ASIC capability review finds massive 'expectation gap'
by Patrick Durkin
The Australian Securities and Investment Commission faces a major shake-up after the government's capability review found the regulator is far too inwardly focused, rather than busy chasing bad guys.
PwC time use analysis undertaken by the panel showed that - once ASIC chairman Greg Medcraft's international duties were excluded - ASIC Commissioners spent up to 80 per cent of their time on internal duties rather than external stakeholders. The panel said the time spent on external stakeholders should be more than 40 per cent. Mr Medcraft's term was today extended for 18 months.
The authors of the 186 page report released on Wednesday, Productivity Commissioner Karen Chester, David Galbally, QC, and Professor Mark Gray, warn the inward focus is causing "key challenges and tensions" and resulting in a massive "expectation gap" about ASIC's performance.
"The panel believes that ASIC's governance arrangements contribute to this inward orientation for its leaders and that change is required to reorient them 'upward and outward' rather than 'downward and inward'," the report concluded.
External stakeholder surveys, which queried business, the regulated population and consumers, confirm a shocking expectation gap in how the commission is performing. For example, 95 per cent of ASIC commissioners and executives said the regulator is proactive compared to just 23 per cent of stakeholders. 92 per cent of ASIC commissioners and executives said the regulator is forward-thinking compared to just 21 per cent of stakeholders.
Performance varies widely
The report also warns that ASIC's capabilities "vary widely", particularly its problematic culture and "big data" capabilities.
"ASIC's capabilities show material gaps to what the panel considers to be good practice, and where improvement is required without delay", the report concludes.
The panel recommend tackling the regulator's inward structure where ASIC's chair, deputy chair and three commissioners take day to day responsibility for different regulatory sectors.
They warn the structure makes the commissioners inwardly focussed. The panel called for a board-like structure with one accountable chief executive and a more rigorous process for appointing commissioners.
"The model results in a number of key challenges and tensions, with the risk that it erodes the strength of internal accountability, and that it may leave insufficient bandwidth for commissioners to focus on important strategic issues and external engagement," the report said.
The panel nominated five themes it said were affecting ASIC's performance.
- sound governance architecture, not well used;
- the 'expectations gap' — much greater than expected;
- opportunity to reorient for greater external focus;
- cultural shift needed to become less reactive and more strategic and confident;
- 'future-proofing' and forward-looking approaches needed. The Panel also observed some external constraints for which action needs to be undertaken
ASIC promises to do better
ASIC rejects the finding while promising to do better.
"We are concerned that the specific new model recommended in the report, which would be a very significant departure from the existing structures of Australian regulators, would tend to undermine rather than enhance our strategic focus and accountability," ASIC said.
"Nevertheless... we will adopt new initiatives to support the Commission's role and focus on strategy and accountability, including enhanced management information and performance reporting to the Commission; a review of the mandate, membership, effectiveness and role of committees; and a review of Commissioners' engagement with stakeholders," ASIC said.
The government said it would agree to ASIC's response but has plans for much greater oversight.
"The government agrees with ASIC's plan to enhance the ability of Commissioners to have a strategic focus and engage with external stakeholders," it said in its response.
Read more: http://www.afr.com/business/banking-and-finance/asic-capability-review-finds-massive-expectation-gap-20160420-goannm#ixzz46LXpf96v
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