The Australian Securities and Investments Commission has confirmed it will have to substantially reduce the amount of proactive surveillance it undertakes, due to budget cuts.
Speaking to the Senate Economics Legislation Committee last week, ASIC Chairman, Greg Medcraft, said that the funding cuts announced by Treasurer Joe Hockey as part of the 2014/15 Federal Budget meant that ASIC would have to significantly reduce, and in some cases stop, its proactive surveillance across the sectors it regulates.
“You have to choose the level of resilience that you want, and the amount of funding that you provide determines the level of resilience you get,” Mr Medcraft explained. “So, within that, you calibrate the risk accordingly. So yes, the answer is that we will not undertake the same level of proactive surveillance that we did previously, and we will have to be more careful in selecting those matters which we do pursue.”
…we will have to be more careful in selecting those matters which we do pursue
Mr Medcraft said it was not appropriate to identify the specific market areas where proactive surveillance would no longer be carried out, but did advise that it would focus on areas it assessed as ‘medium-high risk’. He later went on to identify financial advice as one of the areas that ASIC considers ‘high risk’.
In order to continue to police the various markets under ASIC’s jurisdiction, Mr Medcraft said the regulator would now rely more on intelligence received via misconduct reports and complaints.
“At the end of the day, what it means is that, where people see white-collar crime occurring, it becomes more important than ever that they report it to us. If people are intentionally committing crime, and we regard it to be of an appropriate level of seriousness, we will pursue it. So, rather than us going out and finding the committing of white-collar crime, we have to rely more on Australians letting us know where they see it. The system relies on those who are gatekeepers reporting where they see misconduct. That is a requirement of the law, anyway. Outside of that, we rely on individuals who see poor behaviour letting us know about it,” he said.
The Committee went on to question Mr Medcraft and the ASIC representatives about the possibility of a ‘user-pays’ funding model, whereby those sectors which require more policing by ASIC would be expected to pay more for the service.
The revenue collected has become increasingly misaligned with the cost of regulating different sectors
Responding to the suggestion, Mr Medcraft said: “I think it is clear that our functions have grown over time. The revenue collected has become increasingly misaligned with the cost of regulating different sectors, and recovering it through a user-pays funding model through an outcome focused user-pays model can drive economic efficiencies and strengthen resilience.
“Frankly, with a positive incentive, those that self-regulate or co-regulate in good fashion and do not need our attention should not be paying for it. For those that we regard as high risk and are not achieving the outcome the government wants, either they do a better job and pay for that job or, basically, the resources have to come from the regulator. I think it provides a better market price signal.”
In related news, the Financial Planning Association (FPA) released a statement this week saying it had evidence that a co-regulatory system would promote better consumer outcomes.
According to statistics released by the FPA, 61 incident reports have been received by its ‘FPA Confidential’ whistleblower service, since its introduction in February 2010. Of these, 90% were resolved successfully by the FPA’s Professional Standards team.
“The story behind these numbers is of a professional system operating to self-govern against perceived or actual misdemeanour,” FPA CEO, Mark Rantall, said.
“It points us to the timely conclusion that we must now embed a relevant, consumer-centric professional framework in Australia that separates industry from profession and product sales from advice.”
