It now has responsibilities over 100,000 entities including 63,000 financial services licensees. Australia is home to the world’s fifth-largest pool of managed funds and the 11th largest sharemarket. But the inquiry found that despite a 19 per cent increase in staff since 2016-17, the scope and complexity of ASIC’s responsibilities were beyond the regulator.
It found that in the decade to 2021-22, ASIC received 236,000 reports of alleged misconduct but most of those got less than a cursory examination. In 2021-22, the commission did not take any action on two-thirds of complaints.
In most cases, ASIC responded with an automated “no further action” email within 40 seconds of receiving a complaint. Just 1 per cent of all misconduct reports were investigated.
The committee drew a comparison between ASIC’s handling of wealth management firm Dixon Advisory, which lost more than $360 million from 4600 clients, and the handling by regulators in the US of the US$32 billion collapse of US crypto trading firm FTX.
Four years since the Australian regulator started action against Dixon, the firm has been fined $7.2 million – which ASIC does not expect to be ever paid – while a trial against a former company director started only last month.
By contrast, US regulators took only 18 months to finalise action against FTX which included a 25-year prison sentence for its founder, Sam Bankman-Fried.
Sam Bankman-Fried was sentenced to 25 years’ jail 18 months after America’s equivalent of ASIC started action against the billionaire.Credit: AP
In another case, ASIC became aware of concerns in 2014 about Courtenay House Capital Trading Group, a Ponzi scheme that ultimately raised $180 million from 585 people. Just days before the regulator applied to the NSW Supreme Court in 2017 to freeze the company’s assets, people were still investing in Courtenay.
The committee found that enforcing corporate law should be national priority.
“If those who seek to break the law do not fear that they will be held to account for their actions, then there is a high risk that offending will occur. Without significant improvements to ASIC’s enforcement approach, the harm to Australians from corporate misconduct can be expected to continue,” it said.
Apart from splitting ASIC’s responsibilities, the committee urged that a new organisation prioritise legal action in “all serious instances of suspected breaches” of corporations law.
An element of that would be to reward or compensate whistleblowers who came forward with evidence to ASIC.
The Securities and Exchange Commission, America’s equivalent of ASIC, gives between 10 per cent and 30 per cent of fines worth over $1 million to whistleblowers with “high-quality original information”.
Former Australian Competition and Consumer Commission head Allan Fels told the committee that whistleblowers usually found themselves poorer for revealing information.
Treasurer Jim Chalmers said this week that he was worried the report would be “heavily personal” and partisan, but noted he was prepared to modernise regulators if it was necessary.
Since coming to office, the government has provided ASIC with an extra $380 million, including $200 million in the May budget, to help it carry out its work. It has also appointed three new commissioners to the organisation.
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There are concerns within the government that breaking up ASIC could take years, disrupting any actions it has underway.
Labor senators on the committee did not produce a dissenting report, but argued the plan to split ASIC lacked “detail on any potential model for separating the markets, corporations and financial services functions of the regulator, the timeframe over which this might occur, and the process to achieve it”.
An ASIC spokesperson noted the Labor senators’ comments while saying the authority would take time to consider the full report.
“Throughout the inquiry we have shared our strong enforcement record on behalf of Australian consumers and investors,” the spokesperson said.
“ASIC is in court almost every day pursuing wrongdoing and in the last 12 months alone launched around 180 new investigations.”
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