ASIC’s regulatory objectives: what’s in a name?

It is fashionable to criticise ASIC for late and otherwise botched investigations, insufficient and unsuccessful enforcement activity and unseemly closeness with the Big End of Town. Is that fair, and why has it come to this? 

ACCC comparator

The obvious comparator is the ACCC with whom ASIC shares some roles (in particular consumer protection in relation to financial products and services). The ACCC is generally regarded as a vigorous and effective enforcer of the Competition and Consumer Act. Why is that so?

  • Section 2 provides that the object of that Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection. A range of other provisions specify the ACCC’s broad investigatory and enforcement powers.
  • The regulator is called the Australian Competition and Consumer Commission. It has a clear and simple mandate to protect the process of competition, and consumers.
  • The ACCC’s culture reflects that clarity of purpose, and as a result it prioritises enforcement activity over a range of sectors and issues against large and small entities to those ends, without regard to extraneous factors. 
  • For example, the ACCC pays no regard to the likelihood or actuality of a significant share price fall in or other market disadvantage to its targets when enforcement action is announced. It prioritises the process of competition over the stability of markets or individual market participants.
ASIC’s objectives and approach
On the other hand, ASIC has similar investigatory and enforcement powers to the ACCC, but has not traditionally used them to the same effect. Leaving aside individual personalities and expertise, why might that be so?
  • ASIC is of course the Australian Securities and Investments Commission. Some might conclude that its primary role is to protect securities and investments.
  • Delving further, the ASIC Act does not have a focussed objects clause like the Competition and Consumer Act. Rather, it has a complex shopping list of objectives.
  • Section 1(2) provides that in performing its functions and exercising its powers, ASIC must strive (in the following order) to:
    • maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy;
    • promote the confident and informed participation of investors and consumers in the financial system; 
    • administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; 
    • receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; 
    • ensure that information is available as soon as practicable for access by the public, and, lastly, 
    • take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.
  • Section 1(2A) then requires ASIC also to consider the effects that the performance of its functions and the exercise of its powers will have on competition in the financial system.
So at the heart of its regulatory foundation, ASIC is required to:
  • maintain and facilitate the performance of financial system entities in the interests of commercial certainty and reducing business costs;
  • promote investor participation in the financial system;
  • administer with a minimum of procedural requirements;
  • only take action that is necessary to enforce the law; and
  • simultaneously consider the effects of its actions on competition, a matter within the ACCC’s core competency not traditionally considered by ASIC.

Is it then any wonder that ASIC’s enforcement approach and culture at least until recently has not been as clear-cut, focussed or successful as the ACCC’s? Closeness to financial institutions, delay and a wet lettuce slapping approach to enforcement need to be viewed alongside ASIC regulatory requirements to weigh multiple sometimes competing objectives. It is in that context that ASIC has tended to lean towards stability in financial markets, market participants and investments, rather than vigorous enforcement activity.

The way forward
Which brings one to ASIC’s post Banking Royal Commission vision and regulatory mission announced in its 2018-2022 Corporate Plan on 31 August and reprised in its 2017/2018 Annual Report published 31 October 2018 as follows:
Our vision
A fair, strong and efficient financial system for all Australians. 
Our regulatory mission 
To realise our vision we will use all our regulatory tools to:
› change behaviours to drive good consumer and investor outcomes
› act against misconduct to maintain trust and integrity in the financial system 
› promote strong and innovative development of the financial system 
› help Australians to be in control of their financial lives.

Sounds good, and no doubt framed against the backdrop of Royal Commission developments to date, but what is the legislative or regulatory basis for the new vision and mission?
  • There is no legislative mandate for or guidance on what is a fair financial system.
  • There is no requirement in ASIC’s objectives or otherwise in the ASIC Act to do anything for all Australians (contrary to the Competition and Consumer Act object to enhance the welfare of Australians).
  • Nor is there any requirement or guidance as to how ASIC is to help Australians to be in control of their financial lives.
  • There is no mandate for good consumer outcomes (effects on competition must be considered, but that does not find its way into the vision or mission), or for promoting innovative development of the financial system.
  • ASIC is required to act only where necessary to enforce and give effect to the law, so acting to maintain trust and integrity is a stretch of uncertain dimensions.

Forgive the oversimplification here, but it certainly wouldn’t hurt for the legislature to revisit ASIC’s objectives and enshrine a revised set of priorities in the ASIC Act that reflect the concerns expressed in and outcomes of the Banking Royal Commission. If enforcement priorities were clearer, ASIC’s culture might improve. 

Who knows, ASIC cultural change might even facilitate the long term private financial institution cultural change that is now recognised to be required.