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ASIC off the leash as Greg Medcraft ignores reform recommendations
· Alan Kohler
Editor-at-large, the Australian Business Review
https://plus.google.com/111309166490871550059/about
Greg Medcraft opposes many panel recommendations.
The government should have sacked ASIC chairman Greg Medcraft, not extended his term to implement the changes recommended by the “Capability Review”.
That’s not because he has done a bad job, but because he’s not going to reform the organisation. Medcraft and ASIC have rejected the panel’s key recommendations on governance and culture. The government has therefore kept him on in order not to implement them.
Not only will ASIC’s governance and culture not change — as urgently recommended by the review led by Karen Chester — its budget will be barely increased: it’s $121 million over four years, half of which is to go on capital equipment, which means about $15m extra per year, or less than a 5 per cent increase (plus $6m to Treasury for its trouble).
And that money doesn’t even come from the government. It’s to be funded by the banks — all of them. No wonder the banks are happy and have promised not to pass the cost on to customers: they won’t even notice it.
But you wouldn’t know any of that from Scott Morrison’s media release and press conference on the subject.
The Treasurer’s and Greg Medcraft’s performances this week have been among the most mealy-mouthed, weaselly pieces of spin ever seen in public policy, which is saying something.
In an attempt to neutralise the opposition’s awkwardly successful call for a royal commission into the banks, Morrison and Assistant Treasurer Kelly O’Dwyer spruiked more money for ASIC plus reforms coming out of the Capability Review as doing the same job.
But first, they have done the old “forward estimates” trick of adding up the money over four years and announcing that number, and forgotten to mentioned that that’s what they’ve done.
And second, the Capability Review’s central recommendations won’t be followed, even though Morrison said it was “critical to ensuring that the cop on the beat we have in our banking and financial system and in corporations more generally has the strength and the focus and integrity it needs to do its job and that Australians can rely on”.
The key recommendation — emphasised by the panel and plainly regarded as the most important — is that ASIC should have a non-executive board that focuses on strategy and leaves the running of the place to a full-time executive, just like companies do.
At the moment, the commissioners are all executives. Greg Medcraft, is the full-time executive chairman.
Chester’s panel says this model “inherently undermines accountability”.
Apart from that, the commissioners have “insufficient strategic bandwidth”, which “is supported by interviews and discussions … together with the panel’s own observations and a time-use survey and analysis conducted by PwC”.
The PwC “time-use analysis” suggests that ASIC commissioners spend 26 per cent of their time on external engagement.
The panel said that “evidence supplied by ASIC” suggested commissioners spent an average of 24 per cent of their time on external engagement. Excluding the chairman, and the time he spends at meetings of the International Organisation of Securities Commissions, that comes down to 21 per cent.
“The Panel recommends that ASIC realign its internal governance structure to achieve a clear separation of the non-executive (governance) and executive line management roles.
“This will improve internal accountability mechanisms, and increase bandwidth for strategic decision-making and external engagement and communications.”
The panel laid out a recommended structure — a non-executive commission with something clumsily called Head of Office of ASIC, which has executive responsibility delegated from the chairman. Reporting to the HoO would be the Senior Executive Level.
“The role of the HoO will be to lead the day-to-day operational management of the organisation and to relieve the chairperson and commissioners of these additional and operational responsibilities. SELs will either report directly into the HoO or via group leaders. Clear lines of accountability, a revised delegation framework, and likely a revised commission subcommittee structure will all be required to ensure that the right issues are being elevated to the commission.
“To deliver the change required,” said the panel, “ASIC will need to begin implementing these recommendations immediately.” Nope. Medraft and ASIC effectively said in the formal response: we don’t like them and don’t want to do it, not immediately, not ever”.
“On the creation of the Head of Office role, it is unclear how such a role would work effectively and improve capabilities and accountability in an organisation of ASIC’s size and complex mandate.”
ASIC dodges the issue about time spent on external engagement by talking about “strategic matters” instead: “a detailed and methodical review of Commissioners’ diaries indicates that just over 70 per cent of Commissioners’ time is spent on strategic matters”.
Yes, except the panel and PwC were talking about external engagement — that is, getting out and talking to people, not sitting in the citadel, stroking their chins and having meetings about strategic matters.
ASIC’s response, fully supported by the government, is a classic exercise in dissembling.
“ASIC supports the vast majority of the Panel’s recommendations. However there are a small number where we do not think they will assist us to be more effective as a regulator.”
Small number? As Medcraft well knows, the proposed restructuring of ASIC governance is the core recommendation; none of the others matter anywhere near as much.
The question that probably hit Medcraft and the other commissioners immediately was: would they become part-time non-executives, or would they remain executives reporting to another board?
Neither, thanks very much, we’d like to keep reporting to ourselves. In short, Medcraft and the other commissioners don’t want to give up executive control, and perhaps the salaries that go with it, and have persuaded the Treasurer to go along with them.
“We disagree that a binary distinction can be made — in absolute terms — between strategic and operational matters. Most matters at commission level involve both strategic and operational elements.
“Underlying some of the report’s recommendations is a fundamental philosophical difference of opinion about the degree of centralised control that is appropriate in a regulator with a broad mandate like ASIC.”
The Chester panel was also quite damning about ASIC’s culture, a criticism that was also rejected out of hand by Medcraft and the commissioners. “We do not agree with the report’s characterisation of ASIC’s culture and do not consider it provides a useful basis for improving capability.”
Basically the Panel doesn’t know what it’s talking about, according to ASIC, and won’t do what it suggests, yet the government has presented the report and recommendations, and ASIC’s response to them, as underpinning a “serious action plan”.
That will only work as long nobody reads the detail and just listens to their spin.