New goal and protection from politics needed for regulators

A leading regulatory expert says any attempt to evaluate the corporate regulator’s structure must acknowledge its remit is already too wide and responsibilities too broad.

ASIC chairman Joe Longo. Picture: David Geraghty

Any attempt to evaluate the corporate regulator’s structure must acknowledge its remit is already too wide and responsibilities too broad, a leading governance academic says.

University of Wollongong senior law lecturer Andrew Schmulow said attempts to review the Australian Securities & Investments Commission must acknowledge it was not working as intended.

Dr Schmulow said ASIC faced a complex set of enforcement priorities and needed to be insulated from government interference.

This comes as former ASIC chair James Shipton, writing in The Australian on Monday, called for a new regulatory framework for the nation’s economic watchdogs.

Mr Shipton said regulators were being held to disparate and ad-hoc standards that saw them fail to set clear goals or assess past performance.

Mr Shipton proposed a new model that would assess separate elements of an agency before taking a broader view to determine whether a regulator “is deficient in capability, capacity or coverage”. He added that this model could apply to ASIC, Austrac, ACCC or APRA.

But Dr Schmulow said a simpler test should be used, which determined whether all economic regulators were ensuring the financial sector “serves the community, not the other way around”.

“It will cover sustainability, all things APRA is supposed to do, it will cover capacity rates, it speaks to the goal of industry serving the community,” he said.

“In ASIC, for example, it could evidence the number of successful prosecutions against large entities, the amount of fines for misconduct, and independent surveys tracking consumer sentiment, with evidence in those surveys that wellbeing is rising and misconduct in the market is ­declining.”

Former ASIC chairman James Shipton. Picture: Aaron Francis

Dr Schmulow said ASIC should become the regulator of consumer financial wellbeing.

He said ASIC needed to step away from “old-style” regulation and detail positive duties to corporate Australia.

“ASIC is going to have to become the regulator in that space,” he said.

Dr Schmulow said setting a better framework for assessing regulators didn’t address their sprawling areas of concern or evaluate internal culture.

“It’s questionable whether anyone can say with certainty everything what ASIC is supposed to do; its remit is so wide and in my view so demonstrably unmanageable,” he said.

“I think it’s probably doubtful to be able to say with absolute certainty or to give a list off the top of your head everything ASIC is supposed to do.”

Parliament is preparing to publish an array of submissions made to a Senate inquiry seeking to examine the regulator’s capacity and capability to respond to reports of alleged misconduct.

In his submission, Mr Shipton noted current employment rules for ASIC commissioners were unworkable, saying they did not directly report to the regulator’s chair and left the roles open to ­politicisation.

Dr Schmulow said he thought it would be better if ASIC and APRA commissioners were appointed to set six-year roles.

“The term is limited and there’s a very clear direction to each what they’re supposed to achieve,” he said.

“They can’t be fired, other than for misconduct. They have nothing to lose and protection from the government.”

Dr Schmulow said ASIC was open to political interference, under its current model, which allowed governments to lean on the regulator to pull back enforcement.

Former treasurer Josh Frydenberg issued ASIC with a statement of expectations that told the regulator “to support Australia’s economic recovery from the Covid pandemic”.

But Dr Schmulow said this led to ASIC pulling back on responsible lending enforcement, allowing a build-up of inappropriate loans.