“Exercising ASIC’s responsibilities needs to be done better and it needs to be done differently,” the Senate Economics Committee has said in a new report about the Australian Securities & Investments Commission (ASIC).
In the report, the committee criticises ASIC for having too broad a remit for it to be an effective and efficient authority. The Commission was also heavily criticised for its approach to investigation and enforcement, and the committee said that it has observed “deep flaws” where ASIC consistently fails to prosecute offenders and “litigates relatively few matters through the courts.”
Actions against the most serious cases for prosecution were also found to be decreasing. In 2022–23, 41 referrals were made to the Commonwealth Department of Prosecutions – down from 86 in 2018–19.
Lack of action
The committee also found disappointing the fact that ASIC’s response to most reports of alleged misconduct is to ‘take no further action.’
“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.”
“It is difficult to accept ASIC’s contention that some of its functions would not be better administered by other entities.”
The Senate Economics Committee
The committee claimed that the ASIC’s approach undermines economic productivity, fails to serve justice to the victims of crimes, and does not deter future bad behavior.
“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.”
“Countless Australians have been hurt by ASIC’s consistent failure to investigate and deter corporate crime,” Andrew Bragg, the committee chair and Liberal senator, added. “It is clear ASIC has failed.”
Splitting ASIC in two
The committee has made 11 recommendations for a new corporate and financial regulatory structure – the main recommendation being to split ASIC into two bodies, one focused on companies and the other on financial services enforcement.
“Separating this broad remit into two individual bodies will provide a more coherent and consistent approach to corporate regulation and law enforcement,” Bragg said.
“ASIC conceded during the Inquiry that its ‘very wide remit’ impacts its approach to regulatory activity.”
“Countless Australians have been hurt by ASIC’s consistent failure to investigate and deter corporate crime. It is clear ASIC has failed.”
Andrew Bragg, Chair, Senate Economics Committee
Besides suggesting ways to improve on investigation enforcement outcomes, the committee has also set out measures that it believes will improve governance and outlined how investigations and findings could be more publicly transparent. One suggestion is to establish a searchable register of civil or criminal outcomes.
It also wants to see a change to the whistleblower protection provisions in the Corporations Act 2001, so that whistleblowers who make a substantiated disclosure are financially rewarded for information and assistance.
Another key recommendation is for the Australian Government to urgently address the shortcomings in the system for the handling reports of alleged corporate misconduct, and make it a legislative requirement for ASIC or other future authorities to use this in its investigations.
Toothless tiger
The criticism of ASIC’s approach to investigation and enforcement is nothing new and the Commission has often been labelled a ‘toothless tiger’ for its weak actions. In 2014 the committee sent over 60 recommendations to help the Commission improve its performance. Concerns have also been raised by many other parliamentary inquiries, government reports, academic works and in public discourse.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services has also been severely critical of ASIC’s enforcement approach pointing to instances where financial service providers were not being held to account for unlawful conduct.
ASIC was establishment in 1991, and successive governments have since then expanded its remit in response to the need to bolster corporate and financial regulation. It has undergone multiple organizational restructures, and has been granted significant budget increases by the Australian Government.
ASIC’s budget increased from A$607m ($410m) in 2016–2017 to A$861m ($582m) in 2021–2022, and staff numbers grew from 1,640 to 1,947.
According to the committee that financial boost has not led to improvements in performance.
“It is difficult to accept ASIC’s contention that some of its functions would not be better administered by other entities,” the committee report stated. “It appears that the scope and complexity of ASIC’s remit has outgrown its abilities and it is time to consider other models, or even new entities, to administer these parts of Australia’s law.”
Chair Longo spoke of increasing actions
ASIC has not responded to the report. But, on June 14, Chair Joe Longo made an opening statement at the Parliamentary Joint Committee on Corporations and Financial Services, Oversight of ASIC, the Takeovers Panel and the Corporations Legislation where he spoke about ASIC’s enforcement work during the last 12 months. He said that this has increased in some areas, including:
- commencing over 130 new investigations – an increase of around 25% compared with the year before;
- filing 29 new civil proceedings in the Federal Court against 64 defendants – an increase of 11% in civil proceedings; and
- having investigations leading to 23 individuals being charged by the CDPP for criminal offences with 16 convictions – with a total A$936,000 ($618,287) in fines ordered by the courts.
“Our enforcement outcomes are strong – our record shows that ASIC is securing materially higher penalties than it did a decade ago,” Longo said.
