May 21, 2018

We should abolish ASIC

ASIC can't be fixed -- it is the wrong regulator for a crucial job. Time for the ACCC to take over consumer finance regulation, Bernard Keane and Glenn Dyer write.

Bernard Keane and Glenn Dyer

Politics editor / Crikey business and media commentator

James Shipton

James Shipton should be the last chair of the Australian Securities and Investment Commission (ASIC), a regulator unfit for purpose, led by a man who simply doesn't seem to get it.

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39 thoughts on “We should abolish ASIC

  1. gjb

    Fair enough criticism, though he states he has only been in the job 3 months.
    If no criminal and civil penalties are commenced in the next 3 months throw the prick out.
    He needs to have his priorities reinforced for him, his beloved financial service sector is full of scammers and thieves… his job is to eliminate them and enforce bank/ financial services compliance to the regulations and law

  2. Ruv Draba

    Bernard, Glenn, I think your analysis has been superficial here.

    Actually to be blunt, I don’t see what analysis you’ve used: you didn’t supply any reasoning it all, and seem to be knee-jerking.

    ‘ASIC is wrong by design’ is a conjecture. It’s not hard to test, and the onus is on you to test it before flying off the handle toward possible solution. If ASIC is wrong by design, then by definition, the principle instrument for agency design is government legislation. Since you believe we have an example of a well-designed agency in ACCC, you need only show how how the legislation underpinning ASIC is weaker than that for ACCC, and explain why it’s inadequate for its current task. That diagnosis would offer two choices: amend the legislation, or shift responsibility to another agency through Machinery of Government as you suggested. A diligent analysis could corroborate your recommendation by showing that historically ASIC, has always been weak regardless of the government it has served, how it has been funded, or who staffed it.

    You have presented no such evidence.

    And regardless of whether we can find a problem with legislation, then there are four other possible reasons to consider:
    1. It’s poorly funded (I believe that to be true);
    2. It’s poorly staffed (I’m willing to believe that true);
    3. It’s poorly-equipped for case investigation (modern legal cases require first-rate electronic record-keeping and multidisciplinary collaboration; ASIC is not among the federal agencies known for that capacity) ; or
    5. It’s not located in a place suited to its work (much of ASIC is located in Traralgon, in the Latrobe Valley — an economic asset to the area, but miles from key places you’d want to visit to investigate suspected corporate malfeasance.)

    Any of these could offer alternatives that might refute your conjecture. You’ve tested and eliminated none of them.

    Finally, you haven’t tested whether ACCC would be a suitable home for any of ASIC’s responsibilities, or even stipulated the criteria by which you’d test that. Your magic arm-waving is worthy of some junior minister new to a portfolio, and the sort of thing you might criticise yourselves if a junior minister had kneejerked with as little evidence as you’ve collected.

    And sadly, most of the information you need as evidence is publicly available. You shouldn’t need readers to tell you to read and digest it before publishing unsubsantiated and potentially ignorant opinion. Your professional pride and journalistic ethics should have prompted you to do it first.

  3. kyle Hargraves

    All topics in politics have their own history. What ASIC is purported to regulate wasn’t considered as an issue until circa the latish 80s. Indeed, until about time “white collar crime” was not considered a big deal; indeed white-collar crime was deemed the perfect
    crime. Perspectives in this regard changed when in the last days of April 1982 the director of a company known as ‘Computicket’, that barely had a life of six months, was convicted of fraudulent activity that occasioned the collapse of the company. The conviction did require an interval of almost five years to secure. The prosecutation did have to prove “intention to defraud”. Mere incompetence, however gross, could not be
    considered as fraud. To this extend the “assumption” from the “big end of town” has been : “is an institution such as ASIC necessary (for professional people)”?

    For those irritated by the remarks of Shipton, viz., to “stand ready” it is open to the media to enquire just what the phrase “stand ready” is intended to imply or what actions, by ASIC, would be deemed to be sufficiently “corrective”.

    Let’s assume, for the moment, that we live in perfect world : would prosecutions necessary follow against the directors and the CEOs of the large finance houses that had been culpable in extracting fees from estates of the deceased or providing negligent or self-serving financial advice? These questions need to be addressed prior to messing about with either abolishing ASIC or constructing another such body in its place. I also tend to agree with the “hygiene-like” observations of Ruv being plausible but only a strict enquiry could adjudicate upon the matter.

    As an aside the foreseeable class actions will likely take care of themselves (with or without) an ASIC-like body in existence.

    1. Ruv Draba

      From what I understand, Kyle, much of ASIC’s function is dedicated to maintaining business registers and licensing, which is why it can operate as easily from the boondocks of Traralgon as anywhere.

      ASIC also has an investigations arm, but I understand that its principal infrastructure is based on maintaining registries, and perhaps your comment about the change in corporate regulation in the 1980s pertains. While I haven’t worked directly with ASIC, in my experience all regulatory and policing agencies are caught in a cleft stick of ‘damned if you do and damned if you don’t’: if you don’t investigate and prosecute something bad before it gets egregious, you’re criticised. Yet investigate and prosecute but fail to convict and you’re criticised too. Thus, the meticulous assembly of legal matters is critical, and requires modern and dedicated information infrastructure. If you can’t assemble, search and collate the necessary materials or have no assurance of data quality then you might be better off politically swashing the buckler, pulling fierce faces and muttering ‘Coregulation’. From background industry knowledge, I’m not confident that ASIC yet has the modern infrastructure it needs to chase the vagaries of dodgy directors, Phoenixing and other corporate malfeasance — which may link to both funding and corporate skills development.

      Perhaps ACCC does, which could make a MoG-move sensible. Or perhaps ACCC doesn’t have the infrustructure or skills it needs to do ASIC’s job — which would make a MoG-move just swapping Band-Aids.

      Potentially, there’s an assiette of interesting and related conversations to be had here. It’s okay if Bernard and Glenn haven’t the knowledge to progress them, but they should have the professional integrity to know it, and ask questions instead of posing answers unqualified by supplied evidence.

      1. Don

        Glad to see phoenixing get a guernsey. But ASIC isn’t the least bit interested in this four billion dollar annual blight on the economy. Phoenix company directors – a more odious species than any banker we’ve so far seen paraded before the RC – won’t ever need to be bothered even having to think about penalties, let alone negotiating them. They’re so far beneath ASIC’s radar they’re never even noticed. And the liquidators who coach them in how to wind up their bankrupt companies and dump their creditors on Friday afternoons before resuming business as usual on Monday mornings under brand new Australian Company Numbers (willingly supplied to them for a fee by ASIC) understand that very well. This most odious of corporate malfeasances is worthy of a Royal Commission all of its own.

        1. Ruv Draba

          Don wrote: ASIC isn’t the least bit interested in this four billion dollar annual blight on the economy

          Hi Don. I’m glad you recognised it.

          I mentioned phoenixing specifically because it has been publicly-stated that ASIC and the ATO will be tackling it.

          However, it requires new policy (passed as legislation in 2017), new business systems (yet to be developed, so far as I know), and in all likelihood, better data-sharing and data reform between Australian Company Numbers maintained by ASIC and Australian Business Register maintained by the ATO.

          Moreover, though I haven’t seen ASIC or the ATO state it, this is the kind of work where social network analysis could help reveal cliques of dodgy directors and liquidators worthy of deregistration: that is, people not simply behaving recklessly, but serially exploiting insolvency to avoid consumer, investor and tax debt.

          It could also benefit from joining up the kind of data that (for example) the ATO already keeps about business bank accounts as parts of its tax compliance and automation systems.

          But to use such analyses you need to establish software, skills and methods that may not already exist; you need new funding to sustain it, and the ability to carefully trial how it works in Australia’s business environment before using it routinely for prosecutions, chasing tax-debt and deregistrations.

          The risk of overcommitting to early prosecution, conviction and recovery targets for the sake of budgetary or public good ‘announcables’ is precisely the same risk we have seen in (for example) Robodebt or the ATO’s alleged persecution of small business.

          I’d be willing to be persuaded otherwise, but I’m of the view that this is not work the ACCC is ready to do. The ACCC doesn’t maintain these sorts of registries; doesn’t inter-operate with the ATO in this way; almost certainly doesn’t have the knowledge of business behaviour or registry data that ASIC and the ATO have; and probably shouldn’t have access to business bank data.

          So whatever work needs to be done to strengthen Australia’s securities and investment regulation, I think it’s inseparable from business registration and tax compliance. You could make a case for stronger legislation, closer interaction between ASIC and the ATO, better training, refreshed systems, new blood, colocation, and more investment in either or both, but it’s hard to see a close fit with the ACCC when the latter is all about pricing and corporate ownership.

    2. Ruv Draba

      A little more for anyone interested: a significant chunk of ASIC’s funding comes in a manner similar to that of other licensing agencies like the Therapeutic Goods Administration or IP Australia: they work on a user-pays, cost-recovery basis. If you want to be licensed, you pay a fee designed to help cover the administrative and infrastructural costs of licensing you.

      That’s fine: it’s a good way to ensure efficient expedition of ‘Business As Usual’ licensing, but can also expose an agency to strategic capability risk as its economic and policy environment changes.

      Cost-recovery is typically subsistence funding. There’s seldom spare budget to renew business systems, and nothing like the kind of money needed to build new strategic capability (such as the kind you might need to track and prosecute subtle and changing forms of corporate malfeasance.) Moreover, you can’t go to the entities you regulate and demand a hand-out designed specifically to build investigation systems: they’ll scream that the ‘good guys’ are subsidising prosecution of the ‘bad guys’, and it’ll be in all the newspapers next day.

      Such money, if needed, must come from the government in the form of New Policy Proposals, submitted as part of the Portfolio Budget Submissions, and put in contention with the submissions of other agencies: such contention is very tight, and can be politically sensitive.

      So if your agency happens to be one that the government of the day is ‘squeezing’ — whether for budgetary, political or ideological reasons — then you may be in a position of being unable to do your job yet (possibly) unwilling to criticise the government for not funding you to do it (and thus admitting to industry that you’re more powerless than you want them to believe.)

      I don’t know for sure that this is true in ASIC’s case, but I’ve seen other regulatory agencies put into such double-binds: and we know ASIC has lost funding; that its chiefs have been increasingly tentative; that it is currently on a fee-for-service model; and that the knowledge-driven job of corporate investigation is very different to the process-driven job of license administration.

      At the very least, there’s more to be investigated and considered here.

  4. Matt (from the hills)

    I’m applauding. Great article. I seriously do not understand the apologists and sycophants for ASIC (and the Banks). They obviously just can’t see their wrongs. Serious change and very strong repercussions are now required. Rip the band aid off so some semblance of healing can begin.

  5. klewso

    It’s past time ASIC was ASUP’d and replaced by something with vision, teeth and on a longer chain.

  6. Vasco

    It would be good it the regulators did their jobs with a bit of oomph but that’s still fiddling while the county is being stooged. Cameron K Murray and Paul Frijter’s excellent book; Game of Mates; How Favours Bleed The Nation, identifies our problems and offers some pretty sensible solutions. If only there was the will to start some where.

    1. MJM

      Totally agree. Murray & Frijters have written an excellent book which examines the revolving door between government and managers across a broad range of industries. I fear it is not just will that is lacking – fairness, independence and integrity are in short supply as is obvious from the tardiness in setting up a banking RC.

  7. Arky

    Whether it is ASIC or a different regulator, the problem is budgeting and the marching orders coming down from the government. The ATO has the exact same issue. So ASIC can be fixed if there’s will.

    I suspect now there will be great political capital in beefing up ASIC and the ATO and sending them out to hunt wrongdoers and not easily be swayed into accepting soft penalties; until this RC, you can bet that any Labor government to try that would have been slammed as “anti-business”.

    1. CML

      Agree Arky…but I have always had this nagging feeling that the current government likes and approves of the way ASIC (and the ATO) do ‘business’.
      Protects their mates…don’t you know!!

  8. BeenAround

    I agree. Sack the idiots that are sackable; ie incompetent regulators and start gaoling the dishonest rapacious bastards in big business. But our prisons have only a fraction of the capacity to do that.

  9. 1984AUS

    James is the son of Liberal Party Roger Shipton, Member for Higgins for 15 years on the public teat, finally removed by Kroger who gave Shipton’s seat to Costello.

    1. AR

      Tree … cankered apple not far away.

  10. covenanter

    Beyond the tedious, egotistic and scattergun commentary of Crikey’s blithely self indulgent “Brotherhood of the Suppositorium” is the key observation that we are dealing with crime, crime which can be prevented by closely monitoring “motive and opportunity”.
    White collar crime deserves a “Royal Commission”, like the one on trade unions to establish the connection between “Business” and their political representatives.
    Save all the prattle about policy and focus on the facts: criminals protected by politicians.

    1. Peter Schulz

      Full marks, Covenanter. The technical comments from others above about funding, structure, etc are all well and good, but things are clearly systemically rotten when the regulator is ‘surprised’ that big corporations are prepared to do bad things if it serves their own self-interest and when he believes that self-regulation is the way to go. Can you imagine the furore from NewsCorp if a Police Commissioner who was an ex-crim had a publicly-stated policy of allowing the burglars and petty thieves to self-police themselves and that he would be surprised if anyone broke the law?

      1. kyle Hargraves

        “The technical comments from others above about funding, structure, etc are all well and good”

        They are actually rather more than “well and good”; they amount to the necessary place were reform, if it is to be undertaken, ought to begin. Otherwise, we will observe a classic case of history repeating itself.

        That Shipton (et. al.) do not have the competence has been (well) established. It is too easy (and simple minded) to bleat about retribution. If the country is to have an ASIC (beyond stamp-collecting) experience to date ought to guide the reforms.

    2. kyle Hargraves

      “White collar crime deserves a “Royal Commission” Might appear attractive but do we need a Royal Commission when any/every administrative failure occurs? Certainly the culture of the organisation ought to be considered (Jim Egan might recommend a composition of Marxists :)). One would like to think that there is such a practice as due process whatever the instances of incompetence.

      1. covenanter

        A comment desperately flailing about trying to establish some relevance to the facts.
        If criminals are being protected by politicians then a royal commission whose findings are out of the hands of politicians is the way to go.
        There seems to be a parallel with the changes to canon law made by a certain Pope which made it very difficult to prosecute and prevent child sexual abuse among the clergy of that particular church.
        Surely any member of the Brotherhood of the Suppositorium of All Wisdom would be familiar with the process.
        Criminals are being protected by politicians, Adam Smith successfully argued this case declaring that the economic interest, or “power” which certain politicians represent has an interest to deceive and oppress the public.
        It was to protect the “power” of that church that canon law was changed by its chief “politician” so that the parents and relatives of abused children would be equally deceived and oppressed.
        Motive and opportunity.
        Justice must be done.

        1. kyle Hargraves

          Now that I have a bit more time I am able to address the less pertinent aspects of the reply.

          > A comment desperately flailing
          What is to be understood by the phrase “desperately flailing”?

          > about trying to establish some relevance to the facts.
          You have already been contradicted on this aspect.

          > If criminals are being protected by politicians
          proof ? – alternatively you’re inserting and asserting a rather large “IF”

          “then a royal commission whose findings are out of the hands of politicians is the way to go.”
          Because ?… What about ‘Terms of Reference’? What about the composition of the Commission? What about pre-determined conclusions.? What about living in a perfect world.?

          “There seems to be a parallel with the changes to canon law made by a certain Pope which made it very difficult to prosecute and prevent child sexual abuse among the clergy of that particular church.”

          Ok. Let’s consider this gem by “numbers”. I does appear that you have commenced some reading some books but I wonder if you have actually completed the reading.

          “Canon law” was the set of doctrines or regulations for the Ecclesiastical Courts. The educated (and in many instances those, who could read passages from the Bible [a practice extended by fits and starts into the 19th century] could appeal to the Ecclesiastical Courts to have their cases heard (as an alternative to the Kings Bench]. Depending on circumstances the educated (and NOT just the clergy) could plead “Benefit of Clergy” for a first offense. That is a 5-6 line paper-thin summary of a considerable volume of detail (where this post is not the place to expand).

          In other words there is NO “parallel” with Commissions/Courts nowadays and Ecclesiastical Courts of days gone by. Moreover there was no one pope that “decreed” Cannon Law. As an aside the capacity of the papacy to award and remove kingdoms existed for only a relatively short interval of time.

          As to the topic of ‘child sexual abuse’ WHAT particular church did prevent such occurrences (in your opinion)? Permit me to assist you. Do you consider the matter inherently Christian or Latin-Christian (and not Orthodox Christian)? Secondly, are all religions (in any sense) prone or are some not prone? These questions ought to illustrate the acumen of your reply.

          1. covenanter

            Classic deflection and sophistry, Kyle; where were you trained?
            Most of your assertions, they hardly amount to arguments, boil down to the
            tiresome “nobody knows nuffin about nuffin” stance adopted by proud ignoramuses as an excuse to avoid making any difficult decisions in the face of inescapable facts.
            I seriously doubt any Crikey reader will be taken in by such pseudo-intellectual antics.
            Do you know the answers to your specious queries, perhaps not, otherwise you might have already provided them, but please stay on topic, the abuse of political power to protect political power.
            One reasonable explanation for the prevalence of the corruption which permits undoubted white collar crime to go unpunished.
            The proceeds of said crimes going in part to the politicians who protect the criminals; too hard to understand , little grasshopper?
            And what colour might be the collars of the various power- corrupted clergy in question, blue?
            Will it remain “Kyle the Incorrigible” -not really worth the effort?

        2. kyle Hargraves

          Referring to you posts of 23 May 18:50

          You didn’t wish me to reply but invited me to do so. Such inconsistency rather
          sums up your “analysis” on any given topic – from the idiotic argument you advanced
          some months ago concerning the Napoleonic Code and the military inferiority of France for the last few hundred years to the various events of late.

          Then, referring to 23 May 18:09

          It was incumbent upon you to EITHER offer the proof requested (and not some idiocy such as “office crime = financial benefit to politicians”) OR answer some Yr12 standard questions – OR, preferably, both!

          I have explained, elsewhere, my motivations for posts and (re: a recent exchange with Riv – his taking a contrary view) this is a classic case of where I walk away.

      2. covenanter

        The original Commissioner Against Corruption in NSW, Ian Temby QC , established incompetence and misconduct as his criteria for corruption.
        Misconduct is an administrative failure, not a moral one?

        1. Ruv Draba

          Cov, I think you’re mistaken.

          Corruption is normally considered to be dishonest or fraudulent abuse of power (often but not always to the officer’s personal benefit.) The ICAC Act (1988) defines corruption as deliberate or intentional wrongdoing, not negligence or mistake. [1, 2].

          This Act precedes the creation of ICAC in 1989, and its definition of corruption of course underpins the Commission’s work. It’s not credible that the first ICAC commissioner would invent his own definition, and one so contrary to general usage.

          I think you may have misquoted or taken another quote out of context. Can you supply your reference please?

          1. covenanter

            Only relying upon the public pronouncement by Ian Temby at the beginning of his establishment of the ICAC and as reported in the press that his criteria, his criteria, not the criteria of the writers of the founding legislation, were to be incompetence and misconduct.
            So only memory, sorry, there was some expectation that corruption, a broad term, would have to be more closely defined, having been so widely used as to defy any particular context.
            It was for the sake of the ordinary citizen that the four independents in the then Greiner government brought in their reforms, whether Greiner was the author of the commission which brought him down escapes me.
            But as for “incompetence and misconduct”, I don’t think that was a figment of my imagination at the time.
            Corruption might be viewed in terms of a part of a supporting structure which has decayed in some fashion to the point where it no longer does its work.
            The public might have an expectation that the “structures”, of any sort, upon they have come to rely are capable of the job they are erected for.
            To be maintained where they are susceptible to “decay”, in order to avoid catastrophic failures.
            Corruption might easily be hidden of course, and usually has to be where profit is to be garnered from it.
            So “misconduct and incompetence”, even though I can any offer only my recollection as to Temby’s authorship of the definition.

          2. Ruv Draba

            I can offer only my recollection

            Thanks, Cov. Appreciated.

        2. kyle Hargraves

          Temby has made a number of contributions on this very matter and his appointment was both informed and well regarded. Thirty odd years ago I recall some seminars (hailing as he does from WA) that I attended along with some mates in the law game. The major problem about proving fraud was the “defense” of incompetence along with mens rea the intention to defraud. The Commission can recommend or initiate a prosecution, based upon its criteria, but only a Court determine the fact and apply a sanction.

        3. kyle Hargraves

          Don’t think that I am unduly concerned with your reply. It “says” rather more about you than it does about me!

          1. covenanter

            What do you have to say for yourself, there, Kyle?
            Usually quite a lot, but not this time??
            The apparent inability to reply is quite informative.
            No, please don’t explain, just do continue to have nothing to say.

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