The Australian Securities and Investments Commission (ASIC) is “generally effective and capable”, but needs to enhance its data and technology capability, the Financial Regulator Assessment Authority (FRAA) has found in its inaugural report. It also needs to improve stakeholder engagement and be more transparent in its communications, it said.
The FRAA was established in response to recommendations 6.13 and 6.14 of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The Royal Commission was critical of the effectiveness of both ASIC and the Australian Prudential Regulation Authority (APRA), and recommended the establishment of an oversight authority to assess the regulators’ performance.
The FRAA assessment used a qualitative framework and obtained information through public consultation, as well as through discussion with the industry, consumer advocacy bodies, academics and ASIC staff.
Four main recommendations
The FRAA’s report made four main recommendations, concerning: ASIC’s data and technology capability, the nature of its relationships with external stakeholders, the need for the regulator to assess the outcomes of its activities, and the skill sets it will require to support these areas in future.
The first recommendation outlined the need for a substantial uplift in ASIC’s data and technology capability, and stressed that this will involve cultural change. Secondly, the FRAA found ASIC needs a stronger focus across the organisation on enhancing the quality of its engagement with stakeholders.
Thirdly, ASIC needs to measure its own effectiveness and capability, and must ensure that the outcomes of such assessment are communicated in a transparent way, both internally and externally. Fourthly, ASIC needs to broaden its mix of skill sets to ensure it can meet the organisation’s current and future needs.
ASIC needs to embark on a “digital uplift”, the report found. It needs improved data, analytics and technology capabilities, so that it can more easily identify and act on emerging harms. ASIC must also enhance its effectiveness through improving its technological capabilities and by using data more efficiently, particularly in its financial services and wealth group.
The regulator’s enforcement and surveillance departments need to use data analytics to help identify emerging harms to consumers and prioritise regulatory issues, the FRAA said. This “digital uplift” will require ASIC to increase its data technology capability substantially, and will result in considerable cultural change, the FRAA said.
Stakeholder engagement
As a regulator, ASIC must maintain its independence and resist regulatory capture, the FRAA said.
“To deliver its objectives ASIC should have a strong, trusted and, where appropriate, open collaborative relationship with stakeholders. This is necessary to support ASIC’s effectiveness and provide it with intelligence that would enable it to act earlier to minimise harm,” the FRAA report said.
The Economics References Committee’s February 2020 report on the Sterling Income Trust exposed ASIC’s weakness as a regulator and found the regulator lacked market intelligence. The report indicated that despite ASIC having received multiple complaints about Sterling Income Trust’s operations — which had targeted vulnerable elderly consumers in a failed “rent for life” scheme — it had repeatedly opted to take no further action. As a consequence, investors lost more than A$30 million.
ASIC needs to find more innovative ways to communicate emerging harms to the public, the FRAA said. The regulator also needs to become more responsive to stakeholder feedback, and must engage actively with stakeholders at every stage of their involvement with it, the FRAA said.
The FRAA noted that ASIC plans to improve the way in which it evaluates its performance but said that, to achieve its statutory objectives, the regulator must be able to measure the outcomes of its activities and publish the results of its efforts to increase transparency and accountability.
“The FRAA considers it important that alongside the development of measures, ASIC leadership drive a cultural shift to be open to, and look for opportunities for, continued improvement,” the report said.
Broadening skill sets
ASIC must focus on broadening its mix of skill sets, the FRAA said. The regulator has acknowledged that it needs to support its staff and equip them with the right mind set and capabilities to become more digitally enabled, and has established a “new people strategy” to support this goal.
The regulator must accept, however, that the use of technology alone does not translate into more successful or effective corporate investigations. As the Royal Commission made clear, ASIC staff need to gain experience of corporate investigations and be more strategic in their priorities.
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This article first appeared on Thomson Reuters Regulatory Intelligence.
