A Senate report into the Australian Securities and Investments Commission (ASIC) has labelled the body a “failed regulatory experiment”, calling for a “wholesale reimagining” of its approach to investigation and enforcement, and a “radical cultural shift” in its handling of misconduct reports.
The Senate Economics References Committee released Australian Securities and Investments Commission investigation and enforcement yesterday, making 11 recommendations to overhaul what it found was an impotent and underfunded regulator.
“Clearly, exercising ASIC’s responsibilities needs to be done better and it needs to be done differently,” it said.
“Continually assigning ASIC more duties and powers will simply deliver more of the same result: an overburdened and monolithic regulator that fails to meet expectations.”
The report was highly critical of ASOC’s approach to investigation and enforcement.
“While ASIC tries to deflect criticism that it is a weak corporate regulator by promoting its recent enforcement actions, the reality remains that corporate law is underenforced in Australia,” it said.
“ASIC’s response to most reports of alleged misconduct is to take no further action and only a fraction of reports are investigated. For the matters where ASIC proceeds to take enforcement action, the civil penalties imposed are often at odds with the scale of the offending, and few criminal sanctions are achieved. Further, ASIC’s investigation and enforcement decisions are opaque and difficult to scrutinise.
“Evidence to this inquiry has made clear the deep flaws in ASIC’s approach to investigation and enforcement. Too often, ASIC fails to respond to early warnings of corporate misconduct and does not routinely use the full extent of its powers to achieve strong enforcement outcomes. This approach fails to deliver justice to the victims of corporate crimes, undermines economic productivity and does not deter future poor behaviour.
“ASIC’s success rests on it having the right remit and powers, the right people and resources and the right governance and oversight arrangements. These factors have fallen out of balance. As a result, ASIC’s capacity to respond to corporate misconduct is now compromised by significant structural, resourcing and cultural issues.”
By not taking a proactive approach to investigation, ASIC prolonged the harm of misconduct to consumers and investors, and this was “compounded by the information asymmetry that is created when ASIC receives information on potential misconduct but consumers and investors remain unaware of the potential risks”.
The report stated that when ASIC did investigate, the process could be marred by delay and inefficiency.
“The committee heard instances where investigations took inordinately long to finalise, sometimes even years. In other cases, ASIC failed to follow up information from key individuals, lacked mechanisms to share information between internal teams and even appears to have lost information,” it said.
The report’s first recommendation was the Federal Government “recognise that the Australian Securities and Investments Commission has comprehensively failed to fulfil its regulatory remit”.
It stated the Commission’s remit was too broad for it to be efficient and effective, and suggested the government strongly consider separating its functions between a companies regulator and a financial conduct authority.
Other recommendations included that the government:
- urgently address the shortcomings in the system for handling reports of alleged misconduct;
- mandate a high level of transparency of investigation and enforcement outcomes, to include a searchable public register and a public reporting framework;
- consider amending the whistleblower protection provisions in the Corporations Act 2001 (Cth) to include pecuniary incentives and compensation;
- adopt a new governance structure and legislated code of conduct for ASIC or alternative regulatory bodies; and
- provide more funding and resources to ASIC or any alternative regulatory authority.
The inquiry was announced in October 2022, and received more than 200 submissions by the February 2023 deadline.
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