The scope, approach and timing of the inaugural review of ASIC by the new regulator oversight body, the Financial Regulator Assessment Authority (FRAA), has been confirmed.  

Key takeouts

  • The new Financial Regulator Assessment Authority has commenced its inaugural review of the Australian Securities and Investments Commission (ASIC).  
  • Rather than being a broad-based assessment of ASIC's overall capability and effectiveness, the review will be a targeted assessment of ASIC's strategic prioritisation, planning and decision-making, as well as its surveillance and licensing functions with a strong focus on the regulator's technological capability/use of technology/data.  
  • This targeted approach will be replicated in future reviews of both ASIC and the Australian Prudential Regulation Authority (APRA).  
  • The FRAA is due to deliver its report on ASIC to the Minister in Q3 2022.  
  • The FRAA's first assessment of APRA will commence in 2022, with a report due to be provided to the Minister 'in 2023'.

Overview

The Financial Regulator Assessment Authority (FRAA) was established on 29 June 2021 by the Financial Regulator Assessment Authority Act 2021 in response to Hayne recommendations 6.13 and 6.14.

Broadly, the FRAA is tasked with assessing and reporting on the effectiveness and capability of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

On 29 November 2021, the Treasurer announced the launch of FRAA's inaugural review of ASIC. As part of the review process, a consultation paper has been released outlining the FRAA's planned approach to the ASIC Review and to future reviews. The paper also includes 19 specific questions for feedback.

A high level overview is below.

General approach: The FRAA's approach to conducting reviews of the regulators

It's envisaged that:

  • The FRAA will conduct targeted biennial reviews of the capability and effectiveness of the regulators. Rather than assessing the overall capability and effectiveness of the regulators as previous capability reviews have done, each review will focus on a defined set of specific issues. These targeted reviews will replace the ad-hoc reviews that have been conducted to date.
  • The rationale given for this is as follows.

'Given the breadth of ASIC and APRA’s operations, this approach will enable the FRAA to undertake meaningful assessments of each regulatory function and provide sufficient opportunities for the regulators to take action to address findings from the FRAA reviews'.

  • The FRAA will undertake its reviews in consultation with the regulators to ensure its assessments 'address the challenges faced by the regulators at the time they are conducted'.
  • The reviews will also be informed by stakeholder consultation.
  • Importantly, the reviews are expected to be:

'guided by the statutory objectives and responsibilities of the regulators, the government’s Statement of Expectations, and the regulators’ Statement of Intent'.

Announcing the inaugural ASIC Review, Treasurer Josh Frydenberg emphasised this point stating that:

'The FRAA’s review will be conducted against the backdrop of the Government’s Statement of Expectations and the need for ASIC to continue supporting Australia’s economic recovery from the COVID‑19 pandemic'.

Inaugural review of ASIC: Scope of the Review

ASIC's approach to 'strategic prioritisation, planning and decision making'

  • The consultation paper states that this aspect of the review will include assessment of the regulator's: a) 'regulatory decisions'; b) strategic decisions; and c) decisions relating to the implementation of strategic priorities and allocation of resources. The review will also consider the 'consistency of decision-making within ASIC, its alignment with articulated priorities, as well as whether the strategic prioritisation process is sufficiently responsive to risks identified by ASIC'.
  • The consultation paper makes clear that the FRAA will not assess decisions on particular cases or regulatory matters, rather the review will 'assess decision-making in ASIC in terms of overall ASIC governance and process'.
  • The assessment of ASIC's strategic prioritisation, planning and decision making is expected to both 'inform other components of the first assessment of ASIC, and subsequent assessments focussing on other areas of ASIC’s work'.

The consultation paper includes five questions on this aspect of the review for stakeholder feedback. These are as follows.

  • 'Does ASIC have a clear and effective framework for setting strategic priorities and making decisions consistent with those strategic priorities?'
  • 'How effective is ASIC’s process for identifying risks, and addressing these risks through its strategic prioritisation and decision-making? How effectively is data and technology utilised to inform these processes?'
  • 'How effective is ASIC in implementing its strategic priorities and decisions, and allocating resources to give effect to them?'
  • 'Are there processes and systems in place to effectively monitor and oversee ASIC’s decision-making to ensure decisions give effect to the direction and strategic priorities set by ASIC? Do these processes and systems result in appropriate consistency of decision-making across all levels of ASIC decision makers?'
  • 'Is ASIC’s strategic prioritisation and decision-making framework clearly communicated to and understood by ASIC staff and external stakeholders?'

ASIC's surveillance work

The review will consider ASIC's surveillance work which is described in the consultation paper as:

'the monitoring of markets and regulated entities, ASIC’s targeted surveillances of individual firms, and ASIC’s targeted surveillances of larger groups of entities or products (sometimes described as thematic assessments)'.

The consultation paper includes five questions on this aspect of the review for stakeholder feedback. These are as follows.

  • 'How does ASIC make decisions about the prioritisation and resourcing of surveillance activities?'
  • 'To what extent are ASIC’s surveillances targeted, efficient, and proportionate? Are those surveillances effective?'
  • 'To what extent does ASIC have the appropriate data, technology, and systems to allow it to detect risk, harm and misconduct, prioritise issues, and conduct surveillances?'
  • 'How effectively does ASIC use data and technology to reduce the regulatory impost of its surveillance activities?'
  • 'Has ASIC appropriately prioritised investment and focus on enhancing its data and technology capabilities in its surveillance activities?'

Licensing

  • The review will also assess ASIC’s approach to licencing ie it's approach to 'receipt, processing, and granting of licenses and registrations for regulated entities and individuals' as well as ASIC's communication with/interaction with applicants.
  • The consultation paper emphasises that the review will not consider enforcement actions related to licences and registrations eg variations/cancellation of licences and registrations. These issues are planned to be included in a future review of ASIC's approach to enforcement.

The consultation paper includes four questions on this aspect of the review for stakeholder feedback. These are as follows.

  • 'How does ASIC’s licensing function support its regulatory mandate i.e. ASIC’s statutory objectives, legislative requirements, risk appetite and strategic priorities?'
  • 'Are licensing and registry application decisions timely and consistent? Does ASIC ensure that clear guidance for applicants is made available and that stakeholders are engaged appropriately?'
  • 'Does ASIC have the appropriate data, technology, and systems to efficiently manage licensing and registrations?'
  • 'How effectively does ASIC use data and technology to reduce the regulatory impost of its licensing activities?'

Next steps

  • The due date for submissions is 28 January 2022. It's requested that submissions be a maximum of 20 pages in length and supported by 'evidence such as data or case studies' where possible.
  • FRAA is due to deliver its report to the Minister in Q3 2022.

Planned APRA Review: The FRAA assessment of APRA will commence in 2022 and be a report will be provided to the Minister in 2023.

[Source: FRAA Consultation: Scope of assessment of the Australian Securities and Investments Commission]