As any business journalist knows, the ASIC search is the lifeblood of transparency and accountability in corporate Australia.
There are 2 million companies in Australia. Only 2000 of those are listed on the ASX and subject to continuous disclosure obligations. For the rest, we are reliant on the reporting requirements set out in the corporations law, which establishes the national companies register administered by the corporate regulator, the Australian Securities and Investments Commission, and spells out who must file what.
It is absolutely vital to be able to discover who a company’s shareholders and directors are and, in the case of public companies, access financial details in annual returns (however late they’ve been filed), loans and offer documents.
Unfortunately, searching ASIC’s companies register is also hugely expensive, and the cost will only increase if the companies register is sold off, as was proposed in last week’s federal budget.
As widely flagged, the government set aside $12 million for scoping studies into the privatisation of the Defence Housing Authority, the Mint, Australian Hearing and the registry function of ASIC. The idea has been canvassed since chairman Greg Medcraft described the registry as a “technology business” that could be hived off without any impact on ASIC’s regulatory responsibilities.
The graph below shows ASIC’s registry business has enjoyed explosive growth over the last 20 years, pulling in revenue of some $680 million in 2012-13, of which about half was generated by the $232 annual fee all companies have to pay, year-in, year-out. Prices are recommended by ASIC but set by the government, and bear absolutely no relation to the $142 million cost of administration …
Revenue and costs — companies, business names and searches 1991-2013 (nominal terms)
Money raised goes straight into consolidated revenue and cross-subsidises the rest of ASIC — particularly, exercise of its financial services responsibilities — and other government services. This model has been attacked by the International Monetary Fund. ASIC wants to shift to a user-pays funding model so that fees and charges are priced according to the need — in effect, creating an incentive to self-regulation.
What the ASIC registry is worth depends on the model used for privatisation, including which functions the government sells, what cost structure goes with them, and how fees and charges will be set — will increases be capped to inflation, for example? So far we’ve seen estimates the sale of the registry business could raise $1 billion (admittedly, that was pre-budget), $3 billion to $4 billion and $6 billion.
One model could be SAI Global, which was spun off from Standards Australia in 2003. Standards Australia retained a 40% stake, and SAI listed on the sharemarket with an exclusive 15-year licence to on-sell standards, with fee growth capped at CPI plus 2%, and a percentage royalty to maximise sales. SAI shares floated at $1.18 and, after acquisitions including Espreon Property, are now trading at $4.24, giving the company a market capitalisation of roughly $900 million.
It would be a big bite, but SAI could be a possible buyer of the ASIC registry if a trade sale rather than a public float were chosen, as could another ASIC broker, listed credit monitor Veda Advantage. Veda is now the best-performing IPO in the market, having jumped from $1.25 a share when floated last December to $2.27 now, valuing the company at roughly $2 billion. Veda aggregates data from ASIC, the Commonwealth’s Personal Property Securities Register, Land Titles agencies, Dun and Bradstreet, etc, to give a clear picture of all the securities that apply to a company.
There are important public interest questions here. ASIC’s registry is a natural monopoly — a single source of truth on Australian companies, the whole point of a register — and one protected by statute, which immediately raises alarm bells in any privatisation. Those fat 80% profit margins will never be subject to competition. It is a licence to print money.
Whether such a lucrative, permanent income stream is better held in public or private hands is a mathematical question depending partly on the initial price paid. Supporters of a float argue that the public purse benefits by crystallising the extra revenue a more entrepreneurial, privately owned ASIC register will generate from, not just collecting and on-selling raw company data, but aggregating it, analysing it and turning it into new products.
While corporate customers like the big banks are well able to pay for such services, the same is not true of impoverished media and community groups. A single search may not set you back much — typically between $20 and $50 — but bitter experience says repeated searching of multiple entities is almost always necessary to get to the bottom of anything. Last year, ASIC searches through information brokers or directly generated $58 million revenue — less than 10% of the total. For journalists it’s a tiresome business input cost, but it’s a travesty when victims of investment scams, for example, have to stump up yet more money — hundreds and hundreds of dollars — to find out who has ripped them off.
Members of the government, including Communications Minister Malcolm Turnbull, have questioned the wisdom of locking public information behind a paywall, and Liberal MP David Coleman raised the issue with ASIC as a member of the Corporations and Financial Services Committee. Commissioner Greg Tanzer told the committee in March that ASIC had 19 million free searches and 189,000 paid searches so far in 2013-14. Coleman asked the unanswerable question — how many people baulked at the cost of the paid searches? How much accountability are we missing out on?
COLEMAN: What about when you search something on an ASIC site — and I have done this myself — and you basically get to the point where it says: this is $50 or $100, do you want to go any further? … and you get to that point and you say you do not want to pay the $50 and you stop?
TANZER: If you did not pay the $50, that is counted as a free search.
COLEMAN: That is probably not the greatest statistic then, because — again, I am speaking from experience — over the years I have searched the ASIC website for lots of things and you might get to a point where you are asked to pay and you just stop the process, because it is a sufficient disincentive that you are not going to pay the $50 or whatever it is.
Coleman was bang on. ASIC searches should be free, as comparable searches are in the United States. Privatising the ASIC register cash cow as it is will only entrench a distortion in the market that should be removed, not sold off at top dollar to a bunch of private investors who are only going to raise prices further — to the detriment of transparency and corporate accountability.