Editorial: In ASIC’s defence

The role played by ASIC in regulating the financial advice sector has often come under fire from ifa, its readers and commentators.

From the corporate regulator’s tendency to refer to every banned accountant and mortgage broker as a “financial adviser”, to its perceived preoccupation with independents and smaller players, there are many legitimate bug bears understandably held by industry.

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However, the scandal engulfing Australia’s largest bank over failures in its advice channels is one issue that ASIC cannot be expected to take the fall for.

Yes, the corporate regulator was painfully inefficient in acting on whistleblower information, but ASIC’s inaction and apparent toothlessness are largely symptomatic of problems in the public service culture more broadly, not failures of its current leadership.

Like all organisations that draw funding from the public purse, ASIC is a stats-driven body.

The regulator has an annual obligation to justify its existence through the number of enforcement actions it has handed down. By the very nature of the dynamics of the advice market, this inevitably means ASIC will concentrate its activity on easy-to-investigate one-man-band firms, rather than spending years investigating the larger players only to have all of their efforts count as just one enforcement action, thereby appearing idle in the eyes of the taxpayer.

This approach is by no means fair or equitable, but requires ministerial intervention – or at least intervention by very senior public servants – to change the status quo.

Beyond the stats-based culture problem, ASIC deputy chairman Peter Kell recently pointed to the structural hindrances facing ASIC in taking on the banks. In a press conference following the Senate committee’s report in the Commonwealth FP affair, Mr Kell reiterated a call for greater powers to take on managers and executives, not just intermediaries.

As an ASIC spokesperson succinctly told ifa: “[ASIC] can ban a person from directly providing financial services or credit services, [but] we cannot ban them from managing a financial services business or credit business”.

The corporate regulator’s ineffectiveness at tackling wrongdoing at boardroom level is not the result of “timidity” – as suggested by Senator Mark Bishop – but rather, the result of a regulatory system aimed at low-hanging fruit.

It is often forgotten that while ASIC’s leadership have some say in the body’s direction and regulatory philosophy, largely it still takes its cues from government.

If ASIC were given the brief – and resources – to take on the big banks and the conflicts of vertical integration, the regulator would no doubt take to the task with the same relish with which it bans smaller players (often for seemingly small-scale non-compliance).

However, it seems governments of all ideological stripes have been unwilling to set ASIC such a task. A cynic may point to the significant election contributions made by financial institutions, or to the political leverage of interest rates in marginal seats.

Or perhaps it is simply more expensive to conduct investigations into the big end of town, and not deemed a priority in the post-age of entitlement.

Either way, it is our elected officials who determine ASIC’s scope, funding and purpose. The very fact that the government’s response to the Commonwealth FP affair was to investigate ASIC, rather than the bank itself, is evidence that our regulatory system supports a philosophy of shooting the messenger.

In the same way that client-facing advisers are often held liable for product failures perpetrated by those further up the chain, so too is ASIC often the scapegoat for wrongdoing by those beyond its enforcement reach.

Australia often ranks relatively well on transparency indexes, and yet our major financial institutions – on both the competition and regulation fronts – are seemingly among the least accountable in the world.

So much for tall poppy syndrome.