ANNUAL REPORT OF THE AUSTRALIAN SECURITIES COMMISSION

REPORT ON THE ANNUAL REPORTS OF THE AUSTRALIAN SECURITIES COMMISSION
AND OTHER BODIES: 1994-1995
Table of Contents

ANNUAL REPORT OF THE AUSTRALIAN SECURITIES COMMISSION

A. GENERAL CONTENT OF THE REPORT

Duration of investigations

1.6 In its Report to the Parliament on the 1993-94 Annual Report of the ASC, the Committee indicated that it would continue to monitor the performance of the ASC in respect of its commitment to complete all investigations within 12 months of the resourcing of the investigation. [3]

1.7 In 1994-95, the ASC reports that it completed 33 of 43 major investigations (or 76 per cent) within the 12 months target. This compares with 52 of 137 such investigations (or 38 per cent) completed in 1993-94.

1.8 The Committee notes both the apparent decline in the absolute number of major investigations completed and the considerable improvement in the timeliness with which those investigations were completed. The Committee also notes the observation of the Chairman of the ASC in February 1995 that over 90 per cent of investigations were now being completed within 12 months. [4] The Committee will continue to monitor this significant performance indicator in its examination of future annual reports.

 

Complaints against ASC officers

1.9 In June 1995, the Senate Legal and Constitutional References Committee recommended monitoring of the national complaint handling procedures adopted by the ASC in relation to the exercise of its investigatory powers. Specifically that Committee recommended that:

1.10 Following this recommendation, the ASC's annual report includes information about complaints made by members of the public against ASC staff. The report notes that there were fewer than 15 formal complaints against ASC staff in 1994-95. These complaints tended to relate to:

1.11 Of the matters dealt with through the ASC's national complaints procedures, two matters were referred to the Australian Federal Police for further investigation. The remainder were not substantiated.

1.12 The ASC has indicated that future annual reports will contain more complete reporting to the Parliament on complaints by the public.

 

Action against auditors and liquidators

1.13 During 1994-95, applications by the ASC to the Companies Auditors and Liquidators Disciplinary Board saw action taken against a total of 17 auditors and four liquidators. The registration of eight auditors was cancelled by the Board at the ASC's request. One auditor had his registration suspended for 12 months and another was suspended for three months. One liquidator had his registration suspended for three months, and one auditor undertook to refrain from auditing superannuation funds and investment pools. Four auditors voluntarily surrendered their registration after the ASC commenced proceedings, while a further seven voluntarily surrendered their registration after the ASC indicated it would refer their cases to the Disciplinary Board. [6]

1.14 Elsewhere in this Report, [7] the Committee draws attention to some comments made in the annual report of the Disciplinary Board regarding the number of applications referred to it by the ASC and the adequacy of the ASC's presentations. These comments by the Disciplinary Board are apparently long standing. The Committee welcomes a response from the ASC to the Board's comments.

 

B. MATTERS ARISING AT PUBLIC HEARINGS

Australian derivatives markets

1.15 At its hearing on 29 March 1995, the Committee discussed with the ASC the implications of the Barings collapse and the risks that might be faced by domestic securities and futures markets as a result of the growing use of derivative instruments.

1.16 The ASC Chairman, Mr Alan Cameron, told the Committee that Australian markets had adequate regulatory safeguards in place to make a similar collapse unlikely, and that derivatives did not require new legislation. [8] Mr Cameron stated that:

1.17 Mr Cameron advised that shortly after the Barings collapse, the ASC endorsed guidelines issued by the Australian Society of Corporate Treasurers setting out minimum recommended standards for disclosure of derivatives exposure. In 1994, the ASC signed a memorandum of understanding with the Sydney Futures Exchange concerning the regulation of derivatives markets. [10]

1.18 The Committee also canvassed this issue with CASAC, which had commenced a review of derivatives in mid-1994. Mr Leigh Hall, a member of CASAC, specifically endorsed the initiatives of the ASC to further improve the effectiveness of the regulation of these markets. [11]

 

Section 127 of the ASC Act

1.19 During the Committee's hearing with the ASC, Mr Cameron raised the issue of the operation of section 127 of the Act, and the possible need to clarify the disclosure provisions under that section in the case of the transfer of information between the ASC and other regulators and exchanges.

1.20 Sub-section 127(1) of the Act states:

1.21 Sub-section 127(4) of the Act states:

1.22 This section was considered by the High Court in 1993 in Johns v Australian Securities Commission & Others. [12] In that case, the Court held that a lawful exercise of the power to disclose certain information was subject to the rules of natural justice. On the facts of the case, a corporate officer who had been subjected to a compulsory examination by the ASC should have been given an opportunity to be heard on the matter before the ASC released to a Royal Commission the transcripts of that examination in circumstances which allowed the material to be published generally.

1.23 In describing the circumstances which led to the crash of Barings and the situation immediately prior to its collapse, Mr Cameron drew attention to the apparent lack of adequate communication between the regulatory authorities and exchanges in Singapore and Japan. Specifically, he noted:

1.24 In November 1995, the ASC issued a Policy Statement outlining the practices it would adopt in relation to the disclosure of information obtained by the exercise of its compulsory powers. [14] Among other things, the Statement observes that:

1.25 The Barings collapse, when taken with the Johns case, has pointed to some possible deficiencies in the ASC's ability to provide information to foreign securities exchanges. As Mr Cameron told the Committee:

1.26 The ASC has pointed to an apparent ambiguity in the language of section 127 of the Act. This ambiguity may affect the ASC's ability to exchange information with foreign exchanges. The Committee considers that, if such an ambiguity is present in the legislation, it ought to be clarified.

1.27 In similar terms, the ASC has argued for a more flexible application of the natural justice requirements imposed on it by the Johns case in situations of market crisis. Clearly, the rules of natural justice represent a cornerstone of our legal system, and cannot be lightly legislated away. However, the application of those rules should not be such as to prolong or exacerbate a market crisis.

1.28 The Johns case itself concerned the provision to a Royal Commission of transcripts of a compulsory examination by the ASC. While it is unlikely that information of such a type would be in issue in a situation such as occurred with the collapse of Barings, it is difficult to foresee all those types of information which might be in issue, or how accurate or relevant that information might be.

1.29 The Committee notes the view of the ASC that a person directly and materially adversely affected by a decision should normally be accorded procedural fairness, but that "the content of procedural fairness will differ widely between different cases, depending on the effect on the person and the use or disclosure proposed to be made". [16] In a sense, this view simply echoes comments in some of the judgments in the Johns case itself. For example:

1.30 Where the ASC is called upon to provide information to other regulators in situations of market crisis, the Committee considers that the legislation should ensure that the public interest in the fair conduct of business and the individual's right to be treated fairly are both taken account of. At the very least, adversely affected individuals should be told that the ASC proposes to provide information about them.

[3] See Parliamentary Joint Committee on Corporations and Securities, Report on the Annual Reports of the Australian Securities Commission and Other Bodies 1993-94 (October 1995) paras 2.23-2.25. Monitoring of the ASC's compliance with this performance indicator was also supported by the Senate Legal and Constitutional References Committee which, in its report on The Investigatory Powers of the Australian Securities Commission, specifically recommended that this Committee monitor the ASC's performance in regard to the timely completion of all its investigations (see p xiv).

[4] Corporations and Securities Committee, Committee Hansard, 6 February 1995, p. 122.

[5] Senate Legal and Constitutional References Committee, The Investigatory Powers of the Australian Securities Commission (June 1995) p. xiii.

[6] Australian Securities Commission, Annual Report 1994/95, p 41.

[7] See para 1.39.

[8] See Corporations and Securities Committee, Committee Hansard, 29 March 1995, pp 146-51.

[9] See Corporations and Securities Committee, Committee Hansard, 29 March 1995, pp 148-49.

[10] The Memorandum provides for immediate referral to the ASC of matters which come to the attention of the SFE that may constitute serious breaches of its business rules or of the Corporations Law. See Corporations and Securities Committee, Committee Hansard, 29 March 1995, pp 142-43

[11] Corporations and Securities Committee, Committee Hansard, 30 March 1995, pp 19-21.

[12] (1993) 178 CLR 408; 67 ALJR 850.

[13] Corporations and Securities Committee, Committee Hansard, 29 March 1995, p 150.

[14] Australian Securities Commission, Policy Statement 103.

[15] Corporations and Securities Committee, Committee Hansard, 29 March 1995, pp 154-5.

[16] Australian Securities Commission, Policy Statement 103, para 30.

[17] Johns v Australian Securities Commission (1993) 67 ALJR 850 at 883 per McHugh J.