According to James McConvill, of LaTrobe University’s Corporate Research Group (CRG), the Australian Securities and Investments Commission (ASIC) is poorly staffed, is not performing and is not inspiring confidence in the financial system.

ASIC was the subject of sustained criticism in 2005 over its failure to initiate criminal procedures against Steve Vizard for insider trading and for not being clear on why it pursued civil charges against the entrepreneur. Its failure to take Telstra to court over its practices was also singled out by critics.

“The financial services sector are becoming increasingly frustrated at the mess which now characterises financial services reform due to a mountain of ASIC policy statements and class orders, and there is a general feeling in the corporate world that ASIC is dragging its feet in bringing to court cases arising out of the collapse of HIH, notwithstanding the fact Adler and Williams are now behind bars,” said McConvill.

The idea of privatization has been explored in the US and is gaining traction. McConvill, who was seconded to ASIC in 2003, said the plan could work here and is worth considering. “Simply, ASIC holds a government-granted monopoly in the market for regulation of corporate legislation,” he said. “Traditional economic theory tells us that a monopoly market is characterised by inefficiency and lack of innovation. Telstra, Steve Vizard, financial services reform and HIH can each be explained as occasions of inefficiency or lack of innovation on ASIC’s behalf.

“Rather than commentators using up their energy castigating ASIC in its existing form, maybe it is time now to seriously explore alternative options for the regulation of corporations legislation in Australia,” he added. “If we appreciate that there is a market, home to a monopoly, and the market is failing, it is time to correct the market failure.”

McConvill dismissed the US model of state-based regulators, where states effectively compete to attract corporations to incorporate in their state. Australia is too small to warrant eight separate corporate regulators and data has suggested the success of the US model is something of a myth. But an option raised in the US, by law professors Stephen Choi and Andrew Guzman is gaining credence. Under this idea, a public body, in Australia probably the Treasury, would auction off a small number of licenses to private sector organisations to become a corporate regulator.

Only a small number of licenses would be issued so that each provider has the opportunity to develop the scale necessary to be an efficient regulator and to achieve certainty in the financial system. Choi and Guzman suggest that large law firms would be ideal candidates for such a license. Another possible provider is the ASX, which just last week announced the separation of its commercial and supervisory functions.

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“Each provider would have an incentive to be as efficient and effective as possible not only to attract corporations to be regulated under their regime at the initial point, but to retain incorporations and attract new incorporations over time, rather than losing customers to ASIC or another private provider,” McConvill said. “ASIC would have an incentive to lift its game to maintain its position as the main participant in the new, dynamic market for corporate regulation.” As Choi and Guzman state in their article, private supply of corporate regulation will encourage providers to “innovate and tailor their rules to market preferences.”

“Rather than throwing cash at the problem, or engaging in a routine sledging of ASIC, it is time for vision in how we can best approach corporate regulation,” McConvill says. “

Stuart Fagg is the Editor of Risk Managementmagazine, Lawyers Weekly’s sister publication.