ASIC is revamping itself to make it more relevant, it seems, to its prime customers: investors.
So now the country’s premier financial regulator has seen the light, why not do something about the conflict of interest enveloping the ASX as it remains listed upon the very stockmarket it is regulating, along with ASIC.
As the graph shows, the ASX share price is reactive to what happens in the market. The credit crunch and then problems associated with the failure and problems at margin brokers, Tricom and Opes Prime, plus problems with Allco, Centro, MFS, and other financial investors, have hurt the ASX share price, its reputation as a front line regulator, as well as the reputation of ASIC.
As well there’s been worries about unchecked and unrecorded stock lending by brokers, short selling, verging on insider trading and alleged rumour mongering by hedge funds shorting stocks.
Now that the year long review by ASIC of itself (which sounds a bit conflicted) is out, what about doing something about the ASX’s relationship with the market and ASIC?
ASIC’s revamp looks a bit incomplete until that is done.
ASIC’s revamp doesn’t make pleasant reading if you are a stockmarket investor and have lost money with the dodgy or failed margin brokers, or done your money in the likes of ABC Learning, MFS, Allco and Centro, to name a few.
There seems to be a tacit admission from ASIC that it has been struggling with its regulatory role and that it has not kept pace with what has been happening in financial markets: so now it says it needs external help.
That asks the question, why?
ASIC says it will appoint an external advisory panel to advise it on market developments, cut senior management positions to 41 from 54, and devote more resources to supervising traders.
The changes come after completing a strategic review, which it said was designed to position it for the challenges of the next three to five years.
ASIC says it will not only appoint an external advisory panel drawn from a variety of sectors to provide advice on market developments but additional investment will be poured into market research and analysis, it said, extra resources will be directed to supervising brokers and operators of exchange-traded products and the surveillance of exchange-traded products.
"The review will result in us being closer to the market. We will be more accessible and flexible, and we will be able to take emerging trends into account more quickly,” ASIC chairman and former ASX chief executive Tony D’Aloisio said.
That’s an amazing admission. We have the country’s leading regulatory of financial markets promising to upgrade surveillance and information flows about the market, after we have been through the biggest boom in Australian history.
That begs the question: was ASIC flying blind during the boom?
ASIC says it will abolish its four "silo” directorates and replace them with 17 "outwardly-focused” stakeholder teams covering different parts of the financial economy, including retailer investors and consumers, investment managers, investment banks, superannuation funds and financial advisers.
The introduction of stakeholder teams would reduce two layers of management to a single layer and reduce 54 senior positions to 41 and these 41 will get more money.
On enforcement, ASIC said it would expand its one large directorate to six main enforcement and deterrence teams, each with a different focus, such as insider trading, major fraud and international fraud.
ASIC said it would retain current staff numbers at 1600. The restructure will be implemented over the next four months.
We know have a Takeovers Panel that is run by a group of individuals from the market chosen for their knowledge in takeover laws and situations to adjudicate on the basis of a lack of conflict of interest.
Now we have ASIC proposing to get an external advisory panel, hopefully on the same basis as the Takeovers Panel, but with no overlap.
But that begs the question first up, who will be on the panel?
Fund managers, advisors, brokers and lawyers will get a look in, but what about representatives of the small investor, who always seems to be last in these matters.
And I don’t necessarily mean the Australian Shareholders Association: it’s a well meaning group, but the quality of their representatives at AGMs does vary.
But why does ASIC need people from the markets to help them? Why can’t ASIC go and hire a couple of aggressive, clever and talented investment bankers or lawyers, pay them a pot of money and tell them to get on the case of the naughty folk in the market.
It is still hard to believe that ASIC seemingly had little knowledge of the growth of margin lending and broking of the Opes Prime and Lift Capital variety; that they didn’t really understand (or try to find out) about covered and naked short selling, and had no understanding of the stock lending rort carried out by super funds and other investors.
The statement yesterday quoted the ASIC chairman, Tony D’Aloisio as saying:
"The review will result in us being closer to the market, we will be more accessible and flexible, and we will be able to take emerging trends into account more quickly.
- Better understands the markets it regulates;
- Is more forward-looking in examining issues and assessing systemic risks;
- Better articulates why it has chosen to intervene and the behavioural changes it wants the market to make; and
- Has a clearer set of priorities (principal priorities being retail investors and insider trading, market manipulation and disclosure).
