Chapter 8Conclusions and recommendations

8.1As foreshadowed by previous chapters of this report, this chapter presents the committee’s recommendations from all chapters of this report.

8.2The committee views written in chapters one to seven set out the reasoning for the recommendations made below. The recommendations should be read alongside the supporting committee views in the relevant chapters.

Too much and not enough—ASIC’s remit

8.3This report and indeed the whole inquiry process have shown that ASIC is not a capable regulator. From the opening days of this inquiry, when the committee was inundated with numerous stories of Australians who had lost their life savings, the family home, or their dignity to shady investment schemes and corporate criminals, to ASIC’s continuing attempts to evade this committee’s scrutiny, to the high levels of evidence the committee has received detailing ASIC’s shortcomings, the committee is left with little option other than making the recommendations below.

8.4The value of a robust system of corporate regulation is significant in that it fosters economic productivity and market integrity. The overburdening of ASIC with its excessive remit is one of the principal issues facing Australia’s system of corporate regulation.

8.5In the years ahead, the administration of ASIC’s remit will conceivably become even more challenging, as financial markets and products grow and become more complex, and the threat of digitally enabled misconduct continues to grow.

8.6As such, all recommendations for this chapter flow from recommendations one and two.

8.7The committee recommends that the Australian Government should recognise that the Australian Securities and Investments Commission has comprehensively failed to fulfil its regulatory remit.

8.8The committee recommends that the Australian Government should recognise, based on the finding of recommendation one, that the Australian Securities and Investments Commission’s regulatory failures call into question whether its remit is too broad for it to be an effective and efficient agency, and the government should strongly consider separating its functions between a companies regulator and a separate financial conduct authority.

8.9As all further recommendations of the committee follow from these two recommendations, they refer to the potential replacement bodies for ASIC rather than just to ASIC itself.

Reforms to investigation

8.10More so than other law enforcement bodies, ASIC’s role in enforcing corporations law has as its core object the protection of financial service consumers and investors. This role demands a high degree of transparency from ASIC. It is a fundamental principle of efficient and free markets that goods and services are voluntarily exchanged based on the demand exercised by buyers and the supply offered by sellers.

8.11However, when ASIC’s modus operandi is to undertake investigation and enforcement work in secret, the Australian public is deprived of information that would allow it to engage with financial markets in an informed way. The adverse effects of this information asymmetry was painfully apparent in ASIC’s handling of some of the case studies mentioned in previous chapters, in particular the Courtenay House scheme. As submitters detailed, victims of Courtenay House were continuing to deposit money in the weeks and months immediately before ASIC taking action to end the scheme.

8.12The committee makes the following recommendations relating to investigation:

8.13The committee recommends that the Australian Government urgently address the shortcomings in Australia’s system for handling reports of alleged corporate misconduct. In doing so, the committee recommends that the Australian Government make it a legislative requirement of the Australian Securities and Investments Commission or future regulatory authorities to investigate reports of alleged misconduct at an appropriate rate. Further, the committee recommends that:

the regulator develop consistent standards to transparently report data to the public on the handling of reports of alleged misconduct; and

the regulator establish service standards to require that people who submit reports of alleged misconduct are provided with clear, detailed and timely information on the tangible actions taken in response to their report.

Improving enforcement outcomes

8.14Under ASIC’s responsive regulation approach, ASIC has access to a range of enforcement tools to allow it to respond in a proportionate way to escalating misconduct. ASIC’s enforcement tools include significant powers to respond to severe misconduct. The fact that ASIC wields a ‘big stick’ means that it should be able to ‘speak softly’.

8.15During the inquiry, the committee received evidence of instances where ASIC could have acted earlier and, in doing so, prevented the harm to consumers and investors. While the committee is mindful that corporate misconduct can be inherently difficult to detect, the committee is deeply concerned about the harms to the public that result from the under-enforcement of corporate law.

8.16As such the committee has made the following recommendations relating to enforcement outcomes:

8.17The committee recommends that the statement of expectations which is currently issued for the Australian Securities and Investments Commission:

contain, among other things, expectations and priorities relating to transparency; and

be provided in draft form to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry and report.

8.18The committee recommends that the Australian Government make it a legislated regulatory objective of the Australian Securities and Investments Commission or other regulatory authorities to establish and maintain a high-level of transparency of investigation and enforcement outcomes. Additionally, the committee recommends that these transparency objectives be supported by:

establishing a searchable public register of civil or criminal outcomes arising from reports of alleged misconduct received and the outcome of the proposed regulatory authorities’ handling those reports, subject to appropriate thresholds, similar to the approach taken by the US Consumer Financial Protection Bureau; and

developing a consistent, long-term public reporting framework that quantifies and assesses the proposed regulatory authorities’ performance and capacity to undertake its regulatory functions of investigating and enforcing breaches of corporations law.

8.19The committee recommends that the Australian Government investigate amending the whistleblower protection provisions in the Corporations Act 2001 to include pecuniary incentives and compensation for whistleblowers who make a substantiated disclosure. The committee recommends that the pecuniary provisions be examined with a view to:

establishing a financial incentive for whistleblowers to make a disclosure in circumstances where addressing the misconduct would result in a significant public benefit; and

establishing a financial compensation mechanism for whistleblowers who are unable to make a disclosure in the public benefit without experiencing significant personal detriment, such as loss of career prospects.

8.20The committee recommends that regulatory authorities adopt an enforcement approach which prioritises the litigation of all serious instances of suspected breaches of corporations law, particularly in cases where consumer losses arise, or could have potentially arisen, from such breaches.

Governance and funding

8.21ASIC’s governance arrangements show a clear need for reform. The ‘Swiss cheese’ approach to governance which is the current status quo in ASIC is clearly unsatisfactory and has allowed for poor performance and infighting between its statutory appointees to become the norm.

8.22The committee has also made recommendations around ASIC’s funding arrangements based on the evidence it received that the industry funding model was not fit for purpose.

8.23The committee recommends that the Australian Government review a new governance structure for the Australian Securities and Investments Commission or any new regulatory bodies. This structure would have a Chair or Chief Executive Officer as sole statutory appointee and accountable authority and the appropriateness of the commission structure entirely should be explored.

8.24The committee recommends that the Australian Government should ensure that a legislated code of conduct be included as part of the governing documents of ASIC or any alternative regulatory bodies, and that the Chair and any other statutory appointees can be sanctioned for workplace misconduct that is found to have breached this code. Further, the committee recommends that the Australian Government establish a mechanism by which an alleged breach of this code of conduct by a statutory appointee can be examined by an appropriately independent and qualified panel.

8.25The committee recommends that the Australian Government reverse its decision, announced in the 2023–24 Budget, to reduce the frequency of Financial Regulator Assessment Authority (FRAA) reviews from every two years to every five years. Further, the committee recommends that the FRAA undertake an inquiry into the effectiveness of the oversight mechanisms of corporate regulators.

8.26The committee recommends that the Australian Government reassess the funding arrangements for the Australian Securities and Investments Commission or any alternative regulatory authority so that:

a greater level of funding can be directly resourced with the proceeds of regulatory fines—including late fees, court fines, penalties and infringement notices;

all reasonable steps are taken to ensure levies charged on industry subsectors under the Industry Funding Model are reduced commensurate with increased resourcing to the regulator through the proceeds of fines; and

it is ensured that regulatory authorities are accountable for the level of resourcing linked to cost-recovered activity, and face obligations to rationalise surplus resourcing to reduce costs on the industry subsector participants.

Senator Andrew Bragg

Chair

Liberal Senator for New South Wales