Chief corporate watchdog Greg Medcraft has used his opening remarks to the organisation's annual "summer school" to outline his case to the Treasurer, Wayne Swan, for a bigger bite from this year's budget.
In his first year on the job, Medcraft has already been vocal about wanting to ensure the Australian Securities and Investments Commission does not, again, get a few million dollars shaved off its annual allocation.
He told his audience in Sydney that with superannuation funds under management forecast to top $3 trillion in the next decade, "this will increase ASIC's regulatory perimeter as more investors come into the system and money invested increases . . . also, a larger financial system will invariably generate more complaints and breaches".
"With more stakeholders and investment products, ASIC's workload will increase. It will be a key challenge to ensure our regulation is sufficient and remains effective so that overall risk in the system is contained," he went on.
That is not explicitly demanding more resources, but Medcraft certainly seems to be making the case - not surprising given the pressure will be on departmental budgets as Swan tries to deliver on his promised surplus.
Insider is not sure, though, that Medcraft will want to draw too heavily on the US Securities and Exchange Commission's recently published pitch for its own pay rise because some of the numbers suggest that ASIC is comparatively well funded.
Where ASIC's allocation was $346 million last financial year, in a nation of 22 million people, the SEC received about $US1.32 billion to monitor 300 million people.
One way of looking at that is that where the US has about 14 times as many people as Australia, the US corporate regulators receive only about 4.5 times the budget of ASIC.
The SEC wants a $US245 million increase to $US1.56 billion, which would enable it to tack on another 200 full-time equivalent staff.
Clearly the SEC pays a whole lot better than ASIC, given that the budget allocation per full-time equivalent staffer at Medcraft's crew is about $180,000, while the SEC nudged over $US300,000 last year.
The SEC has about one employee for every 70,000 people, while ASIC has a ratio of closer to 1 to 12,000.
Where the regulators are not that far apart is in revenue generation - a surprising outcome given the far more litigious US system and some swingeing assets seizures by the SEC.
It reckons it generated $US2.8 billion for government coffers last year, a return of close to $US2.12 for every greenback invested by President Obama. At ASIC, the measure was closer to $1.80 with $622 million flowing back into Treasurer Swan's pockets.
That is not bad leverage for an argument of increased funding - on top of politicians' fears of declining re-election prospects when ASIC does not pre-empt corporate jackals preying on unsophisticated investors' life savings.
SON ALSO RISES
Number one son of Rupert Murdoch, Lachlan, is copping renewed beatings over the apparent conflict of sitting on the board of the family company and the newly polished chairman's seat at Ten Network Holdings.
The latest anguish stems from weekend reports of Lachlan joining father Rupert in touring the offices of their UK flagship The Sun, reassuring staff and announcing the unsurprising resurrection of News of the World as the Sun on Sunday.
While it was interesting to see the (currently) non-executive Lachlan making that tour, it is unlikely to provoke the notoriously reticent broadcasting regulator, the Australian Communications and Media Authority, to demand Murdoch the younger step down from Ten - given that he was chief executive for a year and they showed no signs of queasiness about the crossover.
At any rate, if the pundits are right about Lachlan being in the ascendancy to succeed Rupert (after brother James hacked his own reputation), Insider reckons it would not be a hard choice.
Being chair of Ten pays $200,000 a year, and Lachlan did not draw a salary while acting CEO, whereas his dad's package as executive chairman of News Corp was worth more than $30 million last year.
At those rates, Lachlan could quickly recover his losses on his $128 million Ten investment, now worth only $82 million.
AUSTIN DIGS DEEP
Austin Exploration was out fracking the market yesterday for a two-part capital raising to raise up to $20 million to fund its drilling of the Eagle Ford and Niobrara shale oil plays in North America.
The offering of up to 690 million shares at 2.9? each to sophisticated investors would more than double Austin's shares on issue, although when Insider last looked at its 20 largest shareholders there was less than 30 per cent of the equity held by the largest investors.
With former the Nexus Energy chief Richard Cottee due to become chairman next month, Austin is ramping up the potential of the two prospects which are estimated to each have about 40 million barrels of potential.
Austin would, no doubt, be hoping for the sort of price re-rating enjoyed by Entek Energy, also focused on Niobrara. Entek's shares fell below 10? in December, but since last Thursday soared to finish at 14? yesterday on buckets of volume - yet the ASX has not even raised a query.
Slack regulation? Seems not. Entek's chief executive, Trent Spry, said the company rang ASX last week when it saw the price and volume lift - only to have the exchange thank them for the call, and tell them it was already aware Entek had been written up in Alex Cowie's resources tip sheet Diggers and Drillers, and suspected that was driving the activity.
Spry himself was no doubt sweating on the falling price, given institutional investors who bought into last April's capital raising at 11? and above might want to get out. Instead, many like Acorn Capital appear to have been topping up.
insider@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What did ASIC chair Greg Medcraft say about ASIC funding and why does it matter to investors?
Greg Medcraft used his speech at the organisation’s annual ‘summer school’ to flag that ASIC’s workload will grow as superannuation funds swell (forecast to top $3 trillion over the next decade). He warned more investors, products and money in the system will generate more complaints and breaches, making effective regulation essential to contain system-wide risk — a point that could translate into calls for a bigger ASIC budget. For everyday investors, that matters because regulator resources affect enforcement, market integrity and investor protection.
How does ASIC’s budget and staffing compare to the US SEC, and what does that mean for Australian investors?
The article notes ASIC’s allocation was about $346 million last financial year for a population of roughly 22 million, while the US SEC had about US$1.32 billion to monitor ~300 million people. That translates to different per-staff and per-capita ratios (the SEC has fewer people per regulator and a higher budget per staffer). The SEC also reported higher revenue generation. For Australian investors, the comparison highlights how differences in resourcing can influence regulatory capacity, enforcement reach and the speed of responses to market problems.
Is ASIC asking directly for more money from the Australian government?
Medcraft didn’t explicitly demand more funding in his remarks, but he clearly made the case that ASIC’s regulatory perimeter will expand as the financial system grows. The article points out there’s political pressure on departmental budgets as the Treasurer aims for a surplus, so whether ASIC gets a bigger slice of the budget is uncertain.
What are the investor implications of superannuation funds growing to $3 trillion?
A larger superannuation pool means more money invested, more stakeholders and a broader range of investment products. The article warns this will likely increase complaints and potential breaches, so investors should pay attention to regulatory effectiveness and choose funds and products from well-run managers with clear governance and transparency.
Does Lachlan Murdoch’s board role and chairmanship at Ten Network pose a conflict of interest for shareholders?
The article reports renewed criticism of Lachlan Murdoch for holding roles across family media interests and being chair at Ten Network Holdings. While commentators flag a potential conflict, the Australian Communications and Media Authority (ACMA) showed no sign of forcing him to step down — especially since he was previously CEO and regulators haven’t expressed concern. Investors should weigh any governance or reputation risks when assessing Ten Network exposure.
What is Austin Exploration doing and what should investors watch for in its capital raising?
Austin Exploration launched a two-part capital raising to raise up to $20 million to fund drilling in the Eagle Ford and Niobrara shale plays in North America. The proposed offer of up to 690 million shares would more than double the company’s shares on issue. Investors should be aware of dilution risk, the speculative nature of exploration plays, management changes (Richard Cottee is due to become chairman) and the companies’ resource estimates for the two prospects (each estimated to have about 40 million barrels of potential).
Why did Entek Energy’s share price spike and how did the ASX respond?
Entek’s shares rose sharply to about 14 cents on heavy volume after being written up in a resources tip sheet (Alex Cowie’s Diggers and Drillers). Entek’s CEO said the company contacted the ASX when the price and volume lifted; the exchange replied it was already aware and suspected the tip-sheet coverage was driving the activity. The ASX did not raise a further query, according to the article.
What practical takeaways should everyday investors get from the article about regulation, governance and small-cap raises?
Key takeaways: monitor regulatory resourcing (ASIC capacity can affect investor protection), watch for governance or conflict-of-interest issues at boards (as illustrated by the Murdoch example), be cautious about dilution and execution risk in small-cap capital raisings (like Austin’s), and recognise that media tip-sheets can move prices — sometimes prompting ASX awareness but not automatic intervention. Staying informed and assessing risk and governance are sensible steps for everyday investors.
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