The head of the Australian Securities and Investments Commission has admitted budget cuts enacted by the Coalition have compromised the corporate watchdog’s ability to engage in proactive investigations.
Asic suffered a cut of $120m over four years in the 2014 federal budget.
The chairman of the commission, Greg Medcraft, said the cuts had “absolutely” resulted in less surveillance.
“Seventy per cent of our resources are devoted to surveillance and enforcement and when you have cuts in the budget what happens is actually you reduce the level of proactive surveillance because proactive surveillance is discretionary,” he told ABC Radio. “What it means is that we see people less than we may have in a proactive setting.”
Lower-order surveillance missions were dropped when cash was restricted, Medcraft said.
“That is a matter for government and it’s a matter of determining what level of resilience you want in the financial system,” he said. “If we look at the area where there have been problems – the area of responsible lending, financial advice, of life insurance – there’s three for a start where clearly we could do more surveillance.”
Asic has been criticised for only taking action against financial institutions after problems occur, making the issue of proactive investigations a critical one.
“Asic never seems to act unless there’s carnage,” the independent senator John Madigan told Guardian Australia.
The regulator is at the heart of a discussion about whether a royal commission into banks and the financial system is needed.
Labor last week said it would initiate a royal commission if it wins government at the next election but the prime minister, Malcolm Turnbull, said it was unnecessary as existing regulators have the same powers as the commission.
The idea of a royal commission had divided the Coalition, with a number of government MPs throwing their support behind the idea, which has been ruled out by senior cabinet members including the prime minister.
“Asic has all of the powers of a royal commission plus much more,” Turnbull said on Sunday. “It has the ability to initiate prosecutions, to take action, to issue fines, to ban people from trading, from operating as company directors or in financial services so what we have already is a very serious, very comprehensive regulatory structure.”
On Tuesday, he said: “We are giving our regulators greater power and we will continue to do that”.
The other regulators in this space are the Reserve Bank of Australia and the Australian Prudential Regulation Authority.
Medcraft refused to weigh in on the need for a royal commission, saying it was a matter for government. But he acknowledged that trust in the banking system “has been somewhat dented” by numerous scandals.
The shadow treasurer, Chris Bowen, said the Coalition had cut Asic “to the bone”.
“They deserve no thanks and no credit for reversing that, if indeed they do,” he told reporters. “Some small increase in Asic’s funding will not be enough to deal with the systemic issues in Australia’s financial services industry.”
Saying Asic has the same powers as a royal commission was “factually incorrect”, Bowen said, noting that the regulator cannot examine structural and systemic problems in the sector, nor can it assess if laws aimed at addressing the problems are working.
“One of the things that the royal commission would examine is the power and the ability of the regulators,” Bowen said. “Is Mr Turnbull really suggesting the right way of determining the resourcing and ability of Asic is to have Asic conduct an inquiry into themselves?”
A 2014 Senate inquiry into Australia’s financial system found that Asic was “a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for Asic’s concerns or intervention”.
Medcraft admitted the regulator had had problems before he started his term as chairman but said it had made inroads to fixing them.
Asic wins 95% of its cases and has undertaken 6,500 surveillances in the last five years, Medcraft said.
