‘We don’t need law reform, we need ASIC reform’: Conaghan

Speaking at the FAAA Congress in Perth on Wednesday, shadow financial services minister Pat Conaghan took a broadside at the Australian Securities and Investments Commission (ASIC), calling for the regulator to be split in line with recommendations from a Senate committee last year.

Addressing the inequity of the Compensation Scheme of Last Resort (CSLR), Conaghan acknowledged that there were “a few bad advisers” involved, along with ratings agencies, super platforms, cold-callers, and “unlicensed spruikers”, however he said the “biggest group that needs to answer for their failings is ASIC”.

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“If there was any justice – a big part of the CSLR burden would be on ASIC – not advisers that did nothing wrong,” the shadow minister said.

“ASIC was too slow. They can deny it all they want, but the facts speak for themselves. They received warnings about First Guardian and David Anderson as far back as 2019 – years before most investors had even put in their money.

“When they realised there was a problem, they warned some super trustees but not others.

“ASIC can’t keep burying its head in the sand. They need to own up to their own failings.”

He also called out the push for more regulations around financial services, claiming the government is too focused on new laws rather than sorting out the regulator.

“I think government needs to spend less time on law reform. Instead of constantly rewriting the law, the government should fix the regulator,” Conaghan said.

“What we need isn’t more law. It’s better enforcement. Not more red tape, but smarter regulation. We don’t need law reform. We need ASIC reform.

“ASIC has the tools. This is a very strong regulator with lots of powers. What it lacks is direction. It’s become too big and too confused about its focus.”

In order to fix this issue, Conaghan expressed support for the extensive review of ASIC that Liberal senator Andrew Bragg spearheaded over the course of nearly two years.

“The Bragg review raised an important idea – splitting up ASIC. That’s something I believe the Coalition needs to take seriously,” the shadow minister said.

“Because right now, ASIC is trying to be both a cop and a regulator. And it’s not doing either role particularly well.”

In July last year, the Senate economics references committee handed down its findings, with Bragg saying the committee had “uncovered the dire state of ASIC”, and that the regulator is an organisation “without transparency, few prosecutions, and a litany of cultural, structural and governance issues”.

Handing down 11 recommendations, Bragg said it is “clear ASIC has failed”.

“Chief among the recommendations is the separation of ASIC into two separate bodies; one focused on companies and the other on financial services enforcement. ASIC conceded during the inquiry that its ‘very wide remit’ impacts its approach to regulatory activity,” he said at the time.

“Separating this broad remit into two individual bodies will provide a more coherent and consistent approach to corporate regulation and law enforcement.”

Broadly speaking, the split would see a body focused solely on financial crime and law enforcement, while the other would handle the more operational portion that would, as Conaghan phrased it, be focused on “being a genuine regulator that works with industry to lift standards and improve outcomes”.

“At the moment, ASIC too often goes after the low-hanging fruit – for example, businesses self-reporting breaches – while the real criminals that won’t self-report get away with it,” he said.

“Unfortunately, instead of considering reform of ASIC, what we’ve seen from the government is the opposite. Reduced scrutiny of ASIC.

“They’ve introduced legislation to reduce Financial Regulator Assessment Authority reviews from once every two years to once every five years. This was a royal commission recommendation. Labor wants to roll it back because they feel ASIC has enough scrutiny.

“I disagree. Rather than watering down oversight, we should be strengthening it – weakening oversight of ASIC at a time when ASIC has let down over 12,000 Australians is unacceptable.”

Speaking at a media briefing on Thursday morning, Conaghan reiterated his support for the review’s recommendations, noting that at the time it was handed down the Shield and First Guardian collapses had not even occurred.

“I think it’s absolutely essential that we break it up, because at the moment, it is so heavily weighted at the back end on the enforcement side, and what we need is a regulator who, as I said, should be working with industry and the various sectors to make sure that they’re compliant, as opposed to picking that low hanging fruit where somebody self reports and bash them with a big stick impose huge fines,” he added.

“Aren’t we better off having a regulator to work with them? Say, ‘hey, you’re not quite compliant here, we can see that it’s not deliberate. We’re going to work with you to make sure that you make your industry better, to get confidence in the industry, to see it grow, to go back up to the 30,000 financial advisers we had many years ago before it was decimated by red tape and regulation’.”