ASIC break-up needed to improve enforcement, stamp out wrongdoing, says Senate report

A radical separation of ASIC would improve its flawed approach as the regulator has ‘comprehensively failed’ to clamp down on corporate wrongdoing, a Senate committee report says.

ASIC chair Joe Longo and, inset, Senator Andrew Bragg.

A radical break-up of the Australian Securities & Investments Commission would go some way to improving its flawed approach, with the regulator having “comprehensively failed” in its duties including effectively clamping down on corporate wrongdoing.

That’s the view conveyed in a scathing report by the Senate Economics Committee into ASIC’s key investigation and enforcement functions. It makes 11 sweeping recommendations and calls for the federal government to consider splitting up the regulator to ensure it can better deal with a narrower remit.

The Senate economics committee is chaired by Liberal senator Andrew Bragg, who has been a fierce critic of ASIC’s enforcement activities and spearheaded the report. Labor’s committee members, however, rebutted some of its findings and recommendations, saying the report “lacks detail on any potential model” for splitting ASIC.

Labor said its committee members were given just 24 hours to assess Mr Bragg’s report and its recommendations, but they agreed there was “opportunity for improvement” in ASIC’s operations. Labor did not provide a dissenting report.

The 226-page committee document concluded that ASIC was plagued by structural, resourcing and cultural issues and called for it to be split into a companies regulator and a separate financial conduct authority. It labelled ASIC’s regulatory universe as “too broad” with the report suggesting that resulted in just a small proportion of alleged misconduct leading to enforcement action.

“Over the last 20 months, the committee has uncovered the dire state of ASIC: an organisation without transparency, few prosecutions, and a litany of cultural, structural and governance issues,” Senator Bragg said on Wednesday. He added that splitting ASIC into two standalone bodies would provide “a more coherent and consistent approach” to corporate regulation and law enforcement.

The committee’s document follows the Hayne royal commission’s final report in 2019 which called for a number of changes to the regulatory landscape, including greater co-operation between ASIC and the Australian Prudential Regulation Authority and that both regulators be subjected to at least quadrennial capability reviews.

The royal commission highlighted that domestic regulators including ASIC often had relationships with industry players that were too cosy.

Almost 200 submissions were made to the Senate economics committee inquiry, while some 12 supplementary submissions were also lodged. Five public hearings were held in Canberra to flesh out topics of interest.

The final document found that in the decade to 2021-22, ASIC received some 236,000 reports of alleged misconduct. It said, however, that despite misconduct reports “often containing serious allegations of unlawful conduct”, ASIC took no further action in 66 per cent of reports received from the public in 2021–22.

“ASIC has substantial powers to enforce corporate law. Nonetheless, only a small proportion of alleged misconduct reported to ASIC results in enforcement action,” the report said.

“There are several options to focus ASIC’s remit, including civil enforcement functions and prosecutions being administered by entities separate to ASIC. Additionally, dedicated responsibility for consumer protection in financial services could be administered by an agency focused on the retail market.”

On Wednesday, an ASIC spokesman hit back at the report, saying: “Throughout the inquiry we have shared our strong enforcement record on behalf of Australian consumers and investors. ASIC is in court almost every day pursuing wrongdoing and in the last 12 months alone launched around 180 new investigations.

“We note the release of the chair’s report, dissenting commentary from the deputy chair, and the Treasurer’s comments about it this week. ASIC will take time to consider the report.”

Treasurer Jim Chalmers earlier this week said he feared the committee’s report might be “heavily partisan” rather than an effort to get to the bottom of issues at ASIC.

University of Sydney Law School professor Jason Harris said he supported a structural overhaul of ASIC, including increased accountability and data transparency at the regulator.

“Something serious and fundamental has to change with ASIC. The public is entitled to expect better performance on a more consistent basis,” he added. “They have to completely change the way they look at the broad range of contravening conduct and illegality.”

Mr Harris also noted cultural issues at ASIC. “There does clearly seem to be something very rotten inside the corporate regulator and ASIC is very keen to shield that from the public’s view.”

Earlier this year, Senator Bragg took aim at Australia’s twin-peaks model of regulation and called for another financial system inquiry.

A further recommendation in Wednesday’s report was for a legislative requirement for ASIC or future regulatory authorities to mandate the investigation of reports of alleged misconduct at “an appropriate rate”.

The inquiry’s report referenced the disastrous sharemarket listing of Nuix and the collapse of Dixon Advisory, prompting Senator Bragg to say that ASIC’s failures in those matters had “facilitated continued corporate misconduct”.

The report noted ASIC initiated civil proceedings against Dixon for a range of issues related to its demise, including the failure to act in the customers’ best interest.

Following Dixon calling in administrators and leaving customers irate, it took ASIC two years to settle its case, and the company was penalised $7.2m. The report noted ASIC’s comments that the fine was unlikely to ever be paid and also that no criminal charges had been laid in relation to Dixon, despite total claims in the case exceeding $386m.

Last year, three years after its initial action, ASIC kicked off civil proceedings against a former Dixon director for alleged breaches of directors’ duties, in a case that is continuing.

The report compared the lengthy enforcement action by ASIC to that taken in the US against FTX’s Samuel Bankman-Fried for securities fraud following the collapse of his crypto trading firm. That action spanned a year and a half and resulted in a 25-year prison sentence.

The Senate committee also recommended consideration of amendments to whistleblower protection provisions in the Corporations Act 2001, that would include compensation and financial incentives for those making important disclosures.

Originally published as ASIC break-up needed to improve enforcement, stamp out wrongdoing, says Senate report