A Glimpse Of The ASIC Influencers (Text Only)

Keep ASIC reviews at arm's length from vested interests

by Adele Ferguson, Nov 1st 2015.

Almost 18 months after a damning Senate report into the performance of ASIC, three separate reviews are under way, with varying concerns about the lack of transparency and political motivations.

The recommendations of at least two of the three reviews are expected to be timed to tie in with two key appointments next year. Commissioner Greg Tanzer's term expires in March and ASIC chairman Greg Medcraft's term is up in May.

Medcraft, an appointee of the former Labor government, attracted a lot of heat when he described Australia as "a bit of a paradise for white-collar crime" during a Q&A session with me last year at a Walkley Foundation lunch.

Not surprisingly, Medcraft's comments hit the headlines and angered his political masters, most notably Senator Mathias Cormann, who, at the time was trying to wind back the future of financial advice (FOFA) legislation amid some high-profile financial planning scandals.

Medcraft was pushing for stronger penalties in civil cases to bring the country into step with the rest of the world. He also wanted a new user-pays funding model to better resource the regulator after savage budget cuts.

'TIMID' REGULATOR

ASIC is far from perfect. The Senate inquiry into its performance found many faults, not least that it was a "timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC's concerns or intervention."

Since the senate report, ASIC has been subject to a number of reviews, including the Murray Inquiry, a capability review, a review into its funding model, and more lately a review into its powers.

It has got to the point where there are reviews being conducted into the reviews, which chews up time and delays change.

Little wonder some stakeholders are feeling "ASIC-review fatigue" and questioning why some of the reviews are being conducted separately instead of together.

It is a valid point as it raises questions about the knock-on effect of the findings of each review. For instance, if the capability review is scathing of ASIC and calls for new leadership and structure, will it derail the funding model proposal? If so, where does that leave ASIC given its budget has been slashed by the federal government?

Having a strong regulator is vital for a functioning economy. It brings integrity and stability to the system and provides a buffer for consumers against misconduct. The regulator needs to be well resourced, independent and have the right powers to instil fear into wrongdoers.

It is why these reviews need to be conducted transparently. They have the power to profoundly change the regulator. If they become hostage to strong vested interests that want a regulator that suits their commercial business models, the outcome will be disastrous.

The government's "capability review" into ASIC is an important review as it has been asked to make sure "ASIC has the appropriate governance, capabilities and systems to meet these objectives and future regulatory challenges". Its terms of reference include "assessing the skills, capabilities and culture of the regulator and its staff, including in respect of internal review and improvement mechanisms".

However, it is attracting criticism on a number of fronts. The panel is composed of three members, which limits the extent of the expertise. It has no consumer representatives and little capital markets experience.

The head of the panel, Karen Chester is married to former ASIC commissioner Peter Boxall who resigned six months after Medcraft was appointed chairman, while the other panel members include Mark Gray, the former Queensland Treasury chief executive and adjunct professor of economics at Queensland University and Madgwicks Lawyers partner David Galbally.

In addition, the review is not being undertaken by the Australian Public Service Commission, which is typically tasked with this type of oversight.There are no public hearings and submissions have been kept secret, along with the organisations that have lodged them. There is no public insight into what the panel is thinking. For this reason it needs to release an interim report. ASIC's role is too important to have a panel release a final report that is fait accompli.

Indeed, when the panel was set up it is understood that various peak bodies were told they didn't need to lodge a submission as the panel was looking at previous submissions.

As one stakeholder said, it didn't instil encouragement to make a submission, so he didn't.

Nevertheless, the panel had been meeting peak bodies, consumer groups and others to discuss the regulator.

SCANT CONSULTATION

From ASIC's perspective there has been scant consultation, which makes some insiders sceptical about its motives and whether it is being conducted more like an audit than a review.

Indeed, some believe the findings of the review will be used to support a push to replace the current commissioner structure with a board of executive and non executive members with industry expertise. Others believe it will be used to strip ASIC of its consumer-protection powers.

Interestingly, the terms of reference are narrowly focused on organisational governance and resource allocation. In a statement by the government when it was first announced, it said the panel could provide observations but not recommendations on ASIC's regulatory framework and powers.

The Australian Institute of Superannuation Trustees (AIST) said in a submission that while it supports the review it believes combining it with the funding review would have made more sense. "We fail to understand how resources can be appropriately prioritised, if financial resources themselves are being reviewed separately. Such an aggregation of issues would also be in line with the OECD's Best Practice Principles for Regulatory Policy," the AIST says.

The funding model review is also raising concerns, for different reasons. The user-pays funding model, the brainchild of Medcraft and recommended in the Murray Inquiry, if done correctly, should benefit the regulator by making it better resourced.

Yet it has attracted strong criticism from a cross section of peak bodies and vested interests. It will be interesting to see if it gets up.

Whatever the case, at least it is being debated publicly.

When it comes to the third review, beefing up the product intervention powers of ASIC to allow it to ban or intervene in "unsuitable" products, the government has agreed to consult with industry until mid 2016.

How much these powers are increased will rest on the outcomes of the other two reviews. One thing's for sure, the lobbyists will be out in full force to make sure powers to intervene will be watered down as much as possible.

ASIC has been operating in its current form for more than 20 years and so it was time for a thorough review of how it is going, particularly given the criticism it attracted from its handling of the CBA financial planning scandal.

It was a bruising experience and ASIC has done a lot soul-searching to lift its game. This includes releasing an eight-point plan to improve its capabilities, without additional funding. The capability review panel should study them because they make a lot of sense.

Australia's civil penalties are a joke. They don't act as a deterrent, yet the government continues to dilly-dally about fixing them. If the various scandals taught us anything it is that it is time to take a hard line – transparently and without political motivations that might be interpreted as the government buckling to the will of lobbyists at the expense of consumers. What we can't afford is strong vested interests hijacking the reviews to achieve change that might not enhance ASIC's operations and performance.