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Why ASIC cannot do the job

By Max Atkinson - posted Tuesday, 19 July 2016

In a previous article I noted that Labor, the Greens and two-thirds of the public were calling for a royal commission to fix long-standing problems with banking and other financial services. The government agrees the problems are serious but insists that ASIC can do the job at less cost. But ASIC is a poor choice because its primary role is to enforce existing law - not preside over a public inquiry to see how well this law works.

Like other policing agencies its role is to investigate illegal actions and, where necessary, prosecute those responsible. This calls for a culture of confidentiality to gather evidence, protect witnesses and secure convictions. A royal commission, by contrast, is an open public inquiry to try to resolve a major social problem which has defied the efforts of policing and regulatory agencies. It aims at full disclosure so the public can understand the problem and have confidence it will be fixed.

This distinction is relevant despite the fact that ASIC's charter also makes it responsible for regulating the marketplace - it must keep a watching brief on developments likely to harm consumers or treat them unfairly, and advise the government accordingly. This sounds fine until we learn that 57 major Australian banking scandals have been recorded in the past six years, suggesting this secondary role has been an abject failure.


There are, however, less obvious reasons why ASIC is not suited to the task, the most important being that it is not sufficiently independent. This is because it has agreed with the government not to publicly raise questions about the adequacy of present banking and insurance laws. Its duty is to advise the Minister but to do so confidentially, so he or she can decide what, if any, reforms are needed, and how best to pursue them.

There is nothing improper in this because the government has a right to ensure all agencies support its policies. Nevertheless, while there is no reason to doubt the independence and professionalism of ASIC in its investigative and policing roles, it cannot serve the broader aims of a royal commission - to inform the public of the nature and extent of the problem and consider the views of experts on how it might be resolved, including by better laws and perhaps harsher penalties.

In short, a royal commission will ensure wider public appreciation of the social cost of banking and insurance practices which, while harmful to some or many citizens, are a consequence of policies the government may see itself as ideologically committed to - such as a free enterprise philosophy based on caveat emptor ('let the buyer beware') which ignores the huge difference in knowledge, business sophistication and bargaining power between ordinary citizens and big banks and insurers.

One might, of course, anticipate a counter-argument that important issues of political philosophy, such as how to balance the benefits of a free market against values of fairness and respect for all citizens, are the responsibility of parliament, and should be resolved in accordance with democratic theory, that is, by a majority vote. Leaving the matter with ASIC is consistent with this view, because the government will have a majority in the House.

This may sound fine in theory, but it ignores the power of party leaders to determine outcomes. Because members of major parties are bound by doctrines of party unity, they rarely act on their own judgment. In practice they represent the interests of the party not the values of the community which elected them. Even on important questions of principle few will vote against a party line, as was evident in debates on the Iraq War, the apology and same-sex marriage.

Secondly, genuine debates in parliament on matters of principle and political philosophy are rare, in large part because the two-party system encourages a polarization in which parties divide on rigid ideological grounds, with neither willing to consider whether its core values might be reconciled with those championed by its adversary.


We should keep these matters in mind when told that ASIC is a suitable body to reform banking and financial services. But there is an even more compelling argument, based on an institutional bias set out in the Treasurer's 'Statement of expectations: April, 2014,' which makes it clear ASIC has a responsibility to pursue a policy of de-regulation and reducing compliance costs so as to achieve budget savings of one billion dollars.

This document is complemented by ASIC's 'Statement of Intent' of July 2014, which describes the relationship between itself and the Government in these terms:-

ASIC welcomes the Government's support for our independence. Equally, we respect the Government's overarching responsibility for setting financial and corporate regulatory policy. We will continue to take the Government's broad policy framework - including the deregulation agenda - into account as we work on achieving our strategic priorities.

Anyone who reads these matching documents and their carefully nuanced language will see they spell out a 'mission statement' which ties ASIC not just to the government's economic philosophy, but also to its current budget priorities. The aim is to serve coalition free market policies on banking and financial services, but without raising apprehension that the government will influence ASIC's judgment of what constitutes unfair treatment of consumers.

There is a clear conflict here because if more effective regulation and supervision are necessary to counter an industry trend to exploit the naiveté, ignorance and trust of ordinary citizens, the budget priority to cut red tape and reduce compliance costs - which ASIC has in principle agreed to support - makes it a poor choice for a truly independent inquiry.

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About the Author

Max Atkinson is a former senior lecturer of the Law School, University of Tasmania, with Interests in legal and moral philosophy, especially issues to do with rights, values, justice and punishment. He is an occasional contributor to the Tasmanian Times.

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