Proposed ASIC funding model just not good enough

Posted by on 12/10/2015

Governance Institute of Australia has called for more thorough consultation on the Federal Government’s proposals for industry funding of the Australian Securities and Investments Commission (ASIC). While Governance Institute supports an industry-funding model for the corporate regulator in principle, the lack of detail about how it would work, how it will benefit the market and any analysis of possible alternatives in the consultation paper Proposed Industry Funding Model for the Australian Securities and Investments Commission make it impossible to determine if this is the best option, it has told Treasury.

“We need more meat on the bones of the proposal,” Governance Institute chief executive Steven Burrell said today. “We need to know why this particular model — as distinct from alternative models working well in other jurisdictions or other possibilities that may have been canvassed but not disclosed — is better placed to improve and enhance the integrity of our markets. The consultation paper fails to do that.”

Governance Institute is also concerned that proposals to ensure that costs are proportionately borne by those creating the need for regulation by imposing fees based on market capitalisation is a one-size-fits-all approach. ”It does not take into account that higher market capitalisation companies are generally better resourced and have strong governance, risk and compliance programs. It cannot be assumed that they demand more frequent regulator attention,” Mr Burrell said.

“The reality is smaller cap companies can take up more regulatory focus, time and attention than their big-end-of-town cousins and, surprisingly, ASIC resources devoted to phoenix activities that do not occur in the listed market do not even rate a mention in the consultation paper.”

Governance Institute also questions the claim that larger entities generally pose a higher risk to the economy, noting there is no risk analysis provided in the paper to substantiate this.

“A user–pays system has the potential to improve risk cultures, but the methodology in the consultation paper does not support this. In reality, the proposed model takes a ‘capacity-to-pay’ approach, which is not the same as costs being proportionately borne by those creating the risk,” Mr Burrell added.

“Nor are we convinced that price signals will achieve greater efficiencies in the way ASIC allocates resources. In fact, price signals have the potential to create an overtly business culture within the regulator and could be a disincentive to government to increase the pool of public funds available to ASIC.

“We also doubt that the proposed funding model will improve transparency and accountability. It has the potential to be less efficient in terms of risk blow-out over time, create greater complexity through the management of the system and create less accountability for those that bear the costs.

“We want ASIC to have the funding it needs to successfully fulfil its responsibilities and protect the integrity of our markets. It needs a robust funding model that has been critically explored.

“This paper should be the first step in a thorough consultative process culminating in a second, more detailed discussion paper. It should contain convincing evidence of the benefits this model will deliver, examples of models in other jurisdictions that have improved market integrity along with an explanation as to why they have been discarded.

“Most importantly, we need to know why this model is the preferred option. ASIC goes to the very core of instilling trust and confidence in the market. It deserves and must receive a proper and considered policy process. Anything less is not acceptable,” Mr Burrell concluded.

For further information contact Viv Hardy on 02 9283 4113 or 0411 208 951 or Su Lin Ho on (02) 92834110 or 0421 616 617 or Steven Burrell on (02) 9223 5744 or 0407 708 485.

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