Brought to you by:

ASIC failing to enforce law, inquiry finds

The Australian Securities and Investments Commission has “comprehensively” failed to go after corporate misconduct and enforce financial services laws, a Senate inquiry has concluded.

“While ASIC tries to deflect criticism that it is a weak corporate regulator by promoting its recent enforcement actions, the reality remains that corporate law is underenforced in Australia,” the Economics References Committee overseeing the inquiry said in a report.

“ASIC’s response to most reports of alleged misconduct is to take no further action and only a fraction of reports are investigated.”

The report says in cases where the regulator has taken enforcement action, civil penalties are often at odds with the scale of the offending, and few criminal sanctions are achieved.

“Further, ASIC’s investigation and enforcement decisions are opaque and difficult to scrutinise,” the report said. “Evidence to this inquiry has made clear the deep flaws in ASIC’s approach to investigation and enforcement.

“Too often, ASIC fails to respond to early warnings of corporate misconduct and does not routinely use the full extent of its powers to achieve strong enforcement outcomes.”

The report was released last week and concludes an inquiry that was referred to the committee in October 2022.

It makes a list of recommendations, including that the government recognise ASIC has “comprehensively failed to fulfil its regulatory remit”.

“The committee recommends that the Australian government should recognise …  that [ASIC’s] regulatory failures call into question whether its remit is too broad for it to be an effective and efficient agency. And the government should strongly consider separating its functions between a companies regulator and a separate financial conduct authority.”

Clyde & Co partner Avryl Lattin says the report will maintain pressure on ASIC following criticism over its handling of misconduct at the Hayne royal commission in 2018.

“Given ASIC’s recent unfair contract terms cases against insurers, pricing promises investigations and cases against alleged greenwashing, I’m not sure insurers would agree that ASIC is failing in its investigation and enforcement role,” Ms Lattin said.

“For insurers, this kind of attack might provoke ASIC to ramp up enforcement action further. It might be a case that poking the tiger could lead to a tougher approach.”

Breaking up ASIC’s functions would mean more compliance work for insurers, she says.

“Insurers are already subject to prudential regulation by the Australian Prudential Regulation Authority and financial services regulation by ASIC, and also may have to deal with law enforcement on certain matters,” Ms Lattin said.

“If ASIC were to be split up into a companies regulator and separate financial conduct authority, this will no doubt further increase the regulatory burden on insurers.”

Click here for the inquiry report.