Financial Services Regulation

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Unravelled: Government says 'Yes ASIC'

6 November 2015

Written by Partner Malcolm Stephens

The FSI recommended that the Government 'Introduce an industry funding model for Australian Securities and Investment Commission (ASIC) and provide ASIC with stronger regulatory tools'. This recommendation (No.29) covers two topics that ASIC has pursued on a number of occasions, including in its submissions to the FSI. The first is ASIC's preference to move to an industry funding model; and the second is ASIC's recommendation that penalties under ASIC-administered legislation be increased.

The government has courageously announced that these recommendations will be… subject to further consultation and review.

Industry funding

The FSI recommended an industry funding model for ASIC. ASIC has been pushing for such a model to give it greater certainty as to its levels of funding (it is no doubt wary of further funding cuts); to improve transparency; and to ensure that entities regulated by ASIC pay an amount that reflects the benefit they receive from that regulation. Although many companies might happily forego both that benefit and the associated fees, the government had indicated its in-principle acceptance of an industry-funded model, on the basis that those who create the need for regulation should pay the cost of that regulation. The issue of industry funding is also currently the subject of a consultation paper (see Unravelled: Proposed industry funding model for ASIC for more detail) and has been referred to the Committee conducting the ASIC capability review (which is due to finish at the end of the year). Sir Humphrey would be proud.

Enforcement powers

The FSI also recommended strengthening ASIC's enforcement powers – in particular, by increasing the penalties for breaches of legislation administered by ASIC. ASIC has been pushing for greater penalties for some time, on the assumption (not necessarily backed by evidence) that greater penalties will lead to less crime. ASIC frequently compare the comparatively small penalties under legislation that it administers with the large penalties in foreign jurisdictions and under legislation administered by other Australian regulators. Last year, the chairman of ASIC memorably asserted that Australia was a paradise for white-collar criminals because of its 'soft' penalties – an assertion subsequently altered to a suggestion that Australia could become such a paradise. Despite this paradise still seeming some way off, the government stated that it 'accepted' the recommendation – by deferring it for further consideration in 2017. Sir Humphrey couldn't have handled it better.

What's next?

Despite the lack of immediate action, it is likely that an industry funding model will be introduced for ASIC in the near future. It also seems likely that, in the current political climate, it will be difficult to resist the push for tougher penalties for white-collar crimes, although such penalties are unlikely to be introduced in the next 18 months.

Other articles in this edition of Unravelled

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What does the Government's response to the FSI mean for banks?
The short answer is: it depends on which kind of bank you are. The Financial System Inquiry's final report and the Government's response mean a lot for ANZ, CBA, NAB and Westpac, particularly given their significant residential mortgage portfolios. They also mean a lot for Macquarie. As for the rest of the banks, they are likely to see the ramifications for the major banks as their own gain. Read more>>

Superannuation and the Government's response to the FSI
The Government's response to the FSI's superannuation recommendations is, as with much of the rest of the responses, somewhat safe (and, as a result, arguably disappointing). As with the Inquiry's recommendations, it shifts from the sublime to the ridiculous – on the one hand it deals with the really central question of what our superannuation system is for, to the other of extending choice of fund to the small number of employees who are currently excluded because they are covered by State awards and enterprise agreements. In between, it is going to ask the industry to sort out retirement incomes (with some legislative loosening) and the Productivity Commission to sort out costs and competition. Read more>>

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