ASIC Professional Association Survey
- Date:12 Aug 2005
- Type:Policy & Advocacy: Submission
Following a request from ASIC the AICD has submitted its views on issues relevant to the regulatory environment and our expectations of ASIC over the next 3 to 5 years. Some of the issues covered include:
Over regulation hurting everyone including the regulators
A well funded and resourced regulator is essential
The role of, and good practice for, regulators including:
Regular and thorough reviews of regulation ( and its enforcement)
Ongoing consultation process
Building trust and obtaining more industry knowledge
Encourage the business community to volunteer information
Prompt and pragmatic remedy finding over a technical, letter of the law and "blame casting" approach
Interplay between regulators
Mr Jeffrey Lucy AM
Australian Securities & Investment Commission
GPO Box 9827
SYDNEY NSW 2001
Professional Association Survey
We refer to your letter of 22 July 2005 seeking AICD's views on issues relevant to the regulatory environment and our expectations of ASIC over the next 3 to 5 years. Thank you for giving us this opportunity. ASIC should be complimented on this consultative initiative, which we see as part of your ongoing and commendable efforts to build a better relationship with your stakeholders. This will benefit all concerned.
Because the AICD is a professional association which is not industry specific, we have taken the liberty of not following the exact format of your survey. We have taken the opportunity to present a more broad ranging, and some might say less structured, response.
Time frame—given the short lead times and immediate responses demanded by the public and politicians to various "hot" issues, it is difficult for us to respond in the 3 to 5 year time frame you seek. It is more realistic we believe to focus on a 1 to 2 year time frame. Whilst making some general and non-time specific comments, we have focused on a shorter time frame than you requested.
Over regulation hurting everyone including the regulators—there is a strong feeling in the business/director community that there is too much legislation and regulation. This is not regarded as ASIC's fault, but there is a feeling that ASIC can play a crucial role in modifying, reducing and rationalising regulation. This is to be greatly encouraged. The costs of new regulation are felt not only by the businesses trying to comply, but also by the regulators. New regulation requires the regulator to learn new things and get itself "up to speed". The FSR regime is a classic recent example. The push for more laws to deal with social and corporate responsibility is another imminent example which will not only impose burdens on business but will have a significant impact on ASIC. The demands for ASIC's regulatory attention, that drain its resources, are often generated or at least exacerbated by the regulators' approach to the latest "hot" issue and interpretation of new laws.
A well funded and resourced regulator is essential—given that regulatory workload often follows new legislation, and new legislation often follows an enforcement or regulatory failure that captures the attention of the public and the media, AICD has long called for and supported moves to provide appropriate funding for ASIC and other regulators. A well funded and active regulator maximises the chances that enforcement of existing legislation will be adequate, so minimising public calls for new laws or regulatory powers.
We are aware of the budgetary constraints on ASIC that make it difficult to recruit and retain experienced and qualified staff with relevant commercial experience. However, business is also acutely aware that a failure to have the right expertise leads to enormous inefficiencies and frustrations. Without the appropriate skills, it is difficult for ASIC's relationship with business to be sensitive, sensible and pragmatic (for further on this see below). If adequate general funding and resources are not available, then access to special funding to attack specific issues may be appropriate. It is noteworthy that overseas there is a greater use of secondments and a view that a professional career is not complete without a regulatory stint. It is to the advantage of both the regulators and the regulated that these resourcing issues are addressed.
The role of, and good practice for, regulators—
- linked to the above concept that regulators need to get "up to speed" with any new areas they are expected to regulate (with the enormous additional resources that this requires), regulators should wherever possible use existing powers to the fullest before calling for additional powers.
- As a corollary, any new powers/regulation should, wherever possible, replace existing powers/regulation rather than being added, in a cumulative sense, to the existing regime.
- As part of the above, regular and thorough reviews of regulation (and its enforcement) should be undertaken as part of a "pruning" process.
- To assist in this "pruning" process, an ongoing consultation process (including adequate time periods for feedback), should be built into these regulation and enforcement reviews.
- Relating to all of the above, a regulator cannot afford to become remote from those it regulates. It is noteworthy that the SEC has regular roundtables to ascertain the views of all its stakeholders (including non-executive directors and senior management). The benefits of promoting greater dialogue include building trust and obtaining more industry knowledge.
- Communicating to your stakeholders, what those stakeholders can expect as normal behaviour from ASIC, may also help in this regard. A charter similar to that of the ATO comes to mind.
- ASIC should, wherever possible, let business know where they stand on specific matters. Transparency as to the process and status of matters between ASIC and companies would be good for both. It would show what ASIC is doing with information it has sought, where investigations are up to and would allow business to move on, rather than dwelling on matters which may never be progressed. This transparency may also address business and community perceptions that ASIC is unresponsive or slow to act.
- Another benefit of this transparency of internal ASIC processes would be to encourage the business community to volunteer information. This would be facilitated if credit was given to the business community for problem finding and whistle blowing. The business community should be able to have "off the record" conversations with ASIC so as to encourage cooperation, understanding of the problem and a mutual effort in problem solving. Unfortunately many in the business community see ASIC as motivated by "getting scalps" rather than finding solutions. Thus companies often do not confide ahead of time to ASIC because they perceive no advantage in doing so.
- Most businesses being regulated (and indeed the general community) would appreciate and prefer prompt and pragmatic remedy finding over a technical, letter of the law and "blame casting" approach.
Consistency: Many in the business community are concerned by apparent inconsistencies in responses received from ASIC. In particular, a geographic division of parts of ASIC, rather than a product based division increases the likelihood of opinion shopping and perceptions of inequity due to variations in rulings and responses from ASIC. This is detrimental to ASIC's reputation and trust within the community.
Leadership/Educative Role: ASIC is in an ideal position to report publicly its learnings and give general advice as to what could be improved in the business community following analysis by the regulator of the underlying reasons for a collapse or a successful enforcement. AICD stands ready to work with ASIC in any education process relevant to directors.
Interplay between regulators: It is just as important for the regulators, as it is for the regulated, for there to be a clear definition of the roles and areas of responsibility of the various regulators. For trust and efficiency reasons it is vital to avoid gaps in coverage, duplication of effort and inconsistency between regulators. Specifically ASIC vis a vis the DPP (see ASIC v Rich and the recent Vizard matters), ASX (and the ASX Corporate Governance Council principles) and APRA (with its 'Fit and Proper" and corporate governance initiatives) all highlight the critical importance of getting this area right and clearly understood by the community.
Some specific issues of concern to the business/director community include the role of ASIC in facilitating a transition or implementation as smoothly as possible in new areas such as FSR, ASIC's power to fine under the continuous disclosure regime, International Financial Reporting Standards and various matters flowing out of CLERP 9. AICD will continue to liaise with ASIC on these and other specific issues as and when they arise.
The above feedback is not intended to be a "litany of criticism" but rather a focusing on areas of realistic improvement that are expected by the business community. These issues, if addressed, would benefit not only the regulator and the business community, but also the community's attitude to both.
AICD again compliments ASIC on this initiative and previous efforts to consult and continually improve. Indeed when the current ASIC is compared with the ASC and NCSC of old, it is fair to say that there has been an enormous improvement. We look forward to continuing our robust but constructive dialogue with you.
Ralph EvansChief Executive Officer