ASIC critics back right of ASIC to capitalise on its wins

The corporate regulator should be able to bank any winnings it gets from its successful litigation, according to experts.

ASIC’s Tim Mullaly and Joe Longo. Picture: Jane Dempster

A regulatory expert says Australia’s corporate regulator should be empowered to “catch what you kill” and take a slice of any fines and penalties it meted out as part of any efforts to improve its results.

Veteran regulator Michael Taylor, who proposed a shake-up of the UK’s financial regulation scheme in 1995 almost two decades before it happened, said the Australian Securities and Investments Commission should be rewarded for its wins.

Mr Taylor, who has held key roles in several regulatory agencies, the Bank of England, and the International Monetary Fund, said ASIC should be able to keep its winnings to bankroll legal action. He said this cost recovery process would provide the regulator “with additional resources without having to go through general taxation”.

Mr Taylor said an eat-what-you-kill model made sense if ASIC and informants could get a share of profits.

This comes in the wake of the latest review into the regulator, after Liberal senator Andrew Bragg handed down a review into ASIC’s investigation and enforcement record in July.

ASIC is responsible for enforcing many of Australia’s laws around business and finance.

As part of 11 recommendations, Senator Bragg said ASIC should be empowered to source a greater level of its funding from regulatory fines, including late fees, court fines, penalties and infringement notices.

He also called for a bounty system to be introduced for whistleblowers, incentivising them to make disclosures “where addressing the misconduct would result in a significant public benefit”.

Liberal Senator Andrew Bragg. Picture: Martin Ollman

However, Senator Bragg said he wanted whistleblower incentives to be extended across the country’s law enforcement framework. “It will depend on which agency they were engaging with, which law enforcement agency had jurisdiction. This is a bigger than ASIC,” he said.

ASIC is currently funded through industry levies and funds from consolidated revenue through the federal government.

The regulator’s most recent industry funding summary reveals the regulator was handed $426m in revenue in 2022-23, raising a further $32m in revenues.

The US Securities and Exchange Commission received $US2.59bn ($3.92bn) in total funding last year. The enforcement agency boasts more than 4600 staff.

ASIC was handed a further $200m over the forward estimates in the May budget across a variety of programs, but the regulator is angling for further funding to bankroll court actions amid criticism of its enforcement record.

ASIC deputy chair Sarah Court noted in June that further funding for the regulator’s court action could be “revenue neutral” for the government, with fines flowing into consolidated revenue.

But Mr Taylor said further funding or allowing ASIC to bank its winnings required a cultural change at the regulator.

“It comes down to the style and culture you’re trying to create, they need to take risks,” he said.

“There’s a management issue, ASIC needs to have people who are willing to take a bit of risk.

“A lot of people end up in the regulatory profession because they are risk averse.”

A potential removal of enforcement functions from ASIC was mooted in 2018, when the regulator conducted an internal enforcement review.

However, the regulator instead moved to establish a separate office of enforcement within ASIC.

Mr Taylor said instead of pulling enforcement out of ASIC it may be better to “structure the agencies around clearer objectives”. “If your job is to protect customers of financial services, which is really what ASIC ought to be in the business of doing, then you need an enforcement function within that,” he said.

“Keeping enforcement in-house matters because it matters how you treat it.

“Putting those functions out to another agency wouldn’t help. What you need is clarity of objective and management.”

University of Wollongong school of law senior lecturer Andy Schmulow said ASIC or any potential successor regulator needed a cultural shift, warning extra funding would not solve issues around its enforcement record.

Senator Bragg’s report canvassed a potential split of ASIC into two agencies, one which handled business administrations and liquidations, and registration, and another to deal with the country’s financial sector. Senator Bragg also called for a more aggressive US-style enforcement culture for ASIC, in line with the Securities and Exchange Commission.

Former ASIC chair James Shipton also backed a split to the regulator but noted any change in its shape or responsibilities “must be carefully designed”. Mr Schmulow said there was a “real risk you end up with the same culture if you split up ASIC as it is now”.

“You need to start with a clean slate and be very careful about who you appoint as the inaugural chair. You need to get them to build the right culture,” he said.

“We’ve also got a culture in ASIC which is not aggressive.”