Former ASIC chair James Shipton calls for new framework for Australia’s regulators

Performance tests for regulators must be seriously reformed, with former ASIC chair James Shipton warning reviews often focus on the wrong things in evaluating effectiveness.

Former ASIC chairman James Shipton, writing in The Australian, said assessment models for regulators must be reformed if governments are to better determine effectiveness. Picture: Aaron Francis

Performance tests for regulators must be seriously reformed, with former Australian Securities & Investments Commission chair James Shipton warning reviews often focus on the wrong things in evaluating effectiveness.

Writing in The Australian, Mr Shipton said regulators often held to differing standards across “ad hoc frameworks” that saw them fail to set long-term goals.

As a consequence of mission creep and muddy assessment models, a new framework for understanding regulatory effectiveness was needed, Mr Shipton said, revealing for the first time his views on how governments should assess enforcement ­agencies.

Mr Shipton said his “ROCCC” model, which reviewed regulatory objectives, capability, capacity and coverage, allowed separate elements of an agency to be scrutinised “before assessing them together”.

“Understanding each component identifies whether the regulator is deficient in capability, capacity or coverage,” he said. “It also provides a tool for strategy planning, by determining if existing goals are being met. This understanding also identifies possible ‘trade-offs’ of choosing different priorities over others that are effective – the regulator’s dilemma.”

It comes as ASIC prepares to face a parliamentary inquiry and chair Joe Longo finalises a plan to shake up its operating model.

Mr Shipton said the ROCCC model he developed in his position as senior fellow at the Melbourne School of Government, in consultation with several former regulators, offered a way to assess all kinds of regulators.

“The approach could be of use to key economic regulators like the ACCC, ASIC, APRA and Austrac, among others,” he said.

“Too often words like ‘capability’ are used interchangeably with ‘capacity’, ‘coverage’ and ‘effectiveness’; confusion results.”

ASIC chairman Joe Longo is in the process of finalising a plan to shake up its operating model. Picture: David Geraghty

Mr Shipton recently joined the debate surrounding ASIC, filing a submission to the Senate inquiry into ASIC’s capacity and capability to respond to reports of alleged misconduct.

The inquiry, chaired by Liberal senator Andrew Bragg, will scrutinise ASIC’s law enforcement record and capability.

Already ASIC has had several bruising parliamentary appearances, which revealed that deputy chair Karen Chester had faced an investigation into an alleged complaint about her behaviour, with no findings made.

This followed ructions at the top of ASIC in October 2020, which saw Mr Shipton and his deputy Daniel Crennan step aside after an Auditor-General’s report questioned payments made to them.

No adverse findings were made and Mr Shipton returned to the role in January 2021 before leaving the regulator in May that year.

Mr Shipton, who chaired ASIC between February 2018 and May 2021, has previously ventilated concerns that the regulator was asked to do too much with too little.

In his submission to the latest parliamentary inquiry into ASIC, Mr Shipton raises a series of issues about the way the regulator splits responsibilities and handles the employment of its commissioners.

Mr Shipton said regulators were too often subject to reviews “without reference to a stand-alone, objective methodology”, noting an objective framework is “urgently needed”.

“Moreover, the absence of a consistent framework inhibits meaningful comparisons of regulatory effectiveness across agencies,” he said.

“Instead, comparisons are often just snapshots.”

Mr Shipton said there was “no universally accepted regulatory effectiveness methodology” for determining whether a regulator was achieving its tasks, noting capability reviews often focused on whether a regulator can achieve its future objectives, not if they met their tasks.

“Not assessing past performance is an unfortunate omission, particularly for action-oriented regulators,” he said.

“Past performance is a key input for determining current effectiveness, and to inform strategic planning.”

Mr Shipton said it was now urgent that methodology be adopted as part of assessment models if they are to be “effective and credible”.

Previously a chief regulator at Hong Kong’s Securities and Futures Commission and later executive director at Harvard Law School’s International Financial Systems, Mr Shipton has a long history engaging with regulators on both sides of the fence.

The Financial Regulator Assessment Authority was introduced after the banking royal commission, which recommended an agency be established to assess ASIC and the Australian Prudential Regulatory Authority. The FRAA wrapped up a review into ASIC in August last year, while its review into APRA remains ongoing.