has
introduced safeguards that would prevent similar misconduct from recurring. The
transparency associated with enforceable undertakings should also be enhanced;
in particular, the report of an independent expert appointed as a result of an
undertaking should be made public. On the other hand, when ASIC is unsuccessful
in enforcement action it needs to reflect and learn what it can from the case.
28.9
The cases of misconduct in the financial advice industry and ASIC's
evidence regarding the regulatory gaps in that industry have convinced the
committee that various changes need to occur. The recommendations seek to improve
the overall standards in the sector and provide ASIC with greater information
and powers regarding problem advisers. For example, ASIC should be able to ban
someone from managing a financial services business if ASIC has already banned
them from directly providing financial services.
28.10
The committee also considered ways for ASIC to become more accountable
and transparent. Increased transparency of its operations and how its functions
are performed would be appropriate and may avoid accusations of the regulator
being captured by big business. Some of the changes are straightforward, such
as ASIC publishing more of its internal policies. ASIC also should keep the
business and academic worlds better informed about developments and trends in
corporate Australia by providing and disseminating information it receives from
a range of sources, as well as ASIC's analysis of this information.
28.11
Finally, the committee considered the range of tasks ASIC performs.
It is overburdened and charged with tasks that do not assist its other
regulatory roles. The committee is of the view that ASIC's registry function
should be transferred elsewhere to allow ASIC to concentrate on its core
functions.
28.12
The recommendations developed by the committee are intended to address
gaps in the legislative and regulatory framework and to encourage ASIC to
consider how its performance can be improved. The committee strongly believes
that these recommendations will allow ASIC to fulfil its legislative
responsibilities and obligations more effectively. However, many of the issues
with ASIC's performance cannot be addressed by anyone other than ASIC. In the
committee's opinion, ASIC has been in the spotlight far too frequently for
the wrong reasons. It is acknowledged that not all of the criticisms levelled
at ASIC are justified; ASIC is required to perform much of its work
confidentially and to ensure natural justice. It is also constrained by the
legislation it administers and the resources given to it for this purpose. Nevertheless,
the credibility of the regulator is important for encouraging a culture of
compliance. That ASIC is consistently described as being slow to act or as a
watchdog with no teeth is troubling.
28.13
This inquiry has provided many with the opportunity to have their say on
ASIC's performance. It has made possible many valuable discussions about
corporate and financial services regulation in this country. The
recommendations developed by the committee will lead to a more effective
regulator. In addition, the committee believes that this inquiry has been a
wake-up call for ASIC. The committee looks forward to seeing how ASIC changes
as a result.
Senator Mark Bishop
Chair
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