Budget reins in corporate watchdog

ASIC has warned that it will have to drastically scale back and in some circumstances completely stop its surveillance activities amid multimillion dollar budget cuts.

Last week, ASIC Chairman Greg Medcraft told a Federal Senate estimates hearing about the predicted effect of a $120 million cut and other savings measures over the next four years.

ASIC’s operating budget will take a $44 million hit this financial year alone, and more than 200 positions will be cut, or more than 12% of the current staff of 1782.

Medcraft says ASIC will still be able to perform its statutory functions but changes were inevitable.

“In particular, our proactive surveillance will substantially reduce across the sectors we regulate, and in some cases stop,” he says.

“For obvious reasons, we do not want to identify to the market the areas where we will not be conducting proactive surveillance. We will rely more on the intelligence we get from misconduct reports and the complaints we receive.

“We will limit our risk-based approach to focus on those entities or activities that have the greatest market impact. Where we do find that someone has intentionally broken the law, we will continue to do the best we can to ensure that the consequences are severe.”

Medcraft confirmed that there will be less proactive surveillance of the insurance sector, with ASIC instead focusing on entities with the largest market impact at the expense of those with smaller customer bases.

“My warning is that people will need to be careful. Take responsibility for yourself,” he says.

“At the end of the day … where people see white collar crime occurring, it becomes more important for people to report that.”

Meanwhile, at a speech last week at the Corporate Governance Forum, ASIC Commissioner John Price admitted that the regulatory reliance of product disclosure statements (PDSs) had not been as effective as hoped in reducing consumer losses.

“The assumption that underpinned much of retail financial services regulation since the Wallis Inquiry – that disclosure is the best tool in almost every instance to fix market failures – has not been borne out in practice,” he says.

“People may not have the time, inclination or capacity to read disclosure documents.

“Research in behavioural economics also indicates that consumers are not rational in their decision making. This may mean that people will not read disclosure documents, or misunderstand them if they do.”

The stance echoes that of NIBA, which earlier this year told the Financial Systems Inquiry that PDSs had been a failure.