Opinion: Watchdog underwhelms with call for greater powers

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ASIC has defended its role as a corporate watchdog and said it needs more powers in order to do its job properly. Charis Palmer, news editor at The Conversation, explains:

The Australian Securities and Investments Commission has called for more powers, including a broadening of the definition of “whistleblower”, in a paper defending its role as the corporate watchdog.

ASIC’s final submission to the Senate inquiry investigating its performance responds to criticisms raised in many of the 214 submissions so far submitted to the inquiry.

The criticisms have included that ASIC did not take action to head off issues related to “low doc” loans, popular before the global financial crisis; that it does not adequately respond to consumers; that it is captive to industry, and is not being held accountable.

Macquarie University corporate governance lecturer Michael Quilter called ASIC’s third and 200-page long submission to the inquiry the “biggest regulator CV ever”.

“The problem for ASIC is in part a perception issue - as the character of its prosecutions stand, it puts lots of resources into basically punishing a few individuals, and pretty light punishment at that. There is an imbalance between resource allocation and outcome effect. This is what plays in the media and conditions negative responses to ASIC.”

In its submission, the regulator wrote it was proud of its performance track record, citing the performance of the financial system during the global financial crisis, and Australia’s reputation for safe, stable and well-regulated financial markets.

But in order for it to improve its effectiveness, ASIC suggested changes to training and compliance requirements in the financial services industry, the expansion of the definition of whistleblower in the Corporations Act, a review of criminal and civil penalties, and a higher bar to entry for businesses and individuals seeking a financial services or credit license.

The definition of a “whistleblower” should be expanded to include a company’s former employees, financial services providers, accountants and auditors, unpaid workers and business partners, according to ASIC, which argued current corporate whistleblower protections in the Corporations Act were out of step with commonly held expectations about their scope and coverage.

However AJ Brown, Professor of Public Policy and Law at Griffith University’s Centre for Governance and Public Policy, said the whistleblower protections suggested by ASIC were “seriously defective” and a “pale shadow” of what was needed for whistleblower protection measures applying to the corporate sector.

Professor Brown said a review into whistleblower provisions kicked off by the then Attorney General Robert McClelland in 2009 had never been concluded, but even that review covered a greater list of issues than ASIC’s current suggestions.

“It fails to deal with policy confusion that we think exists at a Commonwealth level as to what the scope of the wrongdoing is that whistleblowers would be able to report and get protection for,” Professor Brown said.

“It’s still totally unclear what breaches of the Corporations Act or matters within ASIC’s jurisdiction might mean in terms of the type of actual wrongdoing that could be disclosed.”

Professor Brown said whistleblower protections also needed to be expanded to protect people who blew the whistle anonymously.

The regulator wants financial advisers to have to pass a new national exam before being able to give advice, as well as new powers to deal with “bad apple” advisers via mandatory reference checking.

ASIC has also called for a review of criminal and civil penalties, which it said had not been done for over a decade, with penalties often failing to meet community expectations. It has also asked for a general power to issue search warrants, and argued its current powers were leading to inefficiencies and delays.

Mr Quilter said the Corporations Act needed to start treating the greed in the corporate world as seriously as greed or crime generally.

“For instance a prominent director, who is convicted of breaching the criminal penalty provisions of the Corporations Act may serve only a couple of years in prison. However the outcome of their conduct is not simply a break and enter into one home but more like a break and enter into thousands, for which the penalty seems weak.”

He added that ASIC should have sought reviews of penalties sooner.

The Conversation

This article was originally published at The Conversation. Read the original article.

  • Innocent Observer on 9/11/2013 2:50:05 PM

    @GAB, I think the exam is a thought bubble that doesn't actually serve the cause (improved consumer protection, compliance). After all, it's not that "bad apple" advisers don't know how to do the right thing, it's just that they decide it's easier (more profitable or whatever) not to do the right thing. Sounds like it's a publicity stunt at best. If they did roll it out I suppose they could run it online or as a part of an annual audit questionnaire.

  • GAB on 8/11/2013 12:15:20 PM

    I can only assume the national exam they are proposing will cause more admin headaches for dealer groups and ASIC to chase up people who didn't do it that should have. I hope all our compliance and expert consultants have to do the exam also, given they are advising us what to do all the time.

  • James Howarth on 8/11/2013 10:59:04 AM

    I have a masters of applied finance and a law degree.

    I do work in the industry and I think ASIC is a waste of resources. Not just ASIC but all the stupid compliance regulations and dealer group fees are too high a cost for the benefit.

    Clearly Innocent Observer you're afraid to post under your real name and I bet I know your name and your role at ASIC.

    Thanks Warren.

  • James Howarth on 8/11/2013 10:55:44 AM

    Products should be regulated, advice should be liberated.

    "Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government." --Milton Friedman

  • Innocent Observer on 7/11/2013 12:49:38 PM

    James, clearly you don't work in the industry as your comments are ignorant.

    Your claim that "non bank owned dealer groups only exit strategy is to sell to the banks, therefore dealer group(s) should be removed from the system" kind of gives us an idea of your level of knowledge of the sector.

    For whatever reason you seem to think that there is a conspiracy between ASIC and "the banks". Get a grip. Whether or not a business (in this case you're targeting the banks) decides to operate under a vertically integrated model does not mean that they are not providing good advice. Sure their advisers may have a more restricted APL to work from, but as I mentioned before this is also not such a bad thing. Think of it this way: if you were advising the banks on strategy, what would you recommend? Vertically integrated? Have each branch manager and run their own license and APL?

    As for your final point that "ASIC licenses are a waste of time", and "criminals still operate without a license and ASIC does not prevent loss to the consumer". I agree, to the extent that I think we should get rid of the police force because crime still occurs.

    Personally I believe there is too much red tape. It's a headache at times. But I prefer to work through the pain, dotting my i's and crossing my t's, than to scrap all regulation.

    (and by the way, if you think that ASIC has played no role in reducing loss to consumers you are clearly delusional. Bring it back to the article itself: they want more power to enforce their powers)

    *I don't work for a bank or ASIC.

  • James Howarth on 6/11/2013 4:35:02 PM

    own and run direct license?

    My point was ASIC licenses are a waste of time.

    Criminals still operate without a license and ASIC does not prevent loss to the consumer

  • James Howarth on 6/11/2013 4:32:43 PM

    The eveidenc of ASIC being complicit in conflicted advice.

    85% (ASIC stat) of bank based advice is placed in the owner of the banks products. This is conflicted we all agree.

    All large dealer groups are bank owned. All non bank owned dealer groups only exit strategy is to sell to banks, therefore dealer group should be removed from the system. Therefore the use of dealer groups by ASIC, for industry monitoring is complicit in the conflicted advice.

    ASIC is the problem not the solution, when it comes to conflicted advice.

  • Innocent Observer on 6/11/2013 1:01:17 PM

    Settle down James.

    ASIC's biggest problem is that it's under-resourced (staff in particular) and they don't have the prosecution powers needed to disincentives the less scrupulous operators. Basically they're hamstrung.

    As this article discusses, ASIC want greater powers. Personally I think we (as a law-obeying nation) should give it to them.

    As for the claim they're complicit on account of a private company's market share or profitability and their business decision to run a vertically integrated advice business....well that's a pretty ridiculous accusation (unless you have some particular evidence we should all know of?). Also it's worth pointing out that the value of advice is the sum of all parts of that "advice". "Product" advice constitutes only a small part of what most advisers do; spending a dollar or two extra because it's a bank-aligned product does not mean the advice is "bad". And having a more restrictive APL isn't such a bad thing (the "longer the leash" the more room there is for advisers to "go rogue" with their portfolios).

    And finally, re: dealer groups. Get a grip. Clearly you have never run a (compliant) business in this sector, and have very little idea of what a dealer group actually does. Scrapping dealer groups and forcing everyone to own and run direct licenses would INCREASE the bank's market share.

  • James Howarth on 4/11/2013 6:45:56 PM

    Commonwealth bank is the worlds most profitable bank. If they struggle with ASIC regulation, everyone else must also be overburdened.

  • James Howarth on 4/11/2013 6:44:59 PM

    ASIC is quite clearly useless at prevention of loss and only mops up the mess afterward.

    ASIC is complicit in conflicted advice beacuse all large dealer groups end up bank owned and ASIC's own statistics suggest 85% of bank based advice is into their own products.

    Dealer groups should be removed from the system in favour of direct adviser licensing or ASIC should only regulate products and advice should be liberated from ASIC.

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

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