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ASIC funding vital: Herbert Smith Freehills

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By Tim Stewart
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3 minute read

Global law firm Herbert Smith Freehills has delivered a stark warning to David Murray about the dangers posed by an underfunded ASIC.

In the law firm’s response to the Financial System Inquiry interim report, Herbert Smith Freehills partners Luke Hastings and Andrew Eastwood argued for more focus on the adequacy of ASIC funding.

The FSI interim report canvassed views on the prospect of a more autonomous funding process for ASIC – specifically, an industry fund levy.

While Herbert Smith Freehill’s submission does not endorse an industry levy, it stresses the dangers posed by an under-resourced regulator.

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“Poor resourcing impacts not just what ASIC does, but also how well it does it,” said the submission.

“Underfunding the regulator can lead to ineffective, inconsistent or incorrect application of the rules. Without an effective regulator, those participants who refuse to play fairly, but can get away with it, benefit,” said the law firm.

Worse, companies that follow the rules may still end up being penalised by a regulator that, lacking in experience or resources, applies the rules incorrectly or capriciously, said the submission.

“At a practical level, underfunding the regulator gives rise to inefficiency in the conduct of its inquiries and investigations, particularly as a result of the inability to adequately staff these matters,” said the law firm.

Without endorsing an industry levy, the submission said that despite challenges associated with its implementation it is “worthy of consideration”.

The submission noted comments by Monash University adjunct professor of economics Rodney Maddock in the Australian Financial Review that an industry levy “reduces pressure on the regulator to perform”.

Mr Maddock said that having regulatory agencies “fight for their budget allocation” means they have to demonstrate real need for additional funding”.

“We disagree that more stable funding will necessarily reduce the pressure on the regulator to perform,” said the submission.

“The threat of funding cuts is a very blunt tool to encourage regulatory effectiveness which also has potentially disastrous consequences for financial markets,” it said.

While the pros and cons of an industry levy need to be worked through, Herbert Smith Freehills argued the critical issue is ensuring ASIC receives sufficient and stable funding so it can operate as a “strong, capable regulator”.

“Whatever funding model or combination of funding models is ultimately recommended, this should be its primary goal,” said the submission.

ASIC funding vital: Herbert Smith Freehills

Global law firm Herbert Smith Freehills has delivered a stark warning to David Murray about the dangers posed by an underfunded ASIC.

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