Chapter 6Resourcing and capabilities
6.1This chapter considers the resourcing and capabilities of the Australian Securities and Investments Commission (ASIC). This chapter discusses issues relating to ASIC’s budget, Industry Funding Model, staffing arrangements and technological capabilities.
Introduction
6.2ASIC’s total funding is determined by the Australian Government. ASIC receives government funding in the form of annual departmental appropriations. These appropriations are partly recovered through industry funding levies and fees-for-service charged to industry participants on a cost recovery model referred to as the Industry Funding Model (IFM). In 2022–23, ASIC received approximately $426 million in operating appropriation revenue from government. ASIC collected approximately $1.835 billion for the Commonwealth in fees, charges, and supervisory cost recovery levies in the same period.
6.3ASIC employs approximately 1800 staff, with the majority allocated to just three areas, the Enforcement, Surveillance, and Strategic Support and Corporate Services groups. Under its Chair, Mr Joseph Longo, ASIC is seeking to enhance its use of emerging technologies and has embarked on a ‘digital transformation’ to increase its data analytics capabilities.
6.4In general, inquiry participants expressed significant concerns regarding either the adequacy of ASIC’s resourcing or the lack of a corresponding relationship between resource levels and regulatory outcomes. Broadly, these inquiry participants expressed concerns about the following matters:
the lack of improvements in ASIC’s regulatory outcomes despite significant increases in funding in recent years;
how ASIC’s budget was determined by the government;
the relationship between the government and the regulator; and
the equity, effectiveness, and administration of the IFM.
6.5Further, some inquiry participants expressed concerns that ASIC’s staffing profile was fundamentally unbalanced and insufficient, raising questions about the competency of ASIC’s staff.
6.6In addition, inquiry participants questioned ASIC’s embrace of new technologies and its commitment to digital transformation. Inquiry participants claimed that ASIC appears unwilling or unable to catch-up with technological developments in the corporate and financial services industry.
Budget overview
6.7ASIC has $481.2 million in available funding for the 2023–24 financial year and has been allocated a departmental operating appropriation of $433.7 million for the same period. As discussed in Chapter 3, these funds consist of resources provided by both departmental appropriations and revenue from independent sources. According to its 2023–27 Corporate Plan, ASIC received approximately $433 million in departmental appropriations, $23 million in revenue from independent sources and another $23 million in capital appropriations for the 2023–24 financial year.
6.8ASIC’s total budgeted resources are set to decrease to approximately $464 million in 2024–25 before increasing to approximately $475 million in 2026–27. Total funds sourced from departmental appropriations and capital appropriations are projected to remain steady through to 2026–27.
ASIC’s budget over the past decade
6.9As discussed in Chapter 3,ASIC’s funding has increased substantially in the past decade. ASIC’s agency resource statements show that ASIC’s appropriations have increased by 65.3 per cent from $471.3 million in the 2011-12 financial year to $779.1 million in the 2020–21 financial year. These increases represent significant portions of ASIC’s pre-existing budget.
6.10In the 2024-25 Budget, ASIC received $42.5 million in additional funding over four years ‘to regulate and support new beneficial ownership transparency requirements for Australian companies and other entities’. This funding includes resources to improve data capability and cyber security, combat financial scams, modernise digital assets and payments regulation, and promote sustainable finance markets as part of the Future Made in Australia Act initiative.
6.11Mr Longo recently conceded that some matters for potential investigation reported to the regulator were not pursued due to a lack of funds. Mr Longo explained ‘there are matters we would like to run now we don’t run because they don’t meet our priorities’. Further, the Chair stated that although the regulator will always require more money, he was realistic about the prospect of enhanced resources, given the pressures on the federal budget. Mr Longo stated, ‘a regulator like us is very unlikely to ever be resourced to do all the things we would like’.
6.12ASIC has changed its approach to budgeting in recent years. In its 2022 review, the Financial Regulator Assessment Authority (FRAA) noted that ASIC had begun to take steps to integrate its budget processes with its broader strategic planning. The FRAA advised that ASIC will also conduct intra-year budget allocations through periodic reforecasting and budget review to improve the allocation of funds it receives via parliamentary appropriation, own-source revenue and capital appropriations. ASIC’s Executive Committee will oversee the application of any surplus funding to projects, and track overspending on other projects.
ASIC’s budget fails to adequately support its regulatory functions
6.13Some inquiry participants expressed concerns that the size and determination of ASIC’s budget has limited its overall effectiveness as the corporate and financial services regulator.
6.14The committee heard from some submitters that ASIC’s reliance on appropriations from government compromises its overall organisational capacity and flexibility. For example, citing the evidence of one ASIC investigator, Dr Schofield-Georgeson provided evidence that the obligations associated with reliance on public funds restrains ASIC’s ability to operate and delays its response time. Dr Schofield-Georgeson argued that the burdens associated with reliance on public funds has encouraged the regulator to settle actions brought against corporate actors rather than prosecute them.
6.15Further, former Chair of ASIC, Mr James Shipton, claimed that ASIC’s ability to adequately perform its regulatory functions is limited by its reliance on government appropriations, creating a ‘funding envelope’. Mr Shipton also claimed that ASIC had not been a funding priority for the government, despite its increasing regulatory scope. Mr Shipton made the point that ASIC staff are in effect responsible for ‘enforcing and policing the entirety of the Australian economy’ but noted that ASIC’s resourcing had not increased in line with the economy. Mr Shipton also noted that the dynamics of the economy had changed significantly since ASIC’s commencement, increasing the demands on the regulator, but that ASIC’s resources had not increased in line with these changes.
6.16In general, inquiry participants claimed that ASIC’s regulatory remit is simply too broad for its budget and that the regulator has insufficient funds to support the full scope of its regulatory operations. Submitters expressed support for increasing ASIC’s budget to ensure it could adequately perform the full range of its regulatory functions.
6.17In her evidence to the committee, legal academic Ms Helen Bird asserted that if ASIC’s existing remit is to be maintained, its resources should be significantly increased to accommodate the full scope of its regulatory functions. Ms Bird suggested that if the government was reluctant to fund ASIC commensurate with its broad regulatory remit, the regulator should be reconstituted into several separate agencies.
6.18Other submitters expressed disappointment that ASIC’s budget has continued to increase at a strong and consistent rate despite ongoing concerns about the capability and performance of the regulator. For example, the Hon Bob Katter MP observed that while ASIC’s budget had risen substantially to almost half a billion dollars in recent years, this increase has not been met with a corresponding improvement in the regulator’s performance.
Industry funding model
6.19As discussed in Chapter 3, under the IFM ASIC recovers costs associated with its regulatory activities from industry participants using levies and fees. These charges reflect the cost of regulating different sub-sectors of the corporate and financial services industry.[31]
Overview
6.20The IFM was designed in accordance with two key principles: firstly, that cost recovery fees and levies attributable to regulated activity are considered as a funding mechanism prior to budget funding; and secondly, that those who create the need for government activity or regulation, should be responsible for financing it, rather than general taxpayers.
6.21Recommending the adoption of an industry-based funding model in its 2014 final report, the Financial Systems Inquiry (the Inquiry) observed that the adoption of such a model would increase the transparency and equity of costs charged to industry participants and would make ASIC’s funding more secure and independent. Prior to the introduction of the IFM, ASIC was primarily funded by taxpayers through government appropriations.
6.22ASIC publishes an annual Cost Recovery Implementation Statement (CRIS) for consultation with industry participants. The CRIS outlines the estimated costs of ASIC’s regulation and how the regulator intends to recover these costs through the IFM. In 2022–23, ASIC estimated that it would recover $352.0 million in regulatory costs under the IFM, including $19.9 million in allowance for capital expenditure less costs funded by own-source revenue and adjustments from 2021–22. According to the CRIS, approximately $111.1million or 31.6 per cent of these costs are related to enforcement activities. ASIC collects and administers revenue and prescribed fees under a number of different statutes.
6.23In June 2023, the Department of the Treasury (Treasury) undertook a review of the IFM to assess whether it was meeting the government’s 2015 Charging Framework objectives and supporting the adequate performance of the regulator.
6.24The review concluded that the settings of the IFM were broadly appropriate to support the performance of ASIC’s regulatory responsibilities and that no substantial changes to the model were required. The review suggested that the principles which underpin the IFM should be expanded to ‘account for the benefits entities receive from ASIC’s regulatory activities’. The review made a series of recommendations suggesting technical changes to how levies charged under the model are calculated. These recommendations also concerned ASIC’s reporting, transparency and consultation requirements.
6.25The IFM consists of industry funding levies (both cost recovery levies and statutory levies) charged annually to entities across 52 industry sub-sectors and fees-for-service charged to individual entities. These two components of the IFM are outlined in more detail below.
Industry funding levies
6.26The majority of ASIC’s regulatory costs recovered under the IFM are collected through levies imposed on specific sub-sectors of the industry which fall under ASIC’s regulatory remit. These funds are collected under the ASIC Supervisory Cost Recovery Levy Act 2017 and the ASIC Supervisory Cost Recovery Levy Regulations 2017. This revenue is not available to or accessible by ASIC and is remitted to the Commonwealth Official Public Account upon collection.
6.27As discussed in Chapter 3, as of 2021–22, there are 52 industry sub-sectors from which ASIC recovers its regulatory costs through levies. Each sub-sector falls under one of the following categories:
corporate (6 sub-sectors);
deposit taking and credit (6 sub-sectors);
investment management, superannuation, and related services (8 sub‑sectors);
market infrastructure and intermediaries (24 sub-sectors);
financial advice (4 sub-sectors); and
and insurance (4 sub-sectors).
6.28These levies are calculated and invoiced at the end of the financial year to the 52sub-sectors, with costs recovered based on the regulatory effort incurred by ASIC in regulating each sub-sector. A time measurement system is used to calculate the cost of regulatory activities for each sub-sector. Once calculated, indirect costs are allocated to each sub-sector by ASIC proportionate to the internal support they receive and allocated to sub-sectors using the same methodology as direct costs. ASIC expanded on this point in its evidence to the committee:
We efficiently manage the resources allocated to us by prioritising the most significant threats and harms in our regulatory environment. This is reflected in the allocation of levies under the industry funding model.[48]
Fees-for-service
6.29As part of the IFM, ASIC also directly charges fees for user-initiated and transaction-based activities where the regulator provides a specific service to individual entities. These fees are charged by ASIC when a service or regulatory activity is provided directly to an individual or organisation. This includes, for example, an application fee for an Australian Financial Services License, which would be payable at the time of application by an individual or organisation.
6.30The fees-for-service component of the IFM commenced in July 2018 and accounts for approximately 3 to 5 per cent of the total revenue recovered by ASIC under the IFM. Under the charging framework, fee amounts are to be calculated in a way that reflects the cost to ASIC of administering the service and enables full cost recovery. The government retains the discretion to charge no or a partial fee if charging would not support achieving the government's policy objective.
6.31ASIC collects fees in relation to five distinct categories of activity;
license application or variation services;
registration application services;
compliance review of documents lodged with ASIC;
requests for changes to market operating rules; and
applications for relief.
Concerns regarding the IFM
6.32Evidence received by the committee indicated a high level of dissatisfaction with the IFM among industry participants and other relevant inquiry participants. Submitters to this inquiry claimed that the IFM was fundamentally inequitable, targeted particular industry sub-sections and lacked transparency. Some inquiry participants also argued that the IFM compromised ASIC’s independence from government by providing the regulator with a dual incentive to both regulate the corporate and financial services industry raise and revenue for the government.
Levies are inequitable and inefficient
6.33The Financial Services Council expressed concerns that ASIC’s IFM places an excessive burden on financial services businesses and argued that further funding increases should be provided by government, not the industry.
6.34The FSC noted that ASIC had consistently received substantial funding increases to properly perform its duties, with the majority of this additional cost burden falling on industry participants. The FSC also objected to the IFM as a matter of principle, asserting that requiring third parties to pay for the wrongdoing of non-compliant actors in the financial services industry constituted a form of moral hazard. The FSC questioned why the IFM does not include any funds from the government’s consolidated revenue fund, considering that ASIC’s activities serve and protect ‘the public’ at large more so than they do individual industry participants.
6.35In response to a question on notice about the potential unfairness of making well-behaved firms pay for the cost of regulating poorly-behaved firms, ASIC responded that ‘the operation of ASIC’s industry funding model is a matter for Government’ and referred to the Treasury review.
Disproportionate burden on financial advisers
6.36Some inquiry participants expressed concerns that the IFM imposed a disproportionate regulatory burden on certain industry participants, including small financial advice firms, compromising their ability to provide quality financial services to consumers.
6.37For example, the Stockbrokers and Investment Advisers Association (SIAA) submitted that levies charged on financial advisers under the IFM had increased exponentially since the model was first implemented. SIAA cited figures indicating that levies for financial advisers under the IFM had increased by 246per cent over the 2018–19 estimate.[60] Despite claims from Treasury that the IFM would have a minimal impact on industry participants when introduced, SIAA stated that the levies had become unpredictable to the extent that financial advisers were incapable of reasonably budgeting for the levies each financialyear.
6.38SIAA also asserted that the burden of these levies on financial advisers was inconsistent with their relatively small presence in the industry. SIAA submitted that these levies do not accurately reflect the cost of regulating these firms, and therefore, are inconsistent with the model’s design principles. SIAA claimed that smaller firms in the financial advice sub-sector are subsidising the costs of regulating larger firms which are outside of the financial advice sub-sector. SIAA argued that under the IFM, the personal financial advice sub-sector was effectively funding large-scale litigation commenced by ASIC against non-compliant large financial services firms.
6.39Mr Ross Smith, Director of Shenton Ltd and Shenton Pty Ltd, outlined the burden industry funding levies place on financial advisers:
… the ASIC industry funding levy on financial advisers is based on ASIC’s dubious accounting of its investigation and enforcement costs. Financial advisers had no voice and no opportunity to reject the levy. ASIC said: ‘It’s in the legislation. You have the license; you have to pay.’ This caused severe duress for financial advisers servicing their clients. We are not financial institutions with deep pockets. No other service providers have to pay an industry funding levy to recoup the costs of a government agency – not accountants, not actuaries, not real estate agents and not used-car salesman.
6.40Other inquiry participants provided in-principle support for the IFM but argued that industry funding levies were too high and have continued to increase despite the concerns of industry participants. The National Credit Providers Association (NCPA) stated that these levies were increasingly being imposed on small and medium sized credit providers with limited capacity to absorb them. The NCPA also claimed that the levies were disproportionate to the costs of regulating these firms and their presence in the industry.
Levies are poorly calculated and lack transparency
6.41Inquiry participants also expressed concerns about how these levies are calculated, and the transparency of the calculation process. SIAA submitted that, under the IFM, the cost of levies to stockbroking firms associated with ASIC Market Supervision activities was disproportionately large. SIAA submitted that these levies would particularly disadvantage participants employing many retail advisers. Further, SIAA claimed that stockbrokers advising retail clients should not be charged the same fees as advisers in other financial sectors given significant differences between the two professions.
6.42Inquiry participants also claimed that the calculation of industry funding levies lacked transparency and that there was little understanding about how regulatory costs were allocated among the industry sub-sectors by ASIC. SIAA claimed that industry participants should be able to know which regulatory activities or litigation their industry funding levies are being used to finance. Mr Smith expanded on this point in his evidence to the committee:
The industry funding levy [is] objectionable because (1) there’s no factual evidence of disclosure, and (2) there’s no open accountability on enforcement costs making up they levy on financial advisers.For my two small businesses last financial year, we estimate that our levies will be around $35,000 for 10 advisers; that is four times the 2018 levy.
6.43Other inquiry participants argued that this lack of transparency had a trickle-down effect on industry participants. These inquiry participants argued that a lack of transparency about how industry funding levies were calculated by ASIC meant that industry participants were unable to effectively determine their own budget due to an inability to predict costs charged under the IFM. Mr Peter Alvarez, Navigate Wealth, expanded on this point:
The ASIC funding levy has risen from $2,000 in 2019 to $6,500 today—taking into account that the last two years were frozen due to the pandemic. We are required to forward project and budget our expenses annually as part of our annual audit obligations, but, if our ASIC funding levies are rising 30 to 40 per cent annually, how do you expect us to do this accurately, and how is this sustainable in the long term? Small accounting practices don't pay these sums of money to the ATO to regulate them, nor do lawyers pay these sums of money to the law societies, nor do other professions.
6.44SIAA asserted that the design, structure, and legislative framework of the industry funding levies indicate that the model is not flexible enough to allow the regulator to adequately respond to changes in the markets.
ASIC’s independence and budgetary integrity
6.45ASIC is a substantial net revenue contributor to the Australian Government. In his submission, Mr John Adams noted that ASIC’s net transfers to the Commonwealth Official Public Account have increased substantially from $632.5 million in 2013–14 to $1.67 billion in 2020–21. ASIC’s contributions to the Australian Government have led some inquiry participants to argue that the regulator has a ‘dual mandate’ of regulatory enforcement and revenue raising, creating a conflict of priorities.
6.46Inquiry participants expressed concerns that ASIC’s budget would increase exponentially under the IFM due to the lack of a control mechanism to restrain ASIC’s expenditure. SIAA submitted that the rate of increase in ASIC’s funding will continue unchecked under the IFM as the model does not require the regulator to be held accountable for its expenditure. SIAA contended that this was distinct from parliamentary appropriations, where ASIC’s expenditure is set by and accountable to government. SIAA recommended that the government commit to funding at least 50 per cent of ASIC’s budget with the remainder financed by the IFM. SIAA also submitted that the scope and nature of regulatory activities conducted by ASIC make departmental appropriations a more appropriate source of funding for the regulator than the IFM.
6.47Some inquiry participants expressed concerns that the IFM allows fines and other recovered costs associated with enforcement action to be paid into the consolidated revenue fund. These inquiry participants argued that this represented a windfall gain for the government, demonstrating that the model is being used to bolster government revenue, rather than genuinely offset ASIC’s regulatory costs.
6.48The Institute of Public Accountants (IPA) expressed concerns that the IFM treats industry participants as a ‘slush fund’ for ASIC, citing a 160 per cent increase in industry funding levies over the last two-to-three years.
6.49To address these concerns, some submitters suggested that consideration should be given to changing the ASIC IFM from an ex-post model, where costs are recovered in the financial year after the regulatory costs were incurred, to an ex-ante model, where costs are recovered before they are expended. The FSC submitted that the ex-post model does not require ASIC to efficiently set a budget and determine resource allocations in advance, distinct from similar financial regulators in comparable jurisdictions. Accordingly, the FSC recommended that costs be recovered under the IFM before they are expended to encourage responsible budgeting.
6.50In response to these concerns, ASIC stated that ‘the design and structure of ASIC’s industry funding model is a matter for the Australian Government’ and referred to the review of the IFM undertaken by Treasury.
Alternative funding models
6.51Most inquiry participants providing views on the IFM expressed interest in alternative funding models. SIAA expressed support for a 50–50 funding model whereby half of ASIC’s funds were provided by government with the remaining half sourced under a more equitable and better targeted version of the IFM. If the government is reluctant to contribute to ASIC’s costs, SIAA recommended that parliament legislate a cap on ASIC’s budget.
6.52The FSC recommended that increased funding for ASIC should not be provided through the IFM. The FSC reiterated that it would be inappropriate to require the industry to pay more and suggested that increased funds be sourced from additional government appropriations or by diverting funds or further investment from ASIC’s existing budget. The FSC also recommended that ASIC consider how it could better control enforcement costs by better allocating staff and funds to particular workstreams.
6.53Other inquiry participants suggested that all of ASIC’s regulatory costs associated with enforcement be sourced from the Enforcement Special Account (ESA), funded by government appropriations. Currently, the ESA is designed to support ‘large matters’ which are ‘exceptional matters of significant public interest’. ASIC requires the approval of the Treasurer on a case-by-case basis to access funds in the ESA. Mr Shipton recommended that all of ASIC’s enforcement activities should be funded by the ESA and that the regulator should be able to access this fund without the Treasurer’s approval. Mr Shipton argued that this should replace ASIC’s reliance on industry funding levies.
6.54One submitter argued that the IFM should be reconstituted so that fines paid to ASIC for regulatory breaches are placed directly in a special account and paid to investors who have suffered detriment as a result of wrongdoing.
Staffing
6.55Inquiry participants emphasised the need for ASIC to have qualified, experienced, and capable staff to perform its regulatory role and responsibilities. As discussed in Chapter 3, ASIC employed approximately 1831 full-time equivalent staff as of 30 June 2023.
6.56ASIC’s internal staffing profile has undergone significant changes since Mr Longo was appointed Chair in 2021. Following the conclusion of the FRAA’s periodic review, in May 2023 Mr Longo announced a dramatic restructure of the regulator, merging its two enforcement teams into one and creating an expanded regulation and supervision division.
6.57This restructure followed the departure of several senior executives including two ASIC commissioners, the Chief Financial Officer, and the Chief People Officer among other high-level officials. Further, in May 2024 ASIC announced the departure of its Chief Executive Officer, seconded to the Department of Public Prosecutions, and the Executive Director of Enforcement andCompliance.
6.58Unfortunately, ASIC’s staffing does not appear to have kept pace with either its expanding remit or its increased financial resources. In its first full year of operation, ASIC had a total staff of 1527.[101] This figure has increased by just over 300 personnel as of June 2023. This is despite a substantial increase in ASIC’s budget in the same period. Further, the number of ASIC employees has fallen since the 2020-21 financial year, as show below in Figure 6.1.
Figure 6.1ASIC's funding, amounts recovered through the IFM and ASL from 2012–13 to 2020–21
Source: Australian Government, Portfolio Budget Statements Treasury Portfolio, 2012–13 to 2022–23; ASIC, Cost Implementation Recovery Statement: ASIC industry funding model, 2017–18 to 2021–22.
Concerns
6.59The committee received a number of submissions expressing concerns about ASIC’s staffing, particularly whether the skills and capabilities of ASIC staff are aligned to ASIC’s wide spectrum of regulatory functions, and ASIC’s approach to hiring more generally.
Skills, capabilities and number of ASIC staff
6.60In its 2023–27 Corporate Plan, ASIC committed to providing staff with the necessary ‘tools, knowledge, and capabilities’ to maximise the effectiveness of its regulatory outcomes.
6.61In its 2022 review, the FRAA observed that the capabilities and skills of ASIC’s workforce were central to the regulator’s success. The final report of the Financial System Inquiry released in 2014 raised concerns about ASIC’s ability to attract staff who could support its regulatory remit and operational flexibility. The Inquiry expressed concerns that ASIC’s target renumeration was too low to attract the staff it required to fulfill its regulatory responsibilities effectively.
6.62Some witnesses claimed that ASIC’s staff lacked the requisite skills and knowledge to adequately perform ASIC’s regulatory activities. Mr Daniel Schlaepfer, President and Founder of Select Vantage Inc., claimed that ASIC staff had handled his matter in an unprofessional manner and that the regulator was operating ‘below a level of experience and competence that we find with most other regulators’. Mr Schlaepfer also told the committee that he found ASIC staff’s understanding of trading in Australia, and in general, inadequate. These concerns were echoed by Mr Lachlan Walden:
According to ASIC’s own submission to this inquiry, there are 82 full-time equivalent employees in their markets group responsible for market supervision … you really have to wonder what these employees do. There’s a culture that’s grown where the dodgy characters on the ASX get away with small indiscretions, and, soon enough, company directors, brokers and traders push the limits, knowing that there’s no tough cop on the beat and there won’t be repercussions.
6.63However, previous ASIC employees and other inquiry participants have rejected this characterisation of the regulator’s staff. In his evidence to the committee, Mr Shipton defended ASIC staff, characterising ASIC’s line officers as dedicated, focused, and motivated. These views were echoed by Ms Peta Stead, Senior Regulatory Consultant at CISA Consulting Pty Ltd, who praised the dedication of ASIC staff. In her evidence to the committee, Ms Stead stated that ASIC staff have a strong worth ethic and are committed to supporting good regulatory outcomes.
6.64Questions have also been raised about ASIC’s ability to retain qualified staff, with media reports indicating that ASIC officials are warning of a ‘brain drain’ within the agency. One such reportsuggested that the departure of three senior executives in April 2024 had erased ‘53 years of collective experience’.
6.65Further, Mr Shipton claimed that ASIC’s staffing numbers are too small to adequately support the full scope of its regulatory remit. Mr Shipton stated that ASIC staff are effectively responsible for monitoring the entirety of the Australian economy. Mr Shipton compared ASIC’s staffing numbers and regulatory remit with that of the police force:
… there are 2,000 people at ASIC around today. There are 65,000 police officers in Australia. The 65,000 police officers police, appropriately, the community, yet we have only 2,000 policing our massive financial and corporate sector, a corporate sector that is about the 13th largest economy in the world. To put that 2,000 personnel number in perspective, that’s equivalent to the size of the Northern Territory police force. So essentially you have a small number of people trying to police and enforce against a massive economy and a massively growing economy. Meanwhile, the asks, both legislatively and from community expectations, are expanding.
Unbalanced staffing profile
6.66Some inquiry participants asserted that ASIC had an unbalanced staffing mix, with an asymmetric and ‘top-heavy’ staffing profile. In his submission, Dr Schofield-Georgeson asserted that ‘neoliberal management’ at ASIC had increased the number of senior executive staff at the expense of lower-level investigative staff with institutional knowledge of ASIC’s role and responsibilities. Dr Schofield-Georgeson claimed that under-enforcement was due to the capabilities of ASIC staff, attributing failures of the regulator to a lack of key skills within the agency itself.
6.67Some inquiry participants asserted that this unbalanced internal dynamic was reinforced by confusion relating to the employment of higher-level executives within ASIC. Mr Shipton noted that ASIC commissioners have structurally distinct employment arrangements from other ASIC staff and report directly to the Governor-General on the advice of the executive. Mr Shipton asserted that there remains considerable confusion about the precise role and responsibilities of ASIC commissioners and their place in ASIC’s internal structure. Mr Shipton claimed that these distinct terms of employment limit the accountability and effectiveness of ASIC commissioners, potentially undermining the coherence of ASIC’s internal structure.
6.68Further, other submitters expressed concerns about the lack of internal information sharing between ASIC employees and the impact this has on their overall knowledge, skills, and abilities. Mr John Adams of Adams Economics observed that the FRAA report indicated that information is rarely shared between different teams. Mr Adams also noted that the capabilities of ASIC staff are crucial to its ability to meet its regulatory outcomes. To this point, MrAdams highlighted a survey which indicated that only 13 per cent of those surveyed agreed that ASIC staff ‘had the right skills and capabilities to make regulatory decisions’.
Technological capabilities
6.69ASIC has stressed that one of its primary objectives is ‘to transform ASIC into a leading digitally enabled and data-informed regulator and law enforcement agency’. ASIC claimed that its 2022–23 organisational redesign would support the regulator’s transformation in this respect.
Recent developments in ASIC’s digital transformation and technology strategy
6.70Mr Longo has acknowledged the importance of enhancing ASIC’s digital and technology capabilities. Appearing before the Parliamentary Joint Committee on Corporations and Financial Services in June 2024, Mr Longo stated that enhanced technological capability was ‘more important than ever’ given the pace of innovation in the rapidly changing corporate and financial servicessectors.
6.71Accordingly, Mr Longo accepted the recommendation of the FRAA that ASIC significantly improve its data and technology capability in line with innovations in the corporate and financial services sectors. Mr Longo stressed the urgency and importance of this objective in his evidence to the committee:
ASIC is in a digital arms race, with AI rapidly being adopted in financial services firms and digitally-enabled misconduct is on the rise.
6.72Mr Longo also emphasised the importance of ASIC’s technological capabilities matching those of the industry participants it seeks to regulate:
If I was to point to one issue that this agency faces in terms of its effectiveness and efficacy it's technology and data. If we do not invest in this area then our effectiveness as a law enforcement agency will diminish very quickly. Why is this? Well, it's obvious, isn't it? It's because there isn't a single business in the country or institution that is not itself reliant on data and technology. So, there isn't a single investigation or piece of work we do at ASIC where technology isn't a feature. If we don't invest in that then that will directly affect our efficacy.
6.73In 2022–23, ASIC undertook a review of all external digital interactions and worked with external inquiry participants to identify areas for improvement. Among subsequent improvements, ASIC cited the redevelopment of its licensing systems, enhancement of its data platform and storage systems, including a data partnership with the Australian Prudential Regulation Authority (APRA), and the implementation of a data ethics framework. ASIC elaborated on these developments in its 2023–27 Corporate Plan, stating it would ‘use data and technology to move quickly and accurately identify harms in our environment and to support improved decision making.
6.74Further, the Office of People, Transformation and Technology responsible for harnessing ‘the power of people, data, technology and digital transformation’ was recently elevated in a restructure announced by Mr Longo in May 2023.
6.75ASIC also announced its intention to launch a ‘Professional Registers Search’ (PRS) in June 2024. The PRS will provide an improved search functionality for members of the public, allowing users to search for a license or registration across multiple databases. Under the PRS users will be able to filter search results to find more specific information, such as a license or registration in their home state or territory. The PRS has been designed with a ‘user-first’ approach with more professional register extracts and documents to be made available by the end of 2024. ASIC stated that the PRS is a central element of its transformation into an ‘efficient data-driven regulator with a digital front door’.
6.76ASIC uses technology to assist with working through reports of alleged misconduct, specifically to determine how its resources should be best allocated to address the most serious harms. ASIC noted that as the volume of data it receives increases, the use of technology to effectively measure and address these complaints will become even more important. Associate Professor Vivienne Brand expanded on the potential for technology to assist ASIC’s investigatory and assessment functions in her evidence to the committee:
… technology is being used increasingly. AI has a part to play. It's being used. It's being used in a negative sense as well. The UK regulator relies upon probability analysis about particular industries and the number of tips they expect to be getting. If they're not getting tips from a particular entity within that industry at that rate, they then go looking because it suggests to them, for instance, that there is not sufficient whistleblowing occurring in that location. You can use technology in quite creative ways.
ASIC’s approach to Artificial Intelligence (AI) technologies
6.77ASIC has increasingly explored the use of AI to enhance the performance of its regulatory functions. According to its 2023–2027 Corporate Plan, ASIC is ‘closely monitoring the development and application of artificial intelligence’ and is investigating its potential application to its regulatory activities, particularly the earlier detection of harm and misconduct.
Technological developments in the corporate and financial services industry
6.78ASIC’s goal of enhancing its digital and technological capabilities follows significant technological developments in the corporate and financial services industry. These developments have substantially changed the behaviour of industry participants and the dynamics of the industry, and have the potential to radically alter the role and responsibilities of the regulator itself.
6.79Research indicates that corporate engagement and governance has changed significantly as a result of technological innovation, with online platforms giving rise to the democratisation of financial markets and altering the nature of corporate engagement with investors. As a result, a larger proportion of corporate activity is occurring online, changing the volume and character of industry participants. Some academics have warned that these developments may render existing regulatory frameworks outdated and unworkable.
6.80These technological developments have included the adoption of AI by some industry participants, notably large corporations. The use of AI in the corporate and financial services industry has the potential to significantly alter corporate governance and engagement frameworks, including the duties of company directors. As a result, research indicates that industry participants will need to employ more executive level staff with knowledge of and experience with AI and increase levels of understanding of AI across their organisation more broadly.
6.81Academics have noted that some corporate regulators have already incorporated AI into their regulatory technology or ‘RegTech’, specifically in the banking, securities, insurance, and financial services sectors. However, research indicates that the use of the technology in the corporate and financial services sectors should be limited as the technology develops and balanced with human supervision and oversight.
ASIC’s take-up of new technologies in line with industry
6.82Industry participants and government bodies have expressed concerns that ASIC is not sufficiently enhancing its data, digital and technology capabilities in line with developments in the industry. This is despite significant technological advancements, and ASIC itself acknowledging the importance of developing technological capabilities in line with industry.
6.83In its July 2022 review of the regulator, the Financial Regulator Assessment Authority (FRAA) noted that ASIC required a ‘substantial uplift in its data and technological capability’. The FRAA noted a ‘long-term underinvestment in ASIC’s data and technology capability’ and attributed this to a disproportionate focus on short-term concerns at the expense of strategic planning.
6.84According to the review, ASIC staff attributed this underinvestment to risk aversion, a lack of internal collaboration, and broader short-termism within the regulator. The FRAA observed that improved data, analytics, and technology capabilities would allow ASIC to better identify and action ‘emerging harms, strategic priorities, and deliver a digital inquiry participants experience’. As referenced above, ASIC has noted and accepted the FRAA’s recommendation concerning the regulator’s technological capabilities and has placed new emphasis on its digital transformation.
6.85Mr Shipton expressed concerns that restrictions on how the regulator could allocate its funds may have limited its ability to invest in new technologies. Mr Shipton claimed that, in addition to a general shortage of funds, limitations on re-classifying operational expenditure as capital expenditure have prevented ASIC from adequately investing in AI, machine learning, big data, coding and cyber protection. This is inconsistent with Mr Longo’s commitment to lead a digital transformation within ASIC and encourage the use of new technologies.
6.86To encourage adoption of these new technologies, Mr Shipton argued that government should provide ASIC with dedicated funding for emerging technologies and allow ASIC to reclassify and redirect funds in its budget to these investments.
6.87Inquiry participants noted ASIC’s intention to create and enhance its digital strategy, but expressed disappointment that the regulator was behind on these issues, given its substantial role and responsibilities. For example, the IPA noted ASIC’s intention to expand its data analytics, AI, and machine learning technologies but expressed concerns that the regulator had not been more proactive on these issues, given the importance of data collection to effective corporate regulation.
6.88The IPA also observed that it had yet to see the benefits of ASIC’s data and digital transformation, stating that ASIC’s general approach to sharing information with inquiry participants falls short of an ‘open data policy’. The IPA recommended that ASIC’s data and digital transformation be accelerated given the pace of technological advancement in the corporate and financial sectors.
6.89Similarly, the Financial Services Committee of the Law Council of Australia (the Law Council) expressed concerns that ASIC was not using new technologies at the same rate as industry participants. The Law Council submitted that ASIC had not made the same level of investment in information technology to assist with identifying and measuring trends in its data as private sector financialinstitutions.
6.90The Law Council claimed that new fast-moving scams and other predatory operations powered by technological advancements have made it imperative that ASIC develop enhanced technological capabilities to monitor and eliminate these harmful activities. The Law Council concluded by observing that more sophisticated systems would allow ASIC to respond to misconduct faster and more effectively.
6.91Other inquiry participants submitted that ASIC should enhance its data analytics capabilities to reduce delays in conducting investigation and enforcement activities. The Australian Banking Association (ABA) expressed concerns about lengthy timeframes for the resolution of matters related to investigation or enforcement activities conducted by the regulator. The ABA noted that these lengthy wait-times are detrimental to consumer experiences and can create uncertainty within the industry. To reduce these wait-times, the ABA recommended that ASIC be provided with dedicated funding to enhance the regulator’s data analytics capabilities.
6.92Further, given ASIC’s wide regulatory mandate, submitters recognised that its digital services must be accessible to industry participants and individuals seeking to make a complaint.
6.93Mr Adams noted that ASIC’s website contains a high volume of complex legal information which is not easily accessible to prospective complainants seeking to report wrongdoing. Mr Adams highlighted the findings of a digital customer interaction expert that ASIC’s digital services do not meet the Commonwealth’s digital standards, do not support assistive technology, and fail to offer a contemporary experience to consumers.
Committee view
6.94ASIC’s resourcing is of paramount importance to its effectiveness as the corporate and financial services regulator. Without proper budgeting, funding, staffing and technological capabilities, ASIC will be incapable of protecting Australians from the harms of misconduct.
6.95The committee is concerned by evidence received from a wide variety of inquiry participants indicating that ASIC’s resourcing is inappropriate, ineffectual, and, in some respects, counterproductive.
6.96The committee is also concerned by evidence indicating that ASIC’s budget is not supporting adequate regulation of the corporate and financial services industry. The committee finds it astonishing that very significant increases in ASIC’s total resourcing have not been matched by a corresponding, or indeed, any improvement in the regulator’s performance.
6.97The committee is disturbed that ASIC continues to take taxpayers’ money, which could be better spent on hospitals, schools, or public services, while failing to protect the Australian people from the significant harms of corporate misconduct. The committee is troubled that ASIC appears neither aware, nor concerned, by its inability to match large increases in resourcing with tangible improvements in regulatory outcomes.
6.98The committee acknowledges evidence that ASIC’s regulatory remit is simply too broad to be supported by any increase in its budget. The committee notes that even ASIC’s Chair, Mr Longo, has acknowledged that ASIC ‘is unlikely to ever be resourced to do all the things we would like to do’. The committee questions the utility of continuing to provide ASIC with large increases in public money while regulatory outcomes deteriorate.
6.99The committee is greatly concerned by evidence indicating that the IFM is inequitable, opaque, and counterproductive to ASIC’s effectiveness. The committee is of the view that it is fundamentally inequitable and inappropriate to charge small-to-medium sized model industry participants for the cost of regulating malicious and non-compliant industry participants. The committee is of the view that charging good actors for the cost of regulating bad actors is unsustainable and creates a form of moral hazard which undermines public confidence in the regulator.
6.100The committee is also concerned by evidence indicating that the IFM provides the regulator with a dual incentive to regulate the corporate and financial services industry and raise revenue for the Commonwealth. The committee is of the view that for ASIC to be a strong and effective regulator, it cannot have the state of the federal budget as one of its motivations or responsibilities.
6.101ASIC’s staff should be industry-leading, equipped with a comprehensive understanding of corporate and financial services regulation. The committee questions how effective the regulator can be if industry participants lack confidence in the capabilities, knowledge, or competency of ASIC’s staff.
6.102The corporate and financial services regulator should be industry-leading in its adoption of new technologies in the corporate and financial services industry. ASIC itself has acknowledged the importance of matching its own technological capabilities with that of the industry.
6.103It is paramount that ASIC have a strong understanding of technological innovations in the industry, as well as its own corresponding capabilities, to guarantee effective corporate and financial services regulation. The committee is dismayed that ASIC’s technological capabilities are considerably behind that of the industry. The committee questions how ASIC can effectively fulfill its mandate if it lacks the technological capabilities of the very industry it is responsible for regulating.
6.104ASIC’s resourcing is inadequate, inappropriate, and fundamentally insufficient across the board. The committee is of the view that ASIC’s poor budgeting, funding, staffing profile and technological capabilities have significantly contributed to its poor regulatory performance. The committee believes that ASIC’s deficiencies in resourcing demonstrate that the regulator is in desperate need of fundamental structural reform.