Report alleges that under 1% of misconduct claims made to ASIC are officially investigated

A new report by economist John Adams of Adams Economics has revealed that reports of alleged misconduct submitted to ASIC have approximately a 1 per cent chance or less of being officially investigated.

The scathing report, based on publicly available data issued by the regulator itself, suggests that ASIC’s performance has been on a slippery slope for several years despite the regulator being the subject of multiple inquiries and reviews as well as the Banking Royal Commission.

“There remains ongoing frustration across the community among investors, consumers and industry practitioners who are required to deal with ASIC,” Mr Adams said.

According to Mr Adams’ report — which considered a 10-year period spanning FY 2011–12 to FY 2020–21 — out of a total 134,542 reports of alleged misconduct made to ASIC, only 1,709 were officially investigated — equalling 1.27 per cent.

Moreover, Mr Adams reported a significant decline in the annual ratio of investigations compared to total reports of alleged misconduct from 1.90 per cent in the 2014–15 financial year to only 0.74 per cent in the 2020–21 financial year.

Of most concern, Mr Adams said, is that ASIC is getting worse when it comes to investigating alleged misconduct, with no improvement reported since the release of the royal commission’s final report which drew attention to the regulator’s insufficiencies relating to enforcement action.

Regarding reports of alleged misconduct from the Australian public that have been resolved, the report revealed that the percentage of resolved reports has consistently declined over the last decade, falling from 21 per cent in FY 2011–12 to only 9 per cent in FY 2020–21.

In nominal terms, the number of reports of this nature has dropped by over 63 per cent from 2,628 reports a decade ago to only 964 reports in 2020–21.

‘No empirical evidence’ to explain these trends

Importantly, Mr Adams said he “could not” identify any “empirical evidence or tangible justifications” which could explain these worrying trends — whether it be ASIC’s staffing and resourcing profile, the workload resulting from the royal commission or the COVID-19 pandemic.

In fact, Mr Adams noted, while ASIC often cites a lack of resources for performance mishaps and shortcomings, it received a major boost in March 2019 with an announcement by the then treasurer, Josh Frydenberg, that over $404 million would be injected into the regulator over four years — or a 25 per cent uplift in its annual funding compared to 2017–18.

Given these alleged irregularities, Mr Adams wants to see the Parliamentary Joint Committee on Corporations and Financial Services, or another suitable committee within the federal parliament, take urgent action to identify the root causes of these trends.

“It is incumbent on policy makers to finally get to the root cause of these issues and to propose real reform that leads to genuine and sustainable change,” Mr Adams said.

ASIC responds

In an emailed statement to ifa, ASIC explained that all reports received by the regulator are adequately investigated, including those where the recommendation is that no further action be taken.

“Every year, ASIC receives more than 10,000 separate reports of misconduct and possible breaches,” an ASIC spokesperson said.

“Every single report is examined and assessed — some for further examination, some for consideration by a more appropriate agency, or not warranting further action, and others referred for follow-up investigation.”

“These outcomes, year by year, are publicly available on our website and published in our annual report.”

The regulator’s most recent report revealed that 15 per cent of reports were referred for action, 9 per cent were resolved, and 65 per cent were analysed and assessed for no further action. A further 9 per cent were beyond its jurisdiction.

Regarding Mr Adams, the spokesperson said: “Two senior executives of ASIC agreed to meet Mr Adams (on 8 September, 2022) and hear his views about his ‘report’”.

“We will provide a response in the near future.”