Chapter 1


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Chapter 1

Introduction

1.1        The Parliamentary Joint Committee on Corporations and Financial Services was established by the Australian Securities and Investments Commission Act 2001 (the ASIC Act). Section 243 of the ASIC Act specifies the committee's duties, which include:

(a) to inquire into, and to report to both Houses on:

the activities of the Australian Securities and Investments Commission (ASIC)...or matters connected with such activities, to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed...

1.2        This report is presented in execution of the committee's duty under paragraph 243(a)(i).

1.3        As the corporate, markets and financial services regulator, ASIC is responsible for monitoring the integrity of Australia's financial system. Areas within the Commission's remit include promoting financial literacy and consumer education; corporate, financial services and consumer credit regulation; and the supervision of trading on Australia's licensed equity derivatives and futures market.

1.4        In inquiring into ASIC's activities, the committee seeks to determine whether ASIC is fulfilling its statutory responsibilities. In considering ASIC's performance, the committee has regard to section 1 of the ASIC Act, which directs ASIC to:

  • maintain, facilitate and improve the performance of the financial system and entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy;
  • promote the confident and informed participation of investors and consumers in the financial system;
  • administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements;
  • receive, process and store, efficiently and quickly, information given to ASIC under the laws that confer functions and powers on it;
  • ensure that information is available as soon as practicable for access by the public; and
  • take all necessary action to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.

The public hearing

1.5        The committee held a public hearing on 3 December 2012 at the Wesley Conference Centre in Sydney. The committee first took evidence from Mr Elmer Funke-Kupper and Mr Peter Hiom, respectively the Chief Executive Officer and Deputy Chief Executive Officer of the Australian Securities Exchange (ASX). The committee then heard from ASIC officials including ASIC's Chairman, Mr Greg Medcraft.

1.6        This report principally reflects the evidence taken at the hearing. Witnesses who gave evidence are listed in Appendix 1. Copies of the Hansard transcript of the hearing have been tabled for the information of the Parliament, and are available on the committee's website.[1] Several questions were placed on notice. These questions, and the answers received, are published in Appendix 2 and are also available on the committee's website.

1.7        The committee thanks both ASX and ASIC officials for their time and contribution to the inquiry. This was the second appearance of ASX officials at an oversight hearing of the committee. In his submission to the committee, Mr Funke Kupper wrote:

From ASX's perspective, I believe it is important to engage with the joint committee to give it an insight into the exchange and our understanding of the issues impacting on Australia's financial markets.[2]

1.8        The committee foresees that there will be future opportunities when it will be useful to take evidence from the ASX, particularly in relation to dark pools and high frequency trading (see chapter 2).

Key issues and the structure of the report

1.9        This report deals with a range of matters that are of central concern to the ASX and ASIC, of particular interest to the committee, and of wider debate and conjecture in the financial community. The areas of discussion common to both agencies concerned 'dark pool' trading and high frequency trading. Chapter 2 of this report presents this evidence.

1.10      Chapter 3 of the report is focussed on ASIC's concerns with the quality of auditing in Australia, and overseas. These concerns have been ongoing. In its submission to this committee's inquiry into the collapse of Trio Capital in 2011, ASIC drew attention to its project aimed at developing a better understanding of compliance plan auditors and its future work plan to monitor auditors' approaches. Both ASIC and the committee laid part of the blame for the collapse of Trio Capital with the failure of Trio's auditors to exercise their duties properly. In December 2012, ASIC's attention on the poor quality of auditing was refocused by the findings of its 2011–12 audit inspection report, and the role of the auditors in the collapse of the rural Victorian lender Banksia Securities Limited.

1.11      Chapter 4 of this report covers a number of other matters of interest to the committee. They are:

  • the Commonwealth Bank of Australia's decision to settle further compensation costs with ASIC in the Storm Financial matter;
  • the prospect of Australian Federal Police investigations into those who perpetrated the Trio Capital fraud, and the prospect of Trio Capital investors receiving compensation from these pursuits;
  • ASIC's progress in consulting with stakeholders on guidance material relating to the Future of Financial Advice reforms; and 
  • the implications in terms of directors' continuous disclosure obligations of the High Court's judgments in the Fortescue Metals and James Hardie cases.

Ms Belinda Gibson

1.12      Ms Belinda Gibson, Deputy Chairperson of ASIC, has indicated that she will not be seeking reappointment when her current appointment expires in May 2013. The committee acknowledges Ms Gibson's considerable contribution since joining ASIC as a Commissioner in November 2007. The Parliamentary Secretary to the Treasurer and the former Chair of the committee, the Hon. Bernie Ripoll, has also formally acknowledged Ms Gibson's work in the oversight of capital markets and supervision of exchange traded markets and brokers, and improvements in disclosure and corporate governance.[3] The committee would like to extend its thanks to Ms Gibson for her cooperative and informative contribution to the work of the committee. It wishes her well in her future endeavours.

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