Are rogue advisers slipping through ASIC's net?

by |

ASIC lacks the resources to adequately oversee the financial advice market and catch the scammers and rogue advisers who are flouting the rules and putting investor funds at risk.

According to a recent report by the International Monetary Fund (IMF), this is just one of the consequences of ASIC underfunding, with market meltdowns being another potential outcome.

IMF observations included:

 

  • There is a high level of compliance with the International Organization of Securities Commissions (IOSCO) Principles, but a few remaining concerns need to be resolved. ASIC operational independence and sufficiency of resources are overarching concerns which impair its ability to discharge its supervisory functions adequately and effectively across the entire regulated population. 
  • Improvements are needed in the capital adequacy requirements to improve the manner they address the risks to which various types of intermediaries are subject.
  • There seems to be a need to assess whether the current regulatory structure is best suited to respond to the present and future challenges. 
  • ASIC is an enforcement focused regulator. It is less focused on ongoing, proactive supervision, which is an area that requires increased attention to complement the current enforcement efforts and to add to their deterrent effect.
  • The regulatory framework and supervisory practices for collective investment schemes need to be improved to comply with the IOSCO Principles.
  • Banking, insurance, and securities regulators both in Australia and globally continue to face significant regulatory challenges in the increasingly complex markets.

According to a Fairfax report, the government has taken the IMF’s criticism on board, labelling it as “tough, but fair”, but has stopped short of offering more money to the corporate regulator.

The IMF report’s findings come in the wake of ASIC chairman Greg Medcraft’s admission that it is overstretched, and that Australia “gets what it pays for” in service. 

The comments came after the watchdog announced in a report that its financial advice surveillance team has one staff member for every 115 AFS licensees that are authorised to provide personal advice – and that it relies primarily on “reactive surveillances” to monitor 98.5% of these licensees.

“I think it is important people know we aren’t on every street corner. We would like to be but we’re not,” Medcraft told a parliamentary committee.

“The idea behind this [report] about our resourcing is to say you can have an ASIC at $350m and this is what you get, and you can have one at $250m and it actually shows the committee and the Australian public what you get with what you pay for.”

According to ASIC’s surveillance coverage of regulated populations in 2011–12 report, the regulator has a team of 29 employees who are charged with surveying the 3,343 Australian financial services (AFS) licensees that are authorised to provide personal advice.

It added that 3,293 of these licensees are monitored through “primarily reactive surveillances”.

Is ASIC understaffed? Have your say by commenting below.

More stories:

ASIC admits it's overstretched

How planners get banned: ASIC lifts lid on investigation techniques

  • Peter on 27/11/2012 10:28:58 AM

    What a joke - what about ASIC's regulation of the product providers including MIS? Many MIS products were just riddled with fraud from the beginning. And when they get caught? Nothing from ASIC at all. At least the ratings agencies are about to get their just desserts.

  • Alleycat on 30/11/2012 9:27:38 AM

    Dear Peter,
    When you say MIS products riddled with fraud, such a sweeping statement includes many projects that were listed in the top 200 on the ASX, had individual product rulings from the ATO and had ASIC sign off on their prospectus. Investment was encouraged by governments because they saw the export dollars coming back to Australia and the preservation of native forests.
    Whilst the management might have failed because of predatory action taken by banks and their instrument of destruction, the liquidator, the projects/investments continue to exist because someone from overseas saw the value in the MIS projects.
    When you make uninformed comments, you really need to be careful about your facts.
    In one case a liquidator it is alleged, charged $13m over for 4 months for his work, which is not too shabby if you can get it,for winding up projects. Who's money do you think that was and where did it come from?
    The issue at hand is that many good Accountants also saw the value in these MIS projects for their clients but you clearly know more than they do.
    It's not a good look to be critical and judgemental when you're ignorant of the facts.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions