ASIC funding boost to fund expanded regulatory and enforcement program

By Narelle Smythe

16 Aug 2018

ASIC will be using its increased funding for new approaches to regulation and enforcement, including embedding supervisory officers in financial institutions.

"ASIC is also looking at ways to build its enforcement outcomes, including by making greater use of external resources for its investigations in order to accelerate response times.

"ASIC's current supervision is through a combination of risk-based surveillance or reviews aimed at a particular firm and thematic reviews aimed at a sector or subsector. ASIC will seek to adopt new supervisory approaches for Australia's largest financial institutions and the important sub-sectors that will involve more intensive day-to-day supervision with better co-operation between regulators, in particular, APRA. This approach will be more intrusive, enduring, and for onsite visits, more physical."

(Opening statement by James Shipton, Chair, Australian Securities & Investments Commission, Senate Economics Legislation Committee, 30 May 2018)

Those words in May 2018 set out the ASIC Chair James Shipton's views on the role of ASIC and its priorities. We now have more information on what this will look like – and ASIC has more funding to achieve these goals, along with a new Deputy Chairperson, Daniel Crennan QC, with a key focus on enforcement action.

The Turnbull Government's increased funding to ASIC

The Federal Treasurer Scott Morrison announced a major boost of $70.1 million for ASIC; notably, the  total funding breaks down into:

  • $26.2 million to accelerate and increase the capacity and intensity of enforcement activities for serious misconduct against well-funded litigants, through the Enforcement Special Account;
  • $8 million to embed dedicated staff within the big four banks and AMP to monitor governance and compliance actions;
  • $9.4 million to strengthen audit and enforcement action in the superannuation sector;
  • $6.8 million to establish a dedicated taskforce to conduct "a proactive, targeted and thematic review into corporate governance to identify and pursue failings in large listed companies, including deploying staff to conduct new onsite surveillance and investigations". Mr Shipton has said this would examine remuneration structures and conflicts of interest;
  • $6.6 million to implement the Government's reforms to whistleblower protection laws;
  • $6 million to promote Australia as a world leader in regulatory technology solutions for the financial services industry; and
  • the remaining $7.1 million to enhance ASIC's enforcement work on unfair contract terms protections for small businesses, ensure compliance with the Future of Financial Advice, and improve consumer access to the Financial Advisers Register.

The embedded regulator

James Shipton's aim is to re-focus ASIC's strategic direction on proactive enforcement, most notably through embedding an ASIC team onsite which can mean meeting with the leadership group of financial institutions and exploring different aspects of the institution's practices and business . This approach has been used overseas in the US, UK and Hong Kong (where Mr Shipton encountered it and an average stay with a large financial institution was about six to eight weeks).

In recent interviews with ABC The Business and The World Today , Mr Shipton has also stated that:

  • "Culture and behaviours is where we want to see change - change in decision making, change in approaches, change in thinking, change in mindset and the deployment of different tools like enforcement tools, supervisory tools, surveillance tools, will enable us to change those behaviours. But I will also quickly add, there needs to be change by the institutions and the leaders of the institutions themselves. They need to realise that they need to lean into this issue, work with regulators, work with the community, work with policy makers to have demonstrable change that will have positive outcomes for consumers." (ABC The Business, Extended interview with James Shipton, 7 August 2018)

  • "the protocols and the procedures that apply today will apply in relation to these embedding of supervisory officers inside financial institutions. The guidelines and the protections that exist will continue to exist. What will change though is that there will be more interactions between officers and leaders of financial institutions and their supervisors. This will have an important catalytic mindset change. If you're more likely to deal with in your day-to-day interactions with a supervisory officer, you're going to have that mindset at front of mind." (ABC The Business, Extended interview with James Shipton, 7 August 2018)

  • "If we have this more physical, more embedded approach, we believe that we will be able to better assess the challenges, the faults, the governance questions so that we can apply different regulatory responses." (ABC The World Today, ASIC staff to be embedded in banks by end of month, starting with CEO's office, Peter Ryan, 7 August 2018)

ASIC is planning to begin this in the coming weeks, starting with the major banks and AMP. At the same time, a report will soon be released on banks' breach reporting; the information it contains will inform and shape the embedded team's activities in each organisation.

It has also been reported by the Australian Financial Review [subscription only] that the Treasurer is open to this scheme being extended to other regulated organisations, and considers the Productivity Commission's proposal for an embedded integrity officer to have merit.

The future of ASIC regulation and enforcement

The Government has agreed in principle to all of the recommendations of the ASIC enforcement taskforce, which include giving ASIC greater ability to take regulatory action against senior managers or controllers of financial services businesses, and a new directions power to direct licensees to undertake remedial actions, such as consumer compensation programs.

ASIC also intends to increase its co-operation with APRA, using the "Twin Peaks" model of supervision over the superannuation sector, with ASIC focusing on the dealings with consumers, such as complaints handling.

While the broad strokes of ASIC's regulatory and enforcement approach seem clear, Mr Shipton has been clear that this is a work in progress:

"ASIC must continually look for new ways to do its job, to ensure that it is evolving to respond to the harms and threats manifesting in Australia's financial system…as always, ASIC looks to maximise the effectiveness of its work, whatever its budget."

(Opening statement by James Shipton, Chair, Australian Securities & Investments Commission, Senate Economics Legislation Committee, 30 May 2018)

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