The Australian Securities and Investments Commission should be thoroughly inspected by Treasurer Joe Hockey's promised financial system review.
It qualifies because it and the bank regulator, APRA, are the "twin peaks" of the system. And it deserves special attention because in the opinion of many, it is too often too slow to react.
It has admitted that it should have responded more quickly to whistleblower information about misconduct in the Commonwealth Bank's financial planning arm; is under pressure over its decision to drop a directors' duties probe into the Reserve Bank affiliates Note Printing Australia and Securency; and is on the sidelines as the Australian Federal Police investigate Leighton over bribery allegations.
It's one thing to say the corporate cop should be more active and another thing to work out how to make it happen, however.
Anything is possible on the regulatory and policing front if you throw enough money at it. You could have a police state if you wanted it: it would just cost a fortune.
Nobody wants a police state, but everybody wants effective regulation and policing. One of the questions Hockey's financial system stocktake should therefore consider is how much money Australia actually needs to spend to supervise companies and markets adequately. Once that has been worked out, it can consider how the dough should be delivered.
Let's look at what ASIC's responsibilities are, and what sort of a drip-feed it is already on.
It began life as a companies, markets and finance industry supervisor, but at the government's behest has in recent years become a regulatory conglomerate that also covers insurance, superannuation, credit markets, margin lending, business names and sharemarket disclosure.
Staff numbers rose by 8 per cent from 1610 to 1738 between 2006-2007 and 2011-2012 as its beat expanded. Annual expenses rose by a more aggressive 50 per cent from $255.7 million to $384 million, and income growth did not keep pace. Fee income, from company registrations and searches, for example, rose by 28 per cent, from $519 million to $664 million. Government funding rose by 24 per cent to $304 million, much of it tied to specific projects.
ASIC still takes in more than it spends, but the revenue-expense jaws are closing, and the International Monetary Fund has argued that budgetary tightness is causing problems.
Its Financial Sector Assessment program checks financial systems and regulatory agencies against global performance benchmarks. Australia and its regulators rate highly. ASIC had "rightfully earnt its reputation as an effective and credible enforcer of market regulation", the IMF said in a report in October last year.
It went on, however, to say that ASIC needed "more resources, and flexibility over its operational budget". Government funding was increasingly being tied to specific ASIC projects, limiting the regulator's flexibility, the IMF said, and the regulator didn't have the money it needed "to fully carry out proactive supervision". It tended to be a "desk-top rather than on-site" regulator, the IMF said, in a comment that will resonate with ASIC's critics.
One conclusion is that if Joe Hockey's financial review does decide that ASIC is too passive and reactive, increased funding will have to figure in the remedy. The question would then be how to deliver funding most effectively, and that would necessitate a review of ASIC's structure.
ASIC is a government milch cow. It generates roughly twice as much revenue as the government gives back - $664 million of self-generated income compared with government funding of $304 million in 2011-2012, for example.
ASIC's funding base could be expanded if more of the money it collects was returned to it. But would a government that is trying to cut public sector spending and boost the budget bottom line be prepared to boost ASIC's funding in that way?
Maybe not, but there are other options, and some of them would work as part of a more fundamental restructuring of the regulator that addressed concerns that after its expansion it has become too unwieldy.
ASIC could change its funding base and potentially ramp it up by replacing direct government funding with the industry levy model that financially underpins its sister regulator, APRA, for example.
Inside ASIC there has also been discussion about an internal split that would set the revenue-generating corporate registries up as a separately managed business, leaving ASIC itself more tightly focused on corporate, market and finance industry supervision and enforcement.
A complete devolution of the registry business to create the equivalent of Britain's Companies Office is also possible. Twin peaks should endure, but options for change exist. ASIC might be fundamentally reshaped by Hockey's financial sector review.