Why has ASIC’s turn on the global stage been ignored?

OPINION: The election of Australia’s top corporate regulator Greg Medcraft to the chairmanship of the International Organisation of Securities Commissions has received nowhere near the prominence it deserves.

Aside from a short report in the Australian Financial Review (‘Medcraft aims high with IOSCO,’ 18 May 2012), the pivotal role now accorded to the Australian Securities and Investments Commission (ASIC) in framing the global market conduct agenda has not been deemed worthy of mainstream media or political comment.

In a remarkable slight, neither the Treasurer, Wayne Swan, nor the normally assured Minister for Financial Services and Superannuation, Bill Shorten, commented publicly on the honour. The oversight, while perhaps rendered understandable by the hothouse environment of managing a hung parliament, is even more remarkable given the fact that a piecemeal increase in ASIC’s operating budget was trumpeted just weeks earlier as a vote of confidence in its standing as a world-class regulator. It is symptomatic of the myopic nature of policy discourse in contemporary Australia that the Opposition did not even notice such a glaring oversight.

This myopia is a tactical and strategic error for both the political establishment and the financial services industry, which is coming to terms with a very changed global operating environment.

It is a tactical mistake given that ASIC is clearly well-regarded internationally. It is a strategic mistake given that Australia has now been given a unique opportunity to shape global discourse. Mr Medcraft and by extension ASIC have just become much more powerful actors on the domestic as well as the international stage. In effect, it is taking this position without overt political guidance at a time when Australia could have set an integrated agenda.

As a result, it is setting out and driving an agenda without explicit political oversight, a danger in the medium term for both the regulator and the regulatory regime. For a regulator without the explicit mandate to set rules this is an exceptionally dangerous position, notwithstanding the commitment of Mr Medcraft to inculcate higher standards of accountability.

For a former investment banker, with no prior experience in regulatory design or oversight before becoming an ASIC commissioner in 2009, his rise has been meteoric. The IOSCO election is a personal and professional validation of the much more pro-active approach to regulatory purpose taken by ASIC since his elevation to chair in 2011. This is now as much a threat as an opportunity.

The unresolved question is what Mr Medcraft (and Australia) intends to do with this enhanced framing power?

He will take over the chairmanship of IOSCO in March of next year at a global meeting of regulators here in Sydney. His stated ambition is for the organisation to become “the key global reference body for securities regulation,” a rapidly expanding domain informed by what he sees are conflating dynamics: “the continuing globalisation of financial markets and products; and the migration of savings from the banking regulatory perimeter to the securities perimeter and with it the increased significance of securities regulation.”

The emphasis on the migration of capital calls into question what should be the appropriate domains of the market conduct regulator and its prudential counterpart. Should the market regulator rely solely on the efficacy of disclosure or intervene much earlier in the product design process? If so, should the search for greater accountability be limited to those directly involved in product manufacture and distribution or expand to the professions, which provide the legal and accounting advice on which the market relies?

ASIC has taken an exceptionally expansive stance in relation to these questions to date. It has signalled repeatedly (and without political dissension) that the professions play a critical gatekeeping role in protecting the integrity of the market. It has used the Future of Financial Advice program as a Trojan Horse to redefine the parameters of responsibility across the value chain.

Behind the velvet glove of advancing co-regulatory solutions, lies the possible application of the strengthened misleading deceptive and unconscionable conduct provision of the ASIC Act. The IOSCO position adds significantly to the leveraging capacity of ASIC’s approach to regulatory design and purpose at both national and international levels. Its definition of what constitutes a gatekeeper and specific differentiated responsibilities remains, however, under theorised in conceptual terms and uncertain in practical implementation (as highlighted in The Oxford Project debate on these pages).

Whether they like it or not the professions have just been conscripted to engage in a regulatory experiment with significant domestic and global application. It is in our national interest that such a pivotal appointment is given the attention it deserves. Mr Medcraft, the recipient of such an honour on behalf of the Australian people deserves no less. So do we.

Professor Justin O’Brien is director of the Centre for Law, Markets and Regulation at UNSW

This opinion piece first appeared in The Conversation