The federal government should consider splitting the Australian Securities and Investments Commission (ASIC) in two while dramatically increasing its ability to penalise white-collar crooks, according to a scathing Senate committee report.
The Senate Economics References Committee handed down its view on ASIC investigations and enforcement on Thursday, arguing the “centrepiece” of Australia’s corporate regulatory environment is spread too thin to be effective.
It calls on the federal government to recognise ASIC has “failed to fulfil its regulatory remit”.
Small businesses earned a special mention: without stronger resourcing and enforcement, small business allegations of misconduct against big-time corporations and financial institutions could go unexamined or unpunished, the Committee argued.
Here are the five key points small businesses should know.
In essence, the report argues ASIC’s remit is too large to adequately respond to, investigate, and litigate against instances of misconduct.
ASIC’s 2,000 staff oversee conduct in the corporate world, the markets, and the financial services sector, giving it one of the broadest regulatory checklists among global regulators.
Yet the corporate watchdog took no further action against 66% of misconduct allegations it faced in 2021-2022, meaning “only a small proportion of alleged misconduct reported to ASIC results in enforcement action,” the committee said.
It reflected evidence from the Australian Small Business and Family Enterprise Ombudsman, which submitted that:
ASIC’s broad remit requires significant resources and may be contributing to its reduced efficacy in investigating and enforcing action against corporate misconduct.
The inference is that if ASIC is unable to effectively penalise poor conduct, or deter it from occurring, everyone else — including businesses adhering to the rules — could suffer.
ASIC’s appetite for legal action was also called into question, with the committee noting the United States is happy to throw the book at major white-collar criminals like Sam Bankman-Fried.
In what might be its most striking recommendation, the committee said the federal government should consider whether ASIC’s remit “is too broad for it to be an effective and efficient agency”.
The committee’s central recommendation is that the government consider splitting ASIC’s powers, creating a company regulator and separate financial conduct authority.
Proposals to reshape the watchdog are a “substantial opportunity to step away from the failed regulatory experiment of ASIC as a ‘do everything’ corporate regulator,” the report said.
“Australia’s system of corporate and financial regulation could be much improved by assigning key regulatory functions, which are otherwise well designed, to special purpose bodies with the capacity to exercise those functions for maximum public benefit.”
Splitting the “two peaks” of corporate oversight, and funding both sides appropriately, could enable stronger enforcement against alleged misconduct, the report said.
“No one expects ASIC to investigate all the reports it receives, or to get it right 100% of the time,” the Committee said, in one of its most scathing passages.
“However, at present, ASIC does not appear to even be trying to improve its handling of misconduct reports.”
The committee was particularly concerned by automated responses to insolvency practitioner reports, with some replies sent within 4o seconds of receipt.
“This is particularly concerning given that the number of companies entering administration in Australia are at record high levels,” the report said.
Keeping an eye on small business creditors is especially important; the report noted that “conduct impacting small business including small business creditors” is one of ASIC’s key priorities for 2024.
Some action against illegal phoenixing, already being led by ASIC, did warrant a positive mention in the report:
Other evidence to the committee commented on ASIC’s introduction of the Director ID System. This is a unique identifier ‘which will help prevent the use of false or fraudulent director identities’.99 The Small Business Development Corporation (SBDC) was very supportive of the introduction of this system, noting that it would help reduce director involvement in illegal phoenixing.
ASIC’s current industry funding model is based on penalties for misconduct, levies applied to the 52 industry subsectors it regulates, and fees for specific services.
The review argues more funding should come from fines, incentivising the watchdog to go after alleged crooks, and less from levies, giving businesses — particularly on the smaller side — some breathing room.
“The Committee understands the pressure of ASIC levies on small business,” committee chair and Liberal Party Senator Andrew Bragg said in a separate statement.
“We have recommended lightening the load on small business by recalibrating the funding model.”
The report’s recommendations are strong and significant, and would require serious effort and willpower to bring into effect.
Labor Senators Jess Walsh, Deborah O’Neill, and Jana Stewart challenged some of the sharper claims made in the core report, saying it simplifies complex issues and minimises other proposals suggested through the inquiry process.
The key proposal to split ASIC into separate entities earned their scrutiny, with the trio noting:
The Chair’s report does not further progress this longstanding debate, because it lacks detail on any potential model for separating the markets, corporations and financial services functions of the regulator, the timeframe over which this might occur, and the process to achieve it. It also does not properly weigh evidence presented to the inquiry in favour of ASIC’s broad remit.
However, they did not pin their own dissenting statement to the report; rather, they published a list of ‘additional comments’, and agreed “there remains opportunity for improvement in ASIC’s operations”.
A new Statement of Expectations covering ASIC operations will be developed by the Treasurer, they added.
In a statement obtained by the ABC, ASIC said it is considering the report’s recommendations.
The watchdog is “in court almost every day pursuing wrongdoing and in the last 12 months alone launched around 180 new investigations,” the spokesperson said.
“ASIC is already working with Treasury to act on the recommendations from the Financial Regulator Assessment Authority’s review of ASIC’s effectiveness.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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