Effectiveness of Australian Securities and Investment Commission (ASIC)

This article discusses the effectiveness of the Australian Securities and Investment Commission (ASIC) in regulating financial services and protecting consumers. It examines areas of focus such as scrutiny of remediation programs, enforcement approach, breach reporting, and consumer control. The article also highlights the challenges faced by ASIC in terms of skills of market regulation and lack of system and processes.

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Effectiveness of Australian Securities and Investment Commission (ASIC)
Name of Student
Institution affiliation

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Table of Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................4
Thesis...............................................................................................................................................4
Background......................................................................................................................................4
The Effectiveness of ASIC and Areas of Focus..............................................................................5
Scrutiny of Remediation Programmes and Processes..................................................................5
Effectiveness of ASIC’s Enforcement Approach.........................................................................6
Lack of System and Processes......................................................................................................6
Effectiveness of Breach Reporting...............................................................................................7
Consumer Control and ASX.........................................................................................................7
Skills of market Regulation..........................................................................................................8
Effectiveness of Auditing.............................................................................................................8
Integrity Arrangements.................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Legislation..................................................................................................................................11
Books/ Reports/ Journal articles/ Web sources..........................................................................11

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Abstract
Australian Securities and Investment Commission (ASIC) is a unified regulator for commercial
markets, financial services and a customer credit watchdog in Australia. It controls Australian
corporations, financial services companies, markets, and experts dealing with insurance, deposit
taking, credit, superannuation and investments. The effectiveness of ASIC depends on how it
serves the functions provided under the ASIC Act, which instituted it and the Corporation Act
which it serves under. According to the Parliamentary Joint Committee on Corporations and
Financial Services, ASIC’s performance has been subject to intense debate and enquiry since the
Global Financial Crisis. The final report by Hayne Royal Commission criticized the role of
Australian Securities and Investment Commission in failing to inhibit delinquency in financial
services, especially its professed preference for resolving contravening conduct by agreement
and not by setting up proceedings. Issues of enforcement, auditing, integrity, skills of market
regulation, consumer control, scrutiny of remediation programmes and processes prevail in
showing the efficiency of ASIC
Keywords; ASIC, ASIC Act, Corporation Act, financial services, financial services
organisations, Remediation, CCM.

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Introduction
Australian Securities and Investment Commission (ASIC) is an integrated regulator for business
markets, financial services and a customer credit supervisor in Australia1. The commission acts
independently of the commonwealth Government. It standardizes operations of Australian
corporations, financial services companies, markets, and specialists dealing with insurance,
deposit taking, credit, superannuation and investments. ASIC was put in place by the ASIC Act
20012 and performs its duty under the Corporation Act 20013. Some of the laws (or their relevant
parts or regulations) the commission administers include, “Insurance Contracts Act 1984,
Business Names Registration Act 2011, Life Insurance Act 1995, National Consumer Credit
Protection Act 2009, Medical Indemnity (Prudential Supervision and Product Standards) Act
2003, Business Names Registration (Transitional and Consequential Provisions) Act 2011,
Superannuation (Resolution of Complaints) Act 1993, Superannuation Industry (Supervision)
Act 1993, and Retirement Savings Accounts Act 1997”4.
The effectiveness of ASIC depends on how it serves the functions provided under the ASIC Act.
Some of these functions as stated by the ASIC Act are the maintenance, facilitation and
improved financial structure and units in it, indorsing well-versed engrossment by investors and
customers within the financial system availing information about companies to the public,
among others5.
Thesis
What this paper aims to do is reviewing the comments effectiveness that were put forward by the
Hayne Royal Commission and others regarding ASIC performance.
Background
Part 14 of the ASIC Act 2001 establishes the Parliamentary Joint Committee on Corporations and
Financial Services. The committee assessed the effectiveness of AISC as per the provisions
1 Walter Mattli, Global Algorithmic Capital Markets. High Frequency Trading, Dark Pools, And Regulatory
Challenges (Oxford University Press, 2019).
2 Australian Securities and Investments Commission Act, 2001 (Cth)
3 Corporations Act 2001 (Cth)
4 "About ASIC | ASIC - Australian Securities And Investments Commission", Asic.Gov.Au (Webpage, 2016)
<https://asic.gov.au/about-asic/>.
5 "About ASIC | ASIC - Australian Securities And Investments Commission", Asic.Gov.Au (Webpage, 2016)
<https://asic.gov.au/about-asic/>.

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under Section 243 of the ASIC Act. According to the committee, ASIC’s performance has been
subject to intense debate and enquiry since the Global Financial Crisis. This means that the role
of ASIC as a financial conduct regulator and consumer protector is questionable6. The Royal
Commission also documented a final report on 4th of February 2019 that takes note of ASIC’s
remit increasing but there is a need for changing the enforcement culture within ASIC. This is as
a result of inactive consideration of misconduct in forms of regulatory enforcement like
litigation. The final report by Hayne Royal Commission criticized the role of Australian
Securities and Investment Commission in failing to inhibit delinquency in financial services,
especially its professed preference for resolving contravening conduct by agreement and not by
setting up proceedings7. The criticism of ASIC provides an indication to the likely future areas
that should be addressed by ASIC.
The Effectiveness of ASIC and Areas of Focus
Scrutiny of Remediation Programmes and Processes.
ASIC treats infringements of the law as nothing more bargaining chips to acquire contract to
remediate customers. In case there is a delay in compensation by financial institutions, or even
refusal to compensate, customers go through a financial loss as a result of the misconduct.
Nevertheless, ASIC as a regulator has prioritized prompt and swift payment of compensation
rather than litigation8. Should the ASIC enforcement Review recommend and the government
accept this approach, ASIC will be effective in that it will be given power to direct financial
institutions to develop appropriate remediation plan that addresses the effect of a breach to
clients. ASIC scrutiny of remediation programmes and processes has not been so compact. This
necessitates some certain activities by financial institutions like governing and reporting on
remediation agendas, investing the remediation methodology in order to develop and regulate the
process over time, analyzing and addressing the causes of past and present remediation so as to
6 Parliamentary Joint Committee on Corporations and Financial Services, Statutory Oversight Of The Australian
Securities And Investments Commission, The Takeovers Panel And The Corporations Legislation(Commonwealth of
Australia, 2019)
<https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/
No1of45thParliament>.
7 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final
Report (© Commonwealth of Australia, 2019)
<https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf>.
8 EYGM, Royal Commission Interim Report — Analysis And Insights (EYGM Limited., 2018)
<https://www.ey.com/Publication/vwLUAssets/EY-royal-commission-interim-report-analysis-and-insights-Oct-
2018/$FILE/EY-royal-commission-interim-report-analysis-and-insights.pdf>.

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avert recurrence, enhancing the consumer experience of remediation by incorporating behavioral
insights into the process as suitable. Financial institutions also need to strengthen the conduct
risk frameworks and by so doing the need for remediation programmes will be reduced.
Effectiveness of ASIC’s Enforcement Approach
The approach to enforcement by ASIC has been greatly criticized and this might necessitate
alteration. The first issue regards penalties. Despite the draft legislation on September 2018 that
raised financial fines for civil infringements and court discretion to take away the gains obtained
by illegal means by contraveners, ASIC should increase the penalties for financial and corporate
misconduct and that way, a successive approach to the enforcement technique will be achieved9.
Secondly, ASIC’s intelligence and insights has not been so fruitful, something that necessitates
the proposed Close Continual Monitoring (CCM) of the dominant financial entities to help report
breach10. The good thing is that this system is ought to reforms should need be. It is sad that the
present provisions of the reforms are not in an enforceable state. Thirdly, the conduct civil
penalty proceedings have not been achieved to the maximum limits. The allocation of AU
$26,2m to increase the enforcement activities can be suitable to deal with the situation. The
actions of gross misconduct by financial entities that have not been done so well in the past,
especially those involving litigants with great financial strength, might now be pursued.
Lack of System and Processes
Despite the recommendations by Hayne, financial institutions ought to adopt a practical
approach in offering the yearly review with the offer evidenced. The disclosure of products must
be more open to the public. There is also need for the institutions to have investments in systems
and processes following the revelation by the interim report that the entities lacked systems and
procedure to tell whether what their representatives were delivering was the truth. The
proposition by ASIC is that these institutions send invoices to customers and that payment must
be specifically authorized when the service is rendered, and not deducted automatically from the
investments by the client an then let know afterwards as a line in a fee exposé announcement or a
intermittent product testimonial. This proposal by ASIC, if adopted, financial societies will have
9 Caron Beaton-Wells and Julie N. Clarke, "Corporate Financial Penalties For Cartel Conduct In Australia: A
Critique" [2018] SSRN Electronic Journal <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3149143>.
10 ASIC, ASIC Update On Implementation Of Royal Commission Recommendations (2019)
<https://download.asic.gov.au/media/5011933/asic-update-on-implementation-of-royal-commission-
recommendations.pdf>.

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to reflect if their practices have the ability to house this and, in general, the influence of this
modification on their commercial feasibility.
Effectiveness of Breach Reporting
The ASIC Enforcement Review recommends that Financial Institutions should consider their
readiness to probable changes to breach reporting11. This, from a critical point of view means that
institutions will be required to report infringements in 30 days of the proprietor awareness of
information regarding the occurrence of infringement, instead of the 10 days after the licensee
concludes that a breach has transpired and is substantial. Based on the ASIC’s Review of selected
financial services groups’ compliance with the breach reporting obligation, the commercial
institutions might need to consider their preparation of ASIC’s CCM of breach reporting
compliance.
Consumer Control and ASX
ASIC has been faced with serious problems that include controlling all customer loaning
merchandises and winning control over the ASX’s duty in market regulation12. There are several
questions raised regarding its ability to hire the appropriate skills that might help in regulating
the Australian market more efficiently. A comment by one of member of Client Page, reveals
that the issues in ASIC are not limited to the aforementioned. The member says that managed
reserves of different types should be considered especially where ASIC’s conduct has been
sparse. He recounts his individual experience with ASIC;
“My personal experiences in dealing with ASIC on industry issues highlights the problems faced
by an organization of this type. While not casting dispersion on their staff, let’s be blunt. The
talent goes where the money is. It’s the same in any industry (my own included). It seems to me
given their pay scales and resources that it’s hard for ASIC to get the talent it needs. Result, you
have one hand tied behind your back before you start. Are they regarded as an effective
regulator, the feedback I get from the general public currently is no. Of course many of the
problems the mum and dad investors have been caught in are of their own making, but they shout
11 ASIC, Review Of Selected Financial Services Groups’ Compliance With The Breach Reporting Obligation(2018)
<https://download.asic.gov.au/media/4879889/rep594-published-25-september-2018.pdf>.
12 Ian Paterson and Wood Mallesons, Uk.Practicallaw.Thomsonreuters.Com (Webpage, 2019)
<https://uk.practicallaw.thomsonreuters.com/w-006-9098?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1>.

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the loudest. Also, the general public usually don’t understand the limitations ASIC faces in many
areas. Hopefully with the new roles it is undertaking, this will start to change13”.
Another disapproving point by another Client Page Member comes after ASIC calling “for
submissions on new proposed benchmarks for Agribusiness Managed Investment Schemes to
improve disclosure for investors getting into them. The issue is that one of the scheme managers
went ahead and used the benchmarks in their PDS and then promptly went into administration 17
days in future”. This, an issue of poor decision making and the member recommends that it is
improved14.
Skills of market Regulation
ASIC lacks in skills of market regulation15. There could be a shortage of experts and it would be
necessary for an injection of the same. This also requires with large sums of money to pay the
experts who might not be so enthusiastic to join the regulator for poor pay. How do you regulate
a market you do not understand? There is also a perception of varying staff within the
commission. The performance of ASIC could be judged subjectively and that necessitates other
drives of the Commission’s agenda apart from the proficiency of its staff. Financial regulators
are supposed to go through certain capability reviews so that it is determined whether they have
appropriate skills and culture to be effective the rapidly changing environment.
Effectiveness of Auditing
The Parliamentary committee reports on the ineffectiveness of ASIC in auditing. ASIC is the
overseer of audit processes. It rolls persons as company auditors and also do inspections of audit
firms, to include, inspection of audit files and company financial reports. This is a requirement of
the corporation Act. Despite the commission stating how inspections and surveillances are
significant tools in even educating other registered company auditors, it still have failed
miserably in using its enforcement powers to against auditors whose work have deficiencies. The
quality of ASIC audits like the inspection report for 2011–12 one was very low. The
deterioration in quality is said to have even started in 2009. This led to a comment by one of the
13 "Effectiveness Of ASIC In Regulating The Market", Secure.Eastcoles.Com.Au(Webpage, 2016)
<https://secure.eastcoles.com.au/discussion/1>.
14 "Effectiveness Of ASIC In Regulating The Market", Secure.Eastcoles.Com.Au (Webpage, 2016)
<https://secure.eastcoles.com.au/discussion/1>.
15 Australian Government, Fit for the Future a Capability Review of the Australian Securities and Investments
Commission (Commonwealth of Australia, 2015) <https://static.treasury.gov.au/uploads/sites/1/2017/06/ASIC-
Capability-Review-Final-Report.pdf>.

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members of the parliamentary committee that professionalism in audit reports is lacking.
Because of this fault, the parliamentary committee recommends that ASIC should invent and
conduct a study aimed at generating comparable results over time that reflect changes in the
quality of audits16.
Integrity Arrangements
Another area that is useful in determining the effectiveness of ASIC is the integrity arrangements
to meet present and future challenges. This involves issues of conflict of interest in financial
sectors, and integrity risks involving ASIC employees. The royal Commission revealed scandals
that appear to embody the conflicts of interest by persons and companies in positions of trust
which have oppressed clients for subjective and/or commercial gain. According to the Royal
Commission's interim report of 2018:
“All the conduct identified and criticized in this report was conduct that provided a financial
benefit to the individuals and entities concerned17”.
Regulators have a significant role to play with regard to ensuring that there is integrity and public
trust in government. However, their position at the intersection of money and government
control makes them to be predominantly susceptible to fraud18. There is an insufficiency in the
ASIC’s Fraud control plan whereby independent oversight in order to bring up a system that
performs adequately in maintaining the values of internal integrity and anticorruption19.
Conclusion
It is clear that Australian Securities and Investment Commission has failed in the regulation of
corporate, markets and financial services in Australia. The reports from the Royal Commission
16 Parliamentary Joint Committee on Corporations and Financial Services, Statutory Oversight Of The Australian
Securities And Investments Commission, The Takeovers Panel And The Corporations Legislation (Commonwealth
of Australia, 2019)
<https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/
No1of45thParliament>.
17 Royal Commission Into Misconduct In The Banking, Superannuation And Financial Services Industry
(Commonwealth of Australia, 2018) <https://financialservices.royalcommission.gov.au/Documents/interim-report/
interim-report-volume-1.pdf>.
18 David Donaldson, "Regulating the Regulators: IBAC Warns Of Corruption Risks | The Mandarin", The
Mandarin (Webpage, 2018) <https://www.themandarin.com.au/96333-regulating-the-regulators-ibac-warns-
ofcorruption-risks/?utm_campaign=TheJuice&utm_medium=email&utm_source=newsletter>.
19 Parliamentary Joint Committee on Corporations and Financial Services, Statutory Oversight Of The Australian
Securities And Investments Commission, The Takeovers Panel And The Corporations Legislation(Commonwealth of
Australia, 2019)

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and the Parliamentary committee approve this by showing the inadequacies of the commission
on mostly matters of enforcement, auditing, integrity, skills of market regulation, consumer
control, scrutiny of remediation programmes and processes, just to mention but a few. The
commission should prioritize on checking the recommendation s by both the parliamentary
committee and the Hayne Royal Commission in order to improve and make up for its
inefficiency.

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References
Legislation
Australian Securities and Investments Commission Act, 2001 (Cth)
Corporations Act 2001 (Cth)
Books/ Reports/ Journal articles/ Web sources
ASIC, ASIC Update on Implementation of Royal Commission Recommendations (2019)
<https://download.asic.gov.au/media/5011933/asic-update-on-implementation-of-royal-
commission-recommendations.pdf>
ASIC, Review Of Selected Financial Services Groups’ Compliance With The Breach Reporting
Obligation (2018) <https://download.asic.gov.au/media/4879889/rep594-published-25-
september-2018.pdf>
Australian Government, Fit for the Future a Capability Review of the Australian Securities and
Investments Commission (Commonwealth of Australia, 2015)
<https://static.treasury.gov.au/uploads/sites/1/2017/06/ASIC-Capability-Review-Final-
Report.pdf>
Beaton-Wells, Caron and Julie N. Clarke, "Corporate Financial Penalties For Cartel Conduct In
Australia: A Critique" [2018] SSRN Electronic Journal<https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3149143>
EYGM, Royal Commission Interim Report — Analysis And Insights (EYGM Limited., 2018)
<https://www.ey.com/Publication/vwLUAssets/EY-royal-commission-interim-report-analysis-
and-insights-Oct-2018/$FILE/EY-royal-commission-interim-report-analysis-and-insights.pdf>
Mattli, Walter, Global Algorithmic Capital Markets. High Frequency Trading, Dark Pools, And
Regulatory Challenges (Oxford University Press, 2019)
Parliamentary Joint Committee on Corporations and Financial Services, Statutory Oversight of
the Australian Securities and Investments Commission, The Takeovers Panel And The
Corporations Legislation (Commonwealth of Australia, 2019)

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<https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financia
l_Services/No1of45thParliament>
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry, Final Report (© Commonwealth of Australia, 2019)
<https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-
report.pdf>
Royal Commission into Misconduct in the Banking, Superannuation And Financial Services
Industry (Commonwealth of Australia, 2018)
<https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-
volume-1.pdf>
"About ASIC | ASIC - Australian Securities And Investments
Commission", Asic.Gov.Au(Webpage, 2016) <https://asic.gov.au/about-asic/>
Donaldson, David, "Regulating The Regulators: IBAC Warns Of Corruption Risks | The
Mandarin", The Mandarin (Webpage, 2018) <https://www.themandarin.com.au/96333-
regulating-the-regulators-ibac-warns-ofcorruption-risks/?
utm_campaign=TheJuice&utm_medium=email&utm_source=newsletter>
"Effectiveness Of ASIC In Regulating The Market", Secure.Eastcoles.Com.Au (Webpage, 2016)
<https://secure.eastcoles.com.au/discussion/1>
Paterson, Ian and Wood Mallesons, Uk.Practicallaw.Thomsonreuters.Com (Webpage, 2019)
https://uk.practicallaw.thomsonreuters.com/w-006-9098?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1