Chapter 19
ASIC's performance: the perspective of key stakeholders
19.1
The committee received evidence from many organisations representing
various gatekeepers and other professionals, as well as from individual
entities regulated by ASIC. Reflecting ASIC's broad remit, the committee heard
from bodies representing company directors, lawyers, financial advisers and
planners, the superannuation industry, company secretaries, accountants,
auditors and insolvency practitioners. Evidence was also received from consumer
groups, firms and specific entities regulated by ASIC, such as the Australian
Securities Exchange (ASX).
19.2
Given the opportunities available to these bodies to interact with ASIC
and other government agencies, these stakeholders have a unique and valuable
perspective on ASIC's performance. Importantly, they can also channel the views
of the industry or professionals they represent. This chapter examines the
evidence received from these stakeholders regarding how ASIC works with their organisation.
19.3
The committee received suggestions about how industry expertise can be
better utilised by ASIC though co-regulation and secondments. Such proposals
can encourage better regulatory outcomes, but they can also lead to concerns
about regulatory capture or allegations of conflicts of interest within the
regulator.
This chapter also considers these issues.
Overall views on working with ASIC
19.4
The committee was interested in canvassing the views that professional bodies,
industry groups and market operators had on how ASIC worked with their
organisations. Most of the evidence received on this topic was, overall,
positive.
For example, the ASX informed the committee that it works closely with ASIC and
that the processes set up with regular meetings and exchange of information
'work well'. The ASX advised that ASIC 'has shown a willingness to actively
engage with ASX' on various issues. As an example of the benefits of this close
relationship,
the ASX pointed to improvements made by ASIC to the rulemaking process for
listing and operating rule changes.[1]
19.5
Superannuation industry bodies also expressed a generally favourable
view on ASIC's performance and how ASIC works with them. Like the ASX, the
Australian Institute of Superannuation Trustees described a 'close association'
it has had with ASIC in past years.[2]
Industry Super Australia considered that, based on its interaction with ASIC
over recent years, ASIC is 'fulfilling its functions reasonably effectively'.
Industry Super Australia added that ASIC's capacity to regulate effectively
depends on the legislative framework in place.[3]
19.6
The Governance Institute of Australia expressed its support for 'the
manner in which ASIC has engaged with stakeholders as it seeks to strengthen
the regulatory framework in place'. As an example of how it considers ASIC
communicates effectively, it commended how ASIC kept stakeholders informed as
the regulator's administrative and information management systems were
improved.[4]
19.7
Two key accounting bodies were, however, sharply critical of ASIC.
CPA Australia is of the view that ASIC, under its current management, has
'increasingly isolated itself from its key stakeholders':
Rather than collaborating in a genuine and constructive
dialogue with potential partners in change, it is our view that ASIC is now
defined by a combative, compliance focused approach which, on its Chairman's
own admission, places a premium on "leveraging" media headlines over
substantive outcomes...While this media driven approach is doubtless sometimes
useful in creating a perception of action to paper over an otherwise
unimpressive recent track record, it has unfortunately too often led to ASIC
producing public communications that are confusing and which do little to
tackle the risks faced in evolving capital markets and the corporate
environment, such as insider trading and corporate failure.[5]
19.8
CPA Australia advised that it had raised its concerns with ASIC but that
the response 'too often reveals a regulator with a glass jaw, content with
shifting blame rather than responding in a considered or constructive way, or
in the spirit of cooperation which previously defined the organisation's
approach'.[6]
The Institute of Chartered Accountants of Australia (ICAA) also expressed
concerns about ASIC's method of working with professional bodies. The ICAA's
chief executive officer concluded:
We all share, ultimately, the same goals but in recent years
it has not been an effective relationship.[7]
Processes for consultation and engagement
19.9
ASIC needs to engage with stakeholder bodies to be an effective
regulator. Established processes for consultation and discussion can provide a
useful means for matters that most concern industry to receive the regulator's
attention and for industry associations to seek clarification of certain issues;
the regulator's response can then be communicated to the members of those
associations. In the same vein, these processes also provide an opportunity for
ASIC to communicate any concerns it has about recent developments or certain
behaviour. Importantly, engagement helps ensure ASIC is aware of, understands
and accounts for industry developments when performing its statutory functions,
including the function of providing advice to government.[8] The ICAA also noted that the performance of regulators may be affected by the
regulator's isolation from industry and that effective engagement and
consultation can help avoid the negative implications of isolation:
That isolation on an individual or on teams over time does
negate the manner in which you may perform your duties. It drives you to
continuing to do things because that is what we have done. That is why I have
reached out and we have used the example of the ATO and what Chris Jordan is
starting to do in his culture change. We need to protect the independence of
the organisation—there is no question about that—but somehow you need to make
sure there are enough fresh sets of eyes coming in to alter—back to your
question—the nature, so that there is sense of eagerness and desire to change things
for the right reasons.[9]
19.10
There are at least two formal methods that ASIC utilises to consult with
groups of stakeholder organisations. One is the ongoing general or
industry-specific consultative committees that meet on a fixed basis. The other
is by undertaking consultation on a specific regulatory issue.
Regular consultation with industry
and consumer associations
19.11
ASIC currently has a number of external committees that provide it with
a source of expertise and act as a means for stakeholder or industry feedback
or concerns to be reported to ASIC. A consultative body that represents a
cross-section of stakeholders is the External Advisory Panel. This panel
currently comprises 17 members and includes senior members of the
financial services industry,[10]
the legal profession and academia.[11]
Other external consultative committees include the Consumer Advisory Panel, Market
Supervision Advisory Panel and the Registry and Licensing Business Advisory
Committee.[12]
19.12
ASIC advised that the External Advisory Panel meets on a quarterly basis
with all of the commissioners. The other panels meet with selected
commissioners, with the chairman attending on a periodic basis.[13]
ASIC's chairman informed the committee that he has strengthened the External
Advisory Panel by expanding and rotating its membership. Mr Medcraft remarked
that the senior business people on the panel act as 'ambassadors' for ASIC in
the business community.[14]
19.13
As the inquiry progressed, it became evident that there are a number of
additional regular formal meetings that ASIC conducts with some stakeholders.
The Financial Planning Association advised that in addition to ad hoc meetings
that may be required, it has a formal meeting with ASIC on a quarterly-basis.
The chief executive officer of that organisation remarked:
To be quite honest, I feel like I could pick up the phone and
call Peter Kell or Greg Medcraft at any stage, because I have dialogue with
them as well.[15]
19.14
The chief executive officer of the Association of Financial Advisers
similarly noted that his organisation meets with ASIC on a regular basis. He made
some additional favourable comments on the working relationship that existed
between senior ASIC representatives and his organisation:
We also have a regular ongoing schedule of meetings with
Peter Kell and his team. That commenced early last year. In fact we have had
Peter himself speak at our conferences and take part in the national road show
that speaks to about 1,400 advisers nationally...The good thing we found was that
conversations have been two-way. I think they are paying more respect now to
the professional standing and to the knowledge and insight we can bring. Recent
examples would be around the research into insurance switching advice.[16]
19.15
A representative of the Corporations Committee of the Law Council of
Australia stated that when that committee has met in Melbourne, ASIC 'has been
very good at sending along appropriate people and quite senior people,
including at times commissioners, to those meetings on a regular basis, which
the committee as a whole has very much appreciated':
It is useful because at each meeting ASIC can answer
questions about their policy, consultation papers and things like that. That is
very helpful for practitioners. ASIC can also hear criticism of things we do
not like. That is something that the committee in Melbourne has very much
appreciated and I think ASIC is to be commended for that because it is very
useful, I think for both sides, in terms of identifying issues that are arising
and addressing them quickly.[17]
19.16
Consumer groups also expressed support for ASIC's approach to engagement
and consultation. The Consumer Action Law Centre wrote favourably about the
Consumer Advisory Panel:
While we have some concerns with ASIC's ability to respond in
a timely way to matters referred to it...we are overall pleased with ASIC's
collaboration with consumer advocates, particularly through the Consumer
Advocacy [sic] Panel (CAP). The CAP provides a direct line of communication
between consumer advocates and senior ASIC officials including the Deputy
Chairman Peter Kell and frequently the Chairman, Greg Medcraft...In our
experience the discussions at CAP meetings are informative, frank and useful,
which compares very favourably with the common experience of meeting with
government or industry representatives who can be unwilling to respond openly
to questions or concerns.[18]
19.17
The Consumer Action Law Centre also noted that ASIC was responsive to
suggestions for improving how the advisory panels operate. Following a
recommendation made by that organisation, a process is now in place for ASIC
to regularly report to consumer organisations on the progress of complaints
made by those organisations, within the bounds of ASIC's confidentiality
obligations.[19]
19.18
Other organisations were less supportive of ASIC's current approach to
engagement with stakeholders. In its submission, CPA Australia advised that
there is currently 'no ongoing regular contact between ASIC and the financial
services industry'. CPA Australia stated that in the past ASIC consulted with
financial services industry associations and their representatives through
regular forums; these forums were subsequently replaced by a Financial Services
Consultative Committee (FSCC). According to CPA Australia, meetings of the FSCC
'have not been held for a number of years', and that engagement is now limited
to consultation papers that ASIC releases.[20]
At a public hearing, however, it was revealed that ASIC contacted
CPA Australia about ways to open dialogue soon after CPA Australia's
submission to the committee was published. Mr Alex Malley from CPA Australia
explained:
I have been contacted—I think several days after this
submission—to open the door to some dialogue. I thought that was interesting
timing. Nonetheless, I look forward to the future. If we can improve that, we
would certainly seek to, and I know my colleague Mr White would work with us in
that process.[21]
19.19
In response to questions about the FSCC, ASIC advised that it was
established in 2007 as a forum to 'deal with general financial services issues
that were not specific to a particular industry/association'. However, the FSCC
was disbanded in 2008. ASIC submitted that this followed the restructure of
ASIC that occurred at that time as well as feedback from participants that
suggested 'they did not feel comfortable raising regulatory issues in front of
one another'.[22]
Nevertheless, ASIC stressed that regular consultation between ASIC and
financial services industry bodies and firms occurs. It advised that ASIC's
commissioners meet 'at least annually' with the boards of key industry groups
with more regular contact undertaken at lower levels.[23]
During 2012–13, 620 meetings between ASIC and industry associations took place.[24]
Ad hoc consultation
19.20
ASIC also engages in consultation on specific issues as required. This
takes place formally through the release of consultation papers or draft
regulatory guides for public comment. ASIC also meets with stakeholders to
discuss specific issues of concern or as legislative or regulatory changes are
being implemented. ASIC reported to the committee that in 2012–13 it issued 33
consultation papers for public comment with stakeholders having, on average,
seven weeks to prepare a submission.[25] As an example, ASIC pointed to the extensive consultation processes it engaged
in as part of the introduction of the Future of Financial Advice (FOFA) and
Stronger Super reforms:
It is no exaggeration to say that there were multiple
meetings every week around those issues, around how we were going to implement
the law and around the concerns of individual companies. Also, there were
national public meetings around the country.[26]
19.21
In relation to FOFA and Stronger Super, the Australian Institute of
Superannuation Trustees advised that it has worked closely with ASIC over the
past three years as the reforms were being designed and implemented:
Our experience has been that ASIC's commitment to
consultation has been evident throughout. I think it has been a challenge for
government agencies to manage and coordinate relationships between ASIC, APRA,
ATO and other relevant regulators on the one hand and the industry on the
other. But ASIC has generally done so efficiently and accessibly. As we
mentioned in our submission, we have found their staff to be of a high quality
and responsive and helpful.[27]
19.22
CPA Australia, however, criticised some aspects of ASIC's issue-specific
consultation. On the FOFA consultation process, CPA Australia complained that
ASIC did not initially consult with the accounting profession and that attempts
to become involved were frustrated:
Our request to be invited into the discussion when it related
to the accounting profession and the other financial advisers were filibustered
and delayed. We knew from talking to others in the market that they were having
meetings, whereas we were not at the table at the time. So we had to kind of
force our way into the discussion, and it ended with front-page newspaper ads.[28]
Comparison with other agencies and
jurisdictions
19.23
CPA Australia and the ICAA were the two organisations that expressed the
most concern about ASIC's consultation and engagement processes. The chief
executive officers of both organisations were asked to identify the agencies
that, in their experience, engage in more effective consultation. The responses
given were the New Zealand Financial Markets Authority and the ATO (under the
new Commissioner of Taxation, Mr Chris Jordan AO).[29]
The following remarks were made about the approach taken by the ATO:
Mr White: ...the early engagement that both organisations
are now having with Chris Jordan, the commissioner of the ATO, is a real breath
of fresh air. His approach to smarter and more effective regulation is
admirable, and we want to work much more with him.
Mr Malley: I would simply concur with that, because we have
had the same experience with the tax office.[30]
19.24
Consultation can also be built into the statutory obligations and structure
of the regulator. For example, the UK Financial Conduct Authority (FCA) is
required by statute to 'make and maintain effective arrangements for consulting
practitioners and consumers on the extent to which [the FCA's] general policies
and practices are consistent with its general duties...'[31]
These arrangements must include a Practitioner Panel and a Consumer Panel, and
the FCA must have regard to any representations made to it by these panels.[32]
The FCA has also established a Smaller Business Practitioners Panel and Markets
Practitioner Panel.[33]
The consumer panel, which is known as the Financial Services Consumer Panel, is
examined further in Chapter 20.
Collaboration and whether there should be greater co‑regulation
19.25
Collaboration between industry and ASIC that leads to regulatory issues
or areas of concern being promptly and effectively addressed, either without additional
state-imposed regulation or by such regulation being better targeted and
implemented, is clearly a desirable outcome. For example, on measures to
improve consumer protection, CPA Australia noted that the best way to achieve
results 'is to build a relationship with the stakeholders who actually deliver
the product and service to the consumer'.[34]
Industry and professions can also perform effectively some of the tasks that
the regulator may otherwise have to undertake; in Australia, the existence of such
co‑regulation is evident through external dispute resolution schemes,
codes of conduct and disciplinary bodies.
19.26
The chief executive officer of the ICAA, Mr Lee White, argued that
Australia's financial services regulatory framework could be made more
efficient and effective through greater co-regulation. In his view, a
co-regulatory model 'is a wonderful goal that we could substantially do now, if
we have the intent', and that co‑regulation could result in matters being
addressed 'in a much more timely manner than they are'.[35]
He noted that New Zealand has elements of a co-regulatory model. The ICAA's
submission concluded:
While there will always be a need to maintain a clearly
delineated separation of function and accountability between ASIC and external
stakeholders, we believe there is a pressing need for ASIC to engage in greater
regular collaboration with industry and professional bodies in order to achieve
the most effective and efficient regulatory outcomes possible. To date, ASIC
has not maximized the opportunity that is presented by a strong working
relationship with co-regulatory stakeholders. There has been an apparent lack
of willingness on ASIC's part to work in an open and shared manner in order to
secure the right outcomes in the marketplace.[36]
19.27
Professor Dimity Kingsford Smith argued that co-regulation could perform
a role, however, in her view 'clear regulatory messages from the state' are
required so that professional and industry associations:
have external legitimacy for bringing their good values
forward, too, and doing the kind of work that they do, whether that is
disciplinary tribunals, codes of conduct or dispute resolution for disenchanted
financial consumers, and so on.[37]
19.28
Professor Kingsford Smith suggested that ASIC does not have adequate
powers under the legislation it administers to engage with professional bodies
to the degree it may want to.[38]
19.29
Organisations representing financial advice professionals expressed either
supportive or qualified views on co-regulation. The Financial Planning
Association of Australia argued that legislation should facilitate the
establishment of co-regulatory approaches, particularly as legislation such as
the Corporations Act is overarching and not-industry specific, whereas
professional obligations are industry specific and better address the roles,
services and consumer interactions of participants in that industry.[39]
The Association of Financial Advisers noted some of the benefits of associated
with co-regulation, but it questioned whether greater co-regulation would lead
to additional external dispute resolution that could leave financial advisers
subject to several dispute and disciplinary procedures.[40]
19.30
When questioned about suggestions for greater or more formal
co-regulation, ASIC's deputy chairman, Mr Peter Kell, advised that ASIC does
look at co-regulation in various sectors. As an example of co-regulation, he
cited the external dispute resolutions schemes such as the Financial Ombudsman
Service and Credit Ombudsman Service, organisations that are 'integrated into
the way [ASIC] would approach retail financial services'. However, Mr Kell
added that ASIC assesses the risks and desirability of co-regulation on a
sector-by-sector basis, to ensure that co‑regulation or self-regulation
is relied on only in sectors where it is effective. Mr Kell suggested that
the financial advice sector was one area that, in ASIC's view, is not ready for
co-regulation at the moment.[41]
19.31
Others expressed some misgivings about the level of trust associated
with co‑regulation. Professor Justin O'Brien pointed to Australia's
experience of surviving the global financial crisis relatively unscathed to
warn that there is a 'danger of succumbing to hubris'. He added that the global
financial crisis demonstrated that 'it is no longer enough to rely on stated
trust—it has to be warranted':
Yes, it is true, none of our major banks collapsed, but we
have seen widespread bad behaviour within the marketplace. We have seen the
failure of boutique investment companies; we have seen the failure of managed
investment funds. We have seen identified problems in this marketplace and we
are beginning to see through the LIBOR and the currency manipulation scandals
basically also Australian banks being implicated in that process. So I think it
is essential that we utilise a hearing like this to really think through what
are the weak points in our regulatory system, to what extent we can
professionalise that regulatory system and to what extent we can actually
introduce responsibility and restraint within it so that self-regulatory or
co-regulatory initiatives have the opportunity to work.[42]
19.32
Professor O'Brien added that if 'industry really wants co-regulation, it
has to actually accept its responsibility for the integrity of that co-regulatory
structure rather than leave it simply to ASIC'.[43]
Industry secondments
19.33
Secondments between the regulator and industry can be an effective way
for the regulator to gain 'real world' expertise and awareness of industry
developments and current thinking. Several industry associations and other key
stakeholders highlighted the benefits of secondments and suggested that ASIC
should utilise them more. Industry Super Australia recommended that ASIC adopt
a formal secondment process with ASIC employees working in the industry. It
argued that this would ensure that ASIC's employees have 'a deeper
understanding of the industry which it regulates, including market developments
and culture'. Industry Super Australia added that 'it may also assist the
industry to better understand the approach taken and the challenges and
opportunities facing the regulator'.[44]
Finally, Industry Super Australia noted that the secondment program would
ideally connect ASIC with graduate and leadership programs operated by major
institutions.[45]
19.34
A representative from another superannuation body, the Australian
Institute of Superannuation Trustees, reported that he had seen 'continuous
improvements' in ASIC's staff engagement with, and understanding of, the
superannuation industry. Nevertheless, he suggested that ASIC should establish
a formal process for ASIC employees to be seconded to superannuation funds 'so
they get a better appreciation of the practical and operational aspects of
running funds, as well as a better appreciation of the member focus of the
not-for-profit sector'.[46]
19.35
CPA Australia suggested that a strengthened secondment program could address
gaps in ASIC's industry knowledge and provide ASIC officers with ideas on how
ASIC could engage with industry better:
...I think when you go into the organisation at various levels
and talk to people that what is probably missing at the moment is there is not
a sense that there is enough of that 'on the street'—having lived in business
long enough—to know what a big issue is from a small issue; what a one-off
issue is from a systemic issue. It is about being blooded in a market. So
perhaps...we need a rotational model that says for two years some of the future
leaders of ASIC go out and work in business on a secondment and learn about how
that world looks and breathes and feels, so that when they come in they are
informed by that behaviour and perhaps know how to deal with it and engage it
better.[47]
19.36
The ICAA and the Governance Institute of Australia noted that suitable
secondment programs could improve decision-making within ASIC; in particular,
they suggested that more consistent decisions could be a result of such
programs.[48]
19.37
The Corporations Committee of the Law Council of Australia's Business
Law Section also supported secondments between ASIC and law firms. It argued
that the Takeovers Panel utilises secondments with 'great success', and that in
the United States a secondment with the Securities and Exchange Commission 'is
viewed as valuable career stepping stone'.[49]
The senior secondments used by the UK regulator were also cited. However,
ASIC's resource constraints were noted, with one of the Law Council's
representatives observing that 'there is no free lunch'.[50]
19.38
While industry groups and professional associations were supportive of
increased secondments, the committee received submissions that expressed
concern about such arrangements. Some were based on a perception that ASIC is
too close to the industries that it is supposed to regulate, and that the
movement of employees between ASIC and the private sector supports this
contention.[51]
However, the committee also received evidence from a former ASIC employee
alleging that conflicts of interest were not appropriately managed during a
secondment.
Allegations of conflicts of
interest influencing ASIC's actions
19.39
A former employee of ASIC, Mr James Wheeldon, gave evidence to the
committee about the lead up to regulatory relief being granted for online
superannuation calculators in 2005. Mr Wheeldon alleged that ASIC was unduly
influenced by the wishes of a key industry organisation and that the process
for providing the relief was outside ASIC's stated procedures and had a
pre-determined outcome. According to Mr Wheeldon, the relief granted as a
result allowed online calculators to be offered that did not comply with the reasonable
basis for advice obligation that was in place in the Corporations Act at the
time. In his view, the calculators could simply be used by firms 'as a
marketing tool to get people into their financial adviser network', by
gathering information and not reflecting the impact of fees. He used a
calculator offered by one firm as an example:
...it had no capacity for modelling fees in it; it acted as if
fees did not exist. In fact, it would ask the user a bunch of very intrusive
questions: how old are you? How old is your spouse? What is your income? What
are your superannuation savings? How long do you plan on working for? And so
on. Then it would come up with a projection which would not really have much to
do with reality at all. Then, on the next page, it would say, 'Put in your
phone number and your email address and we'll have a financial adviser call
you'.[52]
19.40
Mr Wheeldon also advised that the individual he was required to report
to was a secondee from a firm that was a member of the industry organisation.
Although the individual disclosed a potential conflict of interest, Mr Wheeldon
advised that ASIC kept the secondee on the calculator relief project. Mr
Wheeldon stated:
I have looked high and low for information about ASIC's
policy of accepting secondees. If you go to the website you cannot find
anything. If you go through their annual reports, which I have done for the
last 10 years, there is effectively zero disclosure of the secondees from industry
coming to ASIC...I also note that Mr Medcraft spoke to the Joint Committee on
Corporations and Financial Services on Friday and he said, 'We are very careful
about secondments. If we do secondments clearly we have to be sure that they
are not into an area where they are regulating their own firm, for example.' Mr
Medcraft said that there were very strict rules governing secondments. That was
absolutely not true when I was working there...I think having secondments
into the policy branch—you just cannot do it that way. ASIC need to have their
own people who are doing that. That cannot be the only way that you get the
skill in. If they want somebody who has got experience working for an
investment bank or a top law firm, they should hire somebody and they should
become members of the Australian Public Service and bound by the Public Service
code of conduct and owing a fiduciary duty only to the Public Service and to
the Australian people. But instead you had a fellow who I assume owed a duty
primarily to his employer and he was representing his employer's interests
within ASIC, and ASIC tolerated it.[53]
19.41
The class order made by ASIC was a disallowable legislative instrument;
that is, it was a form of delegated or subordinate legislation made by the
executive that either House of Parliament could potentially, within a limited
timeframe, disallow. Mr Wheeldon questioned the explanatory statement
associated with the class order that was tabled in Parliament. He advised that
the reason given in the explanatory statement for the lack of public
consultation prior to relief being granted was because the relief was of 'a
minor and machinery nature'. Mr Wheeldon alleged that the statement was
'deliberately misleading'.[54]
ASIC's response
19.42
ASIC responded at length to Mr Wheeldon's testimony.[55]
It 'completely' rejected the allegations that Mr Wheeldon made. ASIC described
online calculators as 'a common and popular tool' and stated that without the
legal relief granted by ASIC, both retail and industry superannuation funds may
have been unable to provide such calculators. ASIC described the situation as
'an unintended result of broader reforms to the financial services law
implemented in 2002, which meant generic super calculators could be caught
under the personal advice requirements':
So instead of being free and easily accessible, consumers
wanting to use these online calculators would have to see a financial planner
for personal advice, which can be expensive and time consuming. This clearly
was not a sensible or desirable situation, and ASIC initially provided public
guidance to the industry in May 2004 to help with the provision of these
calculators.
However, significant uncertainty remained, which the
Government at that time publicly recognised in its 2005 consultation paper on Refinements
to Financial Services Regulation. The Government noted ASIC would provide
guidance or legal relief for the provision for online calculators to 'promote
their use'.
In May 2005, ASIC announced it would grant legal relief to
the whole industry (what we call class order relief), and in June that year we
issued this relief for super calculators following consultation with a range of
super industry bodies. We extended this relief to other investment calculators
later that year following further public consultation.[56]
19.43
ASIC emphasised that because every fund could use the legal relief
irrespective of the industry association they belonged to, there was 'no
special treatment'. The conditions attached to the relief required that the
assumptions underpinning the calculators needed to be reasonable and that clear
and prominent statements about the purpose and limitations of the assumptions
were displayed. Further, ASIC argued that the law against misleading and
deceptive conduct still applied.[57]
19.44
In a supplementary submission, ASIC provided further information about
the process associated with this class order. ASIC stated that the industry
association was not required to lodge a formal relief application as formal
applications are only required where an individual seeks relief from the law as
it applies to them.[58]
On how the secondee's potential conflict of interest was managed, ASIC noted
that the secondee was bound by ASIC's general conduct requirements of
employees, including the APS Code of Conduct. ASIC advised that there was
'awareness' of the potential conflict and that the secondee was not a decision
maker, was closely supervised by
a senior manager and worked on the issue as a member of a team.[59]
ASIC emphasised that the decisions were made by senior officers:
Both the initial decision to grant relief applying to
superannuation calculators and the subsequent decision to extend the relief
were made by ASIC's Regulatory Policy Group, over a series of meetings in 2005.
ASIC's Regulatory Policy Group meets approximately every fortnight and
considers new or revised regulatory policy, law reform and novel applications
for relief. Its membership comprises Commissioners and senior leaders from
across ASIC. In other words, proposals for relief of this type are not decided
only by the team directly responsible for developing the work.[60]
19.45
ASIC added that the examination of the relevant files to date does not
enable it to confirm whether the employee amended internal issues papers or
drafted emails to the industry body, although any internal papers or emails
'would have been settled by a senior ASIC officer'.[61]
19.46
When asked about Mr Wheeldon's assertion that the online calculators
were primarily used as a marketing tool, ASIC dismissed the concerns:
No, it is a condition of the class order relief provided to
superannuation funds that the calculators are not used to market particular
products and that they must spell out the assumptions that are underpinning the
calculations and the clear limitations of the calculators are also set out. We
take that very seriously. It is also the case that firms providing these
calculators to their fund members have to satisfy the ASIC Act requirements not
to mislead or deceive. So we do not believe they are being used as marketing
tools in that way. In fact, how we see them being used generally is as very
useful tools to help consumers provide a guide for themselves about the sort of
amount they will end up with in retirement.[62]
19.47
However, ASIC was also questioned about a particular online calculator
available after the relief was granted, but which was later removed from the firm's
website. Specifically, ASIC was asked how the calculator modelled fees, how the
effects of the fees were presented to the user and whether the calculator could
be considered primarily to be a marketing tool to attract people to the firm's
financial adviser network. ASIC's response was that it is not in a position to
comment on the online calculator as it did not review it.[63]
Committee view
19.48
It is evident that, overall, the industry associations and consumer
groups that deal with ASIC on a regular basis are generally supportive of
ASIC's approach to consultation. ASIC should be commended for this. In
particular, the committee is pleased that ASIC has been responsive to
suggestions for improving consultation and the flow of information between it
and other groups, such as those made by the Consumer Action Law Centre. The
committee acknowledges the consultative bodies ASIC currently utilises and recognises
that ASIC has managed to secure the involvement of experienced and talented
individuals as participants on these committees. The committee considers that
these processes should provide ASIC with a valuable source of expertise and an
effective means for two-way communication between the regulator and key
stakeholders.
19.49
ASIC's relationships with all of the major professional and industry
associations matter. When ASIC suggests that an industry needs to address a
particular issue, the nature of that response—constructive or otherwise—can
depend on whether that industry respects and has a sound relationship with
ASIC. Within the accounting profession there were clearly strong concerns about
ASIC's approach, although it must be acknowledged that the two accounting
bodies the committee received evidence from are in the minority: most industry
and professional associations gave favourable evidence about their engagement
with ASIC. Nevertheless, the committee appreciates the frank evidence it
received from CPA Australia and the ICAA. Given accountants are key gatekeepers
in Australia's financial system, CPA Australia's and the ICAA's
descriptions of the relationship they have with the regulator are troubling. The
committee is not particularly interested in which side is at fault; the
relationship between ASIC and the accounting bodies simply needs to be
repaired.
Recommendation 31
19.50
The committee recommends that the accounting bodies and ASIC work to
repair their relationship and commit to a more constructive approach to
discussing regulatory issues. The committee requests that ASIC provide a
written report to the committee in six months' time informing the committee of
progress achieved in strengthening this relationship.
19.51
The evidence in support of greater co-regulation was of interest to the
committee. Effective and low-cost ways to improve conduct in particular sectors
should be identified and taken into account in regulatory design, and if it is
demonstrated that co-regulation proposals meet this test, they should be
considered. ASIC appears to be aware of the benefits and difficulties
associated with co‑regulation on a sector‑by-sector basis. The
committee does not consider that the case has been made during this inquiry for
the ASIC Act to be amended to require greater
co-regulation. The committee notes that this may be an issue that the Financial
System Inquiry will consider, particularly as it is tasked with assessing the
effectiveness and need for financial regulation and the roles of government and
its financial regulators. Other recommendations made by the committee in this
report may also support more effective self‑regulation and co-regulation.
19.52
In addition to co-regulation, more practical and effective regulatory
outcomes can also be promoted by providing ASIC employees with greater
awareness of how the industries ASIC regulates actually function. Secondments
are one way to achieve this, and the committee encourages ASIC to utilise them.
However, the committee notes the concern in some segments of the community about
the perception that ASIC is too close to the entities it is supposed to
regulate, and that secondments can intensify suspicions about ASIC's conduct.
ASIC needs to be careful to avoid undue influence being exercised on its
actions as a result of the secondment process. Importantly, ASIC also has to be
seen to be careful that the integrity of its decision-making is not
undermined by secondments. ASIC needs to be more transparent about the
secondment processes it has and the policies in place for managing possible
conflicts of interest.
Recommendation 32
19.53
The committee recommends that ASIC publish on its website information about
its secondment programs and the policies and safeguards in place that relate to
these programs.
19.54
Finally, the committee wishes to comment on the allegations made by a
former ASIC employee about ASIC being unduly influenced by an industry
association as a result of a secondment.
19.55
The committee's comments will be of a general nature as it has
considered this evidence in the context of broader questions about ASIC's
performance and accountability. It would be more appropriate for the specific
allegations to be considered by the Commonwealth Ombudsman, either after
receiving a complaint from Mr Wheeldon or on an 'own motion' basis. The
committee understands that
the Commonwealth Ombudsman would be able to consider the allegations (other
than the allegation that Parliament was misled), although as the allegations
relate to events that occurred ten years ago, an investigation may face a
number of practical impediments. The committee recognises that the Commonwealth
Ombudsman is an independent statutory officer and that any investigation would
be at the Ombudsman's discretion. The committee notes that, for future
allegations, the Public Interest Disclosure Act 2013 provides a process
for public officials to report suspected wrongdoing in the Australian public
sector. The committee's recommendation regarding greater transparency about
ASIC's secondment processes should also help instil confidence that ASIC is
aware of these issues and manages potential conflicts of interest
appropriately.
Recommendation 33
19.56
The committee requests that the Commonwealth Ombudsman consider
undertaking an own-motion investigation into the allegations related to the
process that resulted in ASIC granting regulatory relief for generic online
calculators in 2005. An investigation undertaken by the Ombudsman should,
in particular, consider whether the process was undermined because ASIC did not
adequately manage a conflict of interest identified by a person on secondment
from a financial services firm.
19.57
The committee agrees with ASIC that online calculators are an important
educational tool for consumers. However, the committee is concerned that after
it made the class order granting relief, ASIC did not review the calculators
the industry designed and published. This is a further example of ASIC not
displaying sufficient scepticism of the industry it regulates and not
monitoring compliance with an arrangement it has authorised.
19.58
ASIC's ability to grant exemptions or modifications to the operation of
the Corporations Act and certain other legislation is a significant power that
should be exercised carefully. It is essential that both the process leading to
relief being granted and the compliance monitoring that occurs afterwards are
sound. In future,
the committee urges ASIC to monitor more actively and assess compliance with
the conditions of the relief it grants. It may assist the Parliament, regulated
entities and other interested persons if the explanatory statement associated
with class orders specifically advises that ASIC will be monitoring compliance.
Recommendation 34
19.59
The committee recommends that after exercising its discretionary powers
to grant relief from provisions of the legislation it administers, ASIC should
ensure that it puts in place a program for monitoring and assessing compliance
with the conditions of the relief.
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