ASIC prepares to sell registry arm
Joe Hockey’s ambitions to sell billions of dollars of assets and slash the budget deficit is likely to include a radical overhaul of the corporate watchdog ASIC, including the sale of its registry business and consideration of a proposal to move the regulator to a more self-regulatory ”user-pays” model.
The dramatic plan for the corporate regulator was canvassed at a Senate inquiry into its performance on Tuesday and against a backdrop of briefings with politicians over recent weeks.
ASIC chairman Greg Medcraft said hiving off the registry business, which includes companies, business names and searches, and merging it with other government registry businesses makes sense. It would form part of a bigger plan to promote a user-pays model.
”I’m a big fan of big industry self-regulation,” he told the inquiry.
ASIC’s registry business is worth an estimated $6 billion. In 2012-13 it generated $680 million in revenue and cost $142 million to run, making it an attractive prospect for the private sector.
At the heart of the proposed overhaul is a plan to switch to a user-pays model, which ASIC estimates would raise $287 million from various industries.
A document prepared by ASIC to brief backbenchers says the user-pays model would raise hundreds of millions of dollars through a combination of ”fees for service of $37.8 million, where charges are directly linked to the cost of ASIC delivering a particular service (eg. takeover approvals); and sector-based levies of $248.7 million where sector participants pay an annual fee based on a cost-driver metric.”
The document says a cost-recovery model for each of ASIC’s industry sectors has been developed and the impact of cost recovery assessed for those sectors. ”There will be an adjustment of fees paid now by some sectors, compared with what we propose they pay under the user-pays model. Fees will be tiered to align the cost of ASIC’s work with the sectors that drive the cost. As a result, sectors with little interaction with ASIC, or little need for interaction with ASIC, will pay lower fees.”
Selling the registry business is a no-brainer, but introducing a user-pays model that promotes self-regulation needs to be carefully thought through as the global financial crisis taught us that self-regulation does not necessarily work.
If this is pursued, it will justifiably create a lot of debate as a strong regulator should be independent and that means being funded by government rather than too reliant on the proceeds of industry.
There is no question ASIC needs to lift its game and it is sensible to examine different models. But at the end of the day it is vital to have a strong corporate regulator for the proper functioning of the economy. Investors need to feel confident that they are being adequately protected and businesses and individuals need to know how far they can push the boundaries.
In the case of ASIC, its policy is all too often not to discuss the progress of complaints, not to inform victims – or whistleblowers – of decisions, and not to inform them whether their complaints will be, or are being, acted upon. This policy allows it to hide deficiencies and leaves victims – and whistleblowers – in limbo.
Of the 420 submissions to the Senate inquiry most were critical of the regulator and how it does its job. One of the most recent criticisms is its handling of the David Jones share trading scandal, which Medcraft himself admitted didn’t pass the front-page test. He said boards needed to think of the public perception, not just whether it is legal or not.
He needs to listen to his own advice in this instance as the perception of ASIC also took a battering over the investigation.
Not surprisingly, he and his commissioners were questioned at length over the investigation, including why they decided not to interview the full David Jones board, whether they conducted an event study, and who they appointed as their external adviser.
The adviser was stockbroker Harold Shapiro who will now have to release his advice to the Senate committee confidentially.
The David Jones scandal erupted when two directors bought shares in the company a day after a $3 billion merger proposal lobbed and a few days before the company released better-than-expected quarterly sales figures. The share price shot up 15 per cent in the ensuing days.
As the head of CPA, Alex Malley, said at the inquiry: ”Perception is everything in life or business and one could argue that in the case of ASIC, creating a positive perception is required by legislation. Yet questions linger about whether, in fact, it exhibits the very culture it needs to act in the public interest … Being regular front-page news on questions of your performance rather than your outcomes leaves ASIC in a difficult position to influence better behaviour in others. No one wins in this circumstance – least of all the Australian public.” Indeed.
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