In a Senate economics legislation committee hearing on the first Delivering Better Financial Outcomes (DBFO) bill last week, deputy chair Andrew Bragg expressed surprise at the level of involvement that the corporate regulator had in the process of drafting the bill.
Originally inquiring into the drafting errors that made their way into the DBFO bill, Bragg asked Dr Andre Moore, assistant secretary at Treasury’s Advice and Investment Branch, how they were missed.
Moore responded that the error was introduced into the bill “inadvertently” as Treasury “sought to respond to feedback that we received at the exposure draft stage that indicated that aspects of that exposure draft didn’t fully meet the policy intent”.
“We addressed that issue and in doing so, unfortunately, we introduced that error. As soon as that was drawn to our attention, we and the government immediately moved to address that issue,” he said.
While angling apportion blame for the drafting error to the government and Financial Services Minister Stephen Jones, Bragg was taken aback at the revelation that it was an error that the Australian Securities and Investments Commission (ASIC) had also missed.
“This is not an error of the government’s making. This is an error of officials’ making,” Moore told the hearing.
“Our final checks of the bill, that’s Treasury OPC [the Office of Parliamentary Counsel], also ASIC, we collectively missed that error. It was only once it was drawn to our attention by stakeholders that we [saw] it and then immediately moved to address it.”
Senator Bragg responded: “Did you say ASIC checked it?”
Moore explained to the committee that one of the “standard clearance processes for bills” is a final quality assurance step with ASIC, adding that “where there is legislation that has provisions that might be administered by ASIC, ASIC is consulted on the development of those provisions as needed”.
Despite Senator Bragg’s concern over the role of a law enforcement agency in giving advice and input on how a law is crafted, Moore stood by the “longstanding practice under multiple governments”.
“I think having the ability for the regulator to input into the law and provide feedback on how it might be administered helps to ensure that, one, that the legislation delivers on the policy intent but also is administrable,” he explained.
Bragg responded: “Wowsers, well I have to say I’m very surprised to hear that.
“I wonder whether they’d be better at more enforcement if they weren’t spending time talking about how new laws might be created.”
He added: “I’m just wondering whether that’s been a good approach. I mean, I think from their own law enforcement record, I mean, not sure that’s working.”
Turning his attention directly to ASIC and commissioner Alan Kirkland, Bragg asked: “What involvement did you have in this business? You were involved in the background, were you?”
“As part of the normal process of developing legislation, ASIC was consulted by Treasury during the development of the legislation, and as Mr Moore has mentioned, ASIC also provided advice on whether we were able to administer the law consistent with the government’s policy intent based on the information provided,” Kirkland said.
“The quality assurance process normally involves, as part of that longstanding practice, where ASIC is required to administer part of the law, the draft provision has been provided to ASIC so that ASIC can provide advice on whether we’re confident we’ll be able to administer that law in line with the government’s policy intent.”
When Kirkland informed the committee that ASIC only became aware of the drafting error when it saw media reports about it, Bragg noted that picking up on the error “could have been one benefit of you guys being involved with drafting new laws”.
However, Kirkland defended ASIC’s part in the legislative process, saying it serves a “very specific purpose”.
“To provide advice on whether we’re able to administer the law in line with the government’s intent as articulated in the various extrinsic materials, and that was the nature of the advice that we provided on the bill,” he said.
This is in line with Kirkland’s previous comments, such as those made at an FAAA roadshow event in May, where he explained that ASIC’s role is not to make policy decisions or design legislation, but it does “assist Treasury through that process”.
“We also then provide regulatory guidance once legislative reform has passed. And the point of that regulatory guidance is to help people and the entities we regulate to understand how to comply with the law,” he said at the time.
To me this was probably one of the most disturbing aspects of the evidence provided at last week’s Senate committee hearing.
ASIC is a regulator, administering a number of acts of Parliament. In simple terms it should act like a police force and gather evidence, and then liaise with the Commonwealth DPP as to whether there are merits in pursuing litigation. Of course, now that it’s well funded from adviser litigation funders, litigation restraint is something that used to happen
But back to its purpose in life. Indeed, this is ASICs own description: “ASIC is an independent Australian Government body. We are set up under and administer the Australian Securities and Investments Commission Act 2001 (ASIC Act), and we carry out most of our work under the Corporations Act”.
ASIC was never intended to be a policy development body – that belongs to Treasury. And yes, it makes sense to pass any financial services legislation, once drafted, over to ASIC to see if there are any obvious legal issues, which could allow smart lawyers to get out of genuine litigation.
Other evidence given at that committee hearing seem to indicate that ASIC was in constant contact with Minister Jones’s office. Is that appropriate? What happens to arm’s length from politicians, as ASIC, like the Audit Office, reports to Parliament. Minister Jones is expected to engage in “light touch” with ASIC
Dr Moore’s answer, which I watched live, is intriguing: “Our final checks of the bill, that’s Treasury OPC [the Office of Parliamentary Counsel], also ASIC, we collectively missed that error. It was only once it was drawn to our attention by stakeholders that we [saw] it and then immediately moved to address it.”
Is he actually saying that, as a” stakeholder”, ASIC requested a change to the Treasury legislation for a policy driven reason, but that change, once implemented, raised another issue, casting doubt on whether commission could be paid for the sale of financial products under General Advice.
So when did the separation of powers become diffused?
This has been a major issue for the last 15 years.
The regulator is in fact up to their necks in the formation of legislation of which they will then be tasked to oversee.
Not only that, when the the Code of Ethics was being developed by the failed FASEA , ASIC was communicating to FASEA on the quiet and providing ” guidance” to the wording of how certain sections or clauses should be considered.
Their communications even specifically stated they weren’t necessarily providing advice to FASEA, but guidance as to how wording should be considered.!!!
So, ASIC have their noses in the trough of legislation at every single turn when it comes to Financial Services and Advice becasue if they can influence and design the legislation to suit their regulatory powers, then the task of future prosecution and wins on the board for ASIC is like shooting frogs in a barrel.
It is skewed, conflicted and ASIC need to keep their powder dry and stay out of the formation of legislation.