ASICs corporate regulator riding off into the sunset

Monday, 20 November 2000


    A toothless tiger, a corporate watch puppy, or innovative regulator. During his eight-year tenure as chairman of the Australian Securities and Investment Commission, Alan Cameron has heard it all. On December 31, he steps down from the role of the country’s chief corporate regulator. He shares some of his triumphs and disappointments with JOHN ARBOUW.

    In February 1997, Company Director ran a cover showing Alan Cameron as a corporate sheriff. When ASIC's media people saw advance copies of the journal, they phoned the AICD demanding it stop publication. Times change. More than three years later, Cameron's staff presented him with a memorial copy of the cover at a recent farewell. This incident reflects the popular perception that a corporate regulator should be some sort of humourless Judge Dredd who strikes fear into the hearts of corporate miscreants and whose persona must always be seen to be formal. It is not an image that sits comfortably with Cameron. During the Olympics he was one of the volunteers in blue who escorted VIPs to their seats during the swimming sessions. He was both the smiling face of welcome and the voice of reproach to those who tried to queue jump. It is an appropriate metaphor both for Cameron's personal style and for the ASIC role that involves both helping and regulating business. Yet it is ASIC's apparent dichotomies between corporate regulator, enforcer and business facilitator that causes concern among some sections of the business community.

    This is manifested whenever high-profile cases such as Yannon, Skase or insider trading in mining stock Mount Kersey are in the headlines and no identifiable conclusion or prosecution is reached. Questions are then raised whether ASIC is doing its job, is properly funded or is spending too much time and resources on matters other than bringing corporate criminals to justice. Like US President Theodore Roosevelt, Cameron likes to speak softly while carrying a big stick. And it is the use of the stick that preoccupies ASIC watchers. Cameron has a different view. He believes his greatest achievement while ASIC chairman is not the use of the stick, but the shaping of the corporate regulator entity into an efficient organisation. "ASIC is a very complex organisation with a lot of activities. As I am near the end of my term, it has caused me to go back to the beginning and ask what the intention of ASIC was," he says. "The other issue that has caused me to reflect on the origins is the recent constitutional crisis in terms of the referral of state powers in terms of corporate regulation. (Hughes/Wakim)

    "Looking back I was reminded both from statements in Parliament and in the press that there was a lack of a national corporate database . . . my predecessor set that up and we have delivered that in spades.

    "It is an effective, electronically accessible database of more than 1.2 million businesses - a major achievement. It is also revenue-producing for the Federal Government and the States. Don't forget that the States have received more than $1.2 billion since 1991.

    "What the database revenue has also done is fund ASIC, the Director of Public Prosecutions and the Australian Federal Police in terms of corporate investigations. While ASIC's commercial activities are not always well-appreciated or acknowledged, Cameron is quick to point that enforcement has also been a success.

    "We have done systematic market research to find out what the pubic wants from ASIC and they have always told us it is enforcement," says Cameron. "Whether it is in the major headline cases such as the market manipulation case against Nomura International, or the insider trading case against Macquarie Bank's Simon Hannes, we have had some notable successes.

    "And let's not forget Alan Bond. I know some people say Bond got away . . . well he didn't get away in the end. He was convicted twice and even though his sentence was overturned on a technical appeal, it doesn't overlook the fact that the Commission brought him to trial twice.

    "We also recovered hundreds of millions of dollars for investors in the Austwide Trust case. There have been a number of similar successes. I talk about the high success rate and this remark of mine is often mis-understood.

    "We constantly send the message out to our staff to back their judgement and to not be afraid of losing cases. We are not the final decision-maker in matters of criminal law . . . this is a fact of life about the Commission that is not always well understood."

    If Cameron had a blank sheet of paper would he separate the roles of regulator from enforcer and business facilitator? It is a situation that stands at odds with other countries and many in the business community feel that ASIC shouldn't be doing both functions. "Not only do I think you can do both but you should," he says. "The alternative would be to create a serious fraud office that is purely an enforcement agency. But under such a model an agency is both investigator and prosecutor. At the moment we can investigate, but the DPP prosecutes and that is a protection for the community.

    "It is only human nature that those involved in the investigation are likely to become sufficiently committed to it that they may not be able to bring my idea of independent judgment to the final decision to prosecute. That's the reason why we welcome the role of the DPP.

    "If you took out all the positive functions it would create a lap dog regulator that would give people the relief and the modifications of the law that they wanted without an eye on the broader picture. We are a holistic organisation that looks at both the positive and the negative." Cameron points out that ASIC is also in touch with other regulators and the recent rules regarding continuous disclosure was done in concert with the US Securities Exchange Commission which also tightened disclosure rules in the US. "We do try to harmonise the outcome because people have to abide with both jurisdictions," he says. The new rules on continuous dis-closure are self-regulatory and Cameron makes no apologies for that. He says it was really an attempt by ASIC to help people see how they could perform better.

    "It was one of the more controversial things that we have done. We started thinking about doing things like this about three or four years ago and we have always been very wary. You won't see us doing this very much; and recent experience indicates we won't be doing it all that often because we know it is capable of being misunderstood.

    "We are a regulator that prides itself on understanding the market and we knew from what we were hearing that companies were very sensitive about the issue of selective disclosure. The alternative would be that Parliament makes the rule and no one wants that." While effective self-regulation is an outcome devoutly to be wished, ASIC and the ASX will be monitoring the disclosure regime closely through surveys. Obvious spikes in share trading will also trigger scrutiny in relation to disclosure. The so-called pump-and-dump scenario where companies send out misleading information to the market in order to achieve a share price increase for inside sellers will be closely watched. Share trading in some of the new economy stocks over the past year have had a fair amount of pumping and dumping.

    "Over the past 18 months, one of the things we have observed is that the new crop of new economy stocks is not necessarily practising the same quality of behaviour as that of the old economy companies," says Cameron. "The old economy has got used to us and the rules over the past 10 years. Some of the directors of new economy companies have not been directors before and they do not appear to understand the rules and they do not appear to have access to the right advice.

    "New economy, but old values, is the key and we are very keen to ensure that the public has confidence in the new economy stocks from a regulatory sense. It is a new environment and it makes it even more important that you trust what new economy companies have to say."

    Australian shareholders will agree with his sentiments - but many fear the horse has bolted. The recent carnage on the stock exchange involved new tech companies and is not only a story of mismanagement but in some instances outright abuse of continuous disclosure. The problem is that the ASX as a company listed on its own exchange cannot regulate the market properly and ASIC thus far is reluctant to take over this regulatory role. (ASX is reviewing its supervisory functions.) One of the other achievements Cameron points to is the level of accountability ASIC has achieved. He says that not only on a Parliamentary level but also on a public interface, the Commission is far more open than it was previously. "We are also risk takers that we should be given some credit for. Our April Fools joke for example is quite unlike what regulators do and it was aimed at sending a message that we are not just some stuffy place, removed from the real world.

    "We try to do that with all our April Fools' jokes but the one that succeeded beyond our wildest expectation was the millennium bug. The whole idea behind doing that was to send a message that you have an unusual regulator."

    The question of ASIC funding has regularly been a contentious issue. Cameron believes that ASIC has become leaner and electronically more sophisticated. He concedes however, that his successor will need to find more money for electronic surveillance. "In an ideal world, funding for the Commission would be 10 percent more than is currently the case ($130 million). I don't believe the Commission is far off being ideally funded." While Cameron is proud of ASIC's achievements, he has one surprising regret over the past eight years. "We never succeeded in getting the mass media organisations to understand that no organisation like this will appear to succeed at all times. There needs to be a measure of judgment applied to what we do.

    "For example we are criticised for Skase's non-return to Australia but this is not a matter for us. Similarly, the fact that matters like Yannon are dragged against us all the time is disappointing." If Cameron had another blank sheet of paper for ASIC, the aspect he would change about the corporate regulator is the question of constitutional jurisdiction. He says the referral of power by the States is extremely important.

    "The past 12 months have been the most distracting in the Commission's life. There are many instances where we have those people and companies that we are prosecuting looking for technical reasons not to be prosecuted.

    "The very first thing a constitutional change would do is to remove all that doubt. The second thing I would do in an ideal world is clarify once and for all, the role of the Commission with respect to the markets." Cameron doesn't believe that clarification is clear enough in the current proposals up before Parliament in the financial reform services bill.

    "I would go so far as to say that the Commission's role in respect of the markets ought to be seen as the one that is accountable ahead of the Minister (Joe Hockey) and the department. At the moment, it is the Minister who directly disallows if there is a rule change.

    "I would say on my way out the door that the involvement of the Minister in the market on a day-to-day sense is not ideal." This situation certainly proved the case in a recent embarrassment for the government when news of the rule changes affecting the level of share ownership in ASX was leaked to the market (before the official announcement) allowing some investors to make tidy profits. Cameron says that the other thing he would change about ASIC is to have its employees paid under private sector rules rather than the public service. He believes the current situation is inappropriate in terms of attracting the best talent. A day is a long time in politics and eight years is an eternity as a corporate regulator. As the country's leading corporate sheriff, Cameron has seen the good, the bad and the ugly of Australian corporate behaviour. He has no definite plans at the moment but it is likely that he will re-emerge in the private sector. It will be interesting to see if his views about the organisation he helped to build changes when he is on the other side of the fence.


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