Scathing inquiry finds corporate regulator has 'comprehensively failed'

The inquiry process revealed the Australian Securities and Investments Commission (ASIC) is not a capable regulator and appeared to be "reluctant or unwilling to commence investigations" into reports of misconduct.

In one case, ASIC failed to take action against an international cryptocurrency scam despite receiving information about some 34,000 Australians who had lost more than $200 million to the scheme.

Despite having their contact details, ASIC did not contact the victims even though there was a "serious risk" of them losing more money and did not warn Australians about the scam, the committee said.

A Senate committee recommended ASIC should be split into two regulatory bodies and financial incentives should be offered for whistleblowers.

However, not all senators agreed with the recommendations.

Liberal senator Andrew Bragg, who chaired the Senate committee, did not hold back in his findings that ASIC was failing to respond to corporate misconduct and was not using the full extent of its powers to enforce corporate law.

"It is clear ASIC has failed," Mr Bragg said in a statement.

"Too many Australians have been hurt by ASIC's persistent failure to enforce the law and win prosecutions."

However the deputy chair, Labor senator Jess Walsh, said the recommendations "overshot the mark and completely missed an opportunity for bipartisan support".

She said sensible reforms that could have been implemented immediately had been overlooked.

ASIC receives tens of thousands of reports of alleged corporate misconduct every year, from the public and industry, but only about 1 per cent of misconduct reports were investigated, the inquiry found.

In the past three financial years, ASIC commenced 117 investigations on average each year.

ASIC took no further action in two-thirds of the estimated 236,000 reports it received from the public in 2021-22, despite them often containing serious allegations.

Statutory reports from insolvency practitioners also often went without investigation.

ASIC generally responded to these reports with an automated "no further action" email within 40 seconds of receiving the report, the committee found.

The corporate regulator has the power to refer the most serious suspected breaches to the Commonwealth Director of Public Prosecutions (CDPP) for criminal offences, however the number of these referrals has fallen.

In the 2022-23 financial year, 41 referrals were made to the CDPP, down from 86 referrals in 2018-19.

The lack of action was particularly concerning, the committee said, considering the high number of companies entering administration in recent years.

"Australians lose billions of dollars each year when insolvent companies fail to pay their creditors," the committee said.

ASIC's remit has continued to expand since its inception in 1991 and is now the "widest of any corporate regulator in the world", the inquiry found.

Despite this, the regulator operates with fewer than 2000 staff.

"Indeed, ASIC's remit has become so large that it now uses significant resources just to strategically prioritise its regulatory efforts," the committee wrote.

Resources are also committed to managing ASIC's reputation when its performance is "inevitably criticised", the inquiry found.

Submissions to the inquiry raised concerns about the regulator's wide remit.

Former chair of ASIC James Shipton told the inquiry the regulator had been asked to do "too much with too little".

During the inquiry, ASIC was accused of failing to support Mr Shipton, who said "intimidatory" advertisements attacking him and ASIC had left him feeling suicidal.

The committee raised the question of whether ASIC's remit was too broad for it to be an effective and efficient agency.

It recommended the Australian government strongly consider separating ASIC's functions between a companies regulator and a separate financial conduct authority.

Making significant improvements to ASIC's enforcement approach should be a national priority, the committee said, otherwise harm to Australians would continue.

Among its 11 recommendations, the committee said the government should "urgently address" the shortcomings in handling alleged corporate misconduct and make it a legislative requirement for ASIC or future bodies to investigate reports of alleged misconduct at an appropriate rate.

It also recommended the Australian government investigate amending the Corporations Act to include financial incentives and compensation for whistleblowers who make a report that would result in a significant public disclosure.

ASIC relies on whistleblowers to provide information, however those who speak out can find themselves in a "challenging position" under Australia's whistleblower regime.

The committee also recommended establishing a searchable public register of civil or criminal outcomes arising from reports of alleged misconduct to create a higher level of transparency.