ASIC blindspots revealed as director laments budget stretched too thin

The corporate watchdog has complained its low budget has stretched the organisation thin and it cannot perform as many industry reviews as a result.

Insolvency and corporate law experts point to ASIC’s low prosecution figures as evidence of this, with only 36 legal actions being taken in the year to June 12 against 7,253 alleged criminal offences.

“There have certainly been cases where I’ve thought ASIC could have taken action, but they can’t because of a limited budget,” Dissolve managing director Cliff Sanderson told SmartCompany this morning.

ASIC chairman Greg Medcraft says the corporate regulator is working on a shoestring budget, warning that “you get what you pay for”.

The remarks come alongside the release of a new report which reveals the regulator has only 26 staff to investigate 25 investment banks, which means reviews only occur every 1.3 years. The 220 hedge funds ASIC covers may be investigated every six years.

The country’s 135 insurance agencies are reviewed every seven years, while the biggest 20 financial planners are only reviewed every 1.7 years.

“It will be clear to any reader of our surveillance chart that we do not conduct an in-depth surveillance of all the entities we regulate each year,” Medcraft said in today’s The Australian Financial Review.

The agency has suffered a budget cut from $370 million to $324 million, although it has recently been granted additional funds over four years alongside new responsibilities, including coverage of consumer credit.

It recently issued a warning regarding the growing popularity of crowdfunding.

“I think it is important that people know we aren’t on every street corner. We would like to be but we are not,” Medcraft told Parliament last week.

Sanderson says while the release of the report has little to do with small business, ASIC has a low prosecution record when it comes to taking on corporate directors of SMEs.

He points to the recent enforcement outcomes report which shows about 10,000 liquidations and reports to ASIC in the year to June 2012, and liquidators reported alleged offences in 72% of those.

ASIC requested supplementary reports in 738 of those cases, or 7.3%. But there were only 36 legal actions taken against directors, and 467 actions against directors for failure to keep adequate books and records.

“The statistics show ASIC is very stretched right now,” he says.

But Sanderson says he wouldn’t mind if ASIC increased its prosecution rate against small businesses.

“The average director I speak to is concerned…there have been cases where we’ve thought ASIC could have taken action but couldn’t.”