Many are lining up to put the boot into ASIC, as time runs out for the corporate regulator to fix itself.

ASIC chairman Joe Longo, Finance Minister Katy Gallagher and ASIC deputy chair Karen Chester during a recent Senate hearing. Photo: Alex Ellinghausen

More than four years after the Hayne royal commission delivered a scathing verdict of the Australian Securities and Investments Commission, a parliamentary inquiry is hearing submissions from disgruntled stakeholders.

And with Liberal senator Andrew Bragg, former ASIC chairman James Shipton and an anonymous senior ASIC executive among those lining up to sink the boot into the regulator, questions about its future are getting louder.

“It is a laughing stock. No wonder ASIC is seen as a toothless tiger,” says Bragg. “There is a major problem at ASIC. The culture of the organisation is sick.”

Dozens of submission have been made to the parliamentary inquiry into ASIC, with the first batch released this week.

One submission claims that when veteran liquidator Michael Brereton accused the directors of a collapsed company that owed $250,000 of breaching their duties and insolvent trading, ASIC sent an auto-generated email just 38 seconds later, declining to investigate.

Australian Restructuring Insolvency & Turnaround Association CEO John Winter estimates that the economic impact of illegal phoenix activity is more than $5 billion. “Everyone knows that ASIC is asleep at the wheel, but the truth is that it never even got in the car,” he says.

Barrister and former ASIC investigator Niall Coburn has made a submission on behalf of 63 farmers who say they were victims of predatory lending by banks.

They include David and Liz Browning, fourth-generation farmers who lost the family’s 32,000 hectare cattle and sheep farm in outback Queensland, which had been in the family since 1886.

“None of us have been able to get back on our feet,” David Browning tells AFR Weekend. “Some turned to alcohol, there are broken marriages and depression.”

The watchdog’s own data reveals that a tiny percentage – less than 1 per cent, according to economist John Adams – of complaints have actually been investigated.

Adams says ASIC’s own submission to the inquiry shows that its performance is declining – reports of misconduct being finalised over the past decade have fallen from 25,287 in 2011-12 to 16,695 in 2021-22.

He is incensed that ASIC data shows 35 official investigations last year (or 33 per cent) were commenced from public reports of alleged misconduct. He claims ASIC is not responding properly to public complaints, and instead focusing too much on its own agenda. “It is completely unacceptable, if not outright scandalous,” he says.

But ASIC says there is only so much it can do. “The scale of our regulatory task, which covers the activities of many thousands of entities and a vast number of transactions, means we cannot progress every potential matter to investigation and enforcement,” ASIC says. “Like all regulators, we need to make careful, well-founded choices.”

Opinions about ASIC’s perceived failings are wide and varied, but there appear to be some common themes.

Privately, ASIC insiders complain that it is being tied up by half a dozen committees and parliamentary inquiries and is now overseen by the Financial Regulator Assessment Authority chaired by former Macquarie Group boss Nicholas Moore.

Dr Andy Schmulow, an expert on financial regulation, believes ASIC has been spread too thin and the country’s much lauded “Twin Peaks model of regulation” no longer really exists.

“What we have is a dedicated financial-industry prudential regulator and a financial-industry-and-every-other-industry-and-everything-to-do-with-licensing-reporting-corporate-governance-(generally)-insolvency-money-commerce-business-and-the-economy … conduct regulator,” he writes in his submission.

He also believes there is deep confusion in the business community over which matters ASIC is choosing to litigate.

“It is inexplicable that ASIC will not pursue the Westpac directors for breaches of their duty to prevent AML/CTF breaches, but will pursue directors of Star Casino,” he writes.

Others have raised questions about ASIC’s culture and leadership.

Coburn, who now specialises in investigating financial crime, was an ASIC investigator and lawyer for 13 years. He successfully led the criminal Kleenmaid insolvent trading case, and was the former head of enforcement for the Dubai Financial Service Authority. He has the view that problems start at the top.

“ASIC has never had commissioners who have run a serious investigation from start to finish,” he says. “Can you imagine if they tried to appoint a commissioner of police who had never made an arrest in their life?” he asks.

ASIC’s leaders have included former investment banker Greg Medcraft, who was chairman until 2017. Medcraft replaced lawyer Tony D’Aloisio, who had a mixed record of success but made his mark bringing major cases against James Hardie, Centro, Fortescue and AWB.

Medcraft made a virtue of staying away from major cases in favour of fines and enforceable undertakings and putting the focus on poor culture, before his relations with the federal government soured badly.

‘Why not litigate?’

James Shipton then took up the torch in 2018, before he was savagely flamed in the Hayne royal commission. Shipton embraced the “Why not litigate?” strategy recommended by Commissioner Kenneth Hayne before the infamous “wagyu and shiraz” case, when ASIC sought to clarify and tighten the rules around responsible lending. But the pandemic hit and the strategy was effectively abandoned.

Shipton was caught up in a scandal over his tax bill and, while later cleared, resigned. Allegations have now emerged that he was among ASIC staff to make a bullying complaint against current ASIC deputy chair Karen Chester.

It also emerged this year that former corporate and Deutsche Bank lawyer-turned ASIC chairman Joe Longo was forced to apologise to staff after an emotional outburst. Explaining his actions, he described the apology as “courageous” to The Australian Financial Review.

More recently he was forced to explain himself to a Senate Committee on whether he had misled parliament about the findings of a Treasury inquiry into Chester’s behaviour.

Now, former ACCC Commissioner turned well-regarded ASIC enforcer Sarah Court is vowing to “get on with it”.

Restructure ahead

But more than five wasted years since Medcraft’s departure have left ASIC confused on what it should be doing with its August 2021 Statement of Intent, which emphasises a desire to avoid hampering economic activity and to focus on education and co-operation.

ASIC’s “newfound commitment to tougher enforcement appears to have fallen by the wayside”, class action law firm Maurice Blackburn wrote in its submission. “This appears to be a reversion to the kind of regulatory inaction which enabled widespread misconduct of the kind dealt with by the [Hayne royal commission],” it wrote.

One senior ASIC insider, who asked not to be named, also pointed to ASIC’s culture and says that the commission is tied up in too many useless meetings. There is also deep confusion about the commissioners’ roles and if they should oversee ASIC staff like a corporate board or act as they currently do – like multiple CEOs running ASIC’s day-to-day affairs, which insiders say creates political alliances and factions.

“Out of up to 12 hours of meetings the commission has each week, only three are spent on enforcement and so much of that is spent delving into detail and second-guessing what the enforcement staff are already doing,” the insider says.

“Plus we have to prepare long detailed papers and get sent back to redo them if they aren’t perfect. And of course, there’s always the risk that Longo will blow his stack again like he did at the August 2022 meeting when he was so unhappy with the staff.”

Longo is preparing to implement the largest restructure of the regulator in 15 years from July 1, designed to streamline enforcement, cut bureaucracy and deliver fast decision-making.

He may well have the right idea. The problem for him is it comes after more than five years of turnover and turmoil, which suggests that the clock has already run out on the time Hayne gave ASIC to fix itself.

Hayne expressly and forcefully stated that if, after those “coming years”, ASIC had not fixed itself, then “radical change” would be needed. Specifically, that ASIC should be broken up and a separate civil enforcement and prosecutorial agency created – an idea that Shipton also supports.

AFR Weekend previously reported the Morrison government considered that idea before the pandemic hit, with former ASIC deputy Daniel Crennan, KC, sounded out about running the new enforcement agency during 2020.

Shipton agrees and says there should be greater transparency on ASIC’s performance, including examining the commissioners who he says should be more easily able to be removed.

Others, like former regulator Coburn, say a separate enforcement division should remain within ASIC to give it more firepower, but it must have its own head and leaders.

Treasurer Jim Chalmers has so far declined to weigh into the ASIC situation, but has pushed to review and reform the nation’s key economic institutions to ensure they are fit for purpose. Those include the Reserve Bank, the Productivity Commission and Infrastructure Australia.

On Friday, he moved to break up the monopoly of the ASX’s clearing and settlement, which arguably ASIC should have already been pushing.

For many, the time for ASIC to fix itself is has passed, and Chalmers and the government must now act.

The diary of a senior ASIC insider

An anonymous senior ASIC insider sets out a week in the life of ASIC’s Commissioners.

Monday 10am to 1pm: ASIC commission steering committee chaired by Danielle Press.

“It’s sort of a snapshot of what’s happening in each team and also heads-up on any major matters coming up – but weirdly, it can’t make any decisions. We staff have to prepare papers, but nothing gets done.”

Tuesday 2pm to 5pm: ASIC commission regulatory committee chaired by Karen Chester. This is a decision-making Committee that deals with all the non-enforcement matters.

Wednesday 10am to 1pm: ASIC commission meeting chaired by Joe Longo.

“This is actually the only body that can make formal decisions (such as use of statutory powers), but it often gets bogged down in administrative and operational matters like IT, HR and inward-looking issues.

“Staff see it as a tick and flick meeting that has a lot of pomposity and formality without any real work agenda.”

Thursday 2pm – 5pm (often later): ASIC commission enforcement committee chaired by Sarah Court.

“This now looks at every single investigation and enforcement action (including minor summary registry matters and administrative licensing actions).”

In response, an ASIC spokesperson said: “The personal observations are not representative of the way ASIC conducts strategic and regulatory decision-making forums

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