'It's not possible to eliminate risk', but new ASIC boss is trying to limit it

analysis Red tape or essential regulation? Why the new ASIC boss is pushing back Almost a hundred days in and, right on cue, another domino has fallen. Sarah Court, who ascended from the deputy to the leader of Australia's corporate regulator just on three months ago, has spent the past few days closely monitoring a corporate collapse, among a host of other issues. Construction group Bathla — with more than 520 subsidiaries, about 2,000 homes under construction, and roughly 13,000 more in the development pipeline — was this week placed into administration. But that's not the worst of it. Bathla owes creditors more than $3.5 billion. And the bulk of that debt comes, not from banks or financial institutions, but from ordinary Australians who have invested in a fast-growing new financial fad; private credit. It is a high-risk lending operation that operates outside the banking system and largely under the radar, pulling in money from self-funded retirees and other investors and lending it out to mostly property developers. A year ago, the new Australian Securities and Investments Commission (ASIC) chief and her predecessor Joe Longo, identified what they believed could become a potential systemic problem and ordered a deep dive into this murky new industry. With the promise of high returns, it had attracted close to $250 billion. What Court and Longo found was concerning. Late last year, ASIC ordered an overhaul of some of the industry's practices, particularly around asset valuations, fee transparency, and conflict management. It also proposed new law reforms. But, while the regulator can identify risk and attempt to minimise it, it can't eliminate it, as many aggrieved investors often demand after the event. "It's not possible to eliminate risk," Court tells the ABC. "We have a very permissive investment regime in Australia and people do very well from that permissive regime. But the consequence is that investors can suffer losses." The investigations into private credit uncovered an opaque industry operating well below the radar. But it proved valuable in other ways. It's a strategy that has become part of ASIC's new modus operandi; to gather intelligence on shifting markets and get ahead of potential issues rather than being hit by a freight train at full speed. A brief history of ASIC ineffectiveness Sarah Court now heads a regulator with a deeply chequered past. After decades of failure at almost every level, from policy through to enforcement, the Australian Securities and Investment Commission notched up one embarrassing failure after another. Even the global financial crisis, which exposed rampant misconduct within a group of collapsed corporations, resulted in not one conviction and precious little investigation. A decade later, the lethargy was brought to a halt in a withering take-down by Kenneth Hayne, the man who led the royal commission into banking misconduct, with a call for a complete regulatory overhaul. For years, there was constant dismay at ASIC's inability to emulate its cousin, the Australian Competition and Consumer Commission (ACCC) which had a ferocious reputation when it came to upholding the law. Cue Sarah Court. Given her 13 years as a deputy commissioner of the ACCC where she headed, among other things, enforcement and compliance, her appointment as deputy chair of the corporate regulator in 2021 was seen as a coup. Since Court's arrival at ASIC, the organisation has dramatically lifted its game, taking on financial giants such as Macquarie and tearing into the failures at the Australian Securities Exchange (ASX). Spare the rod The new approach hasn't exactly been met with universal approval. The business sector is ramping up calls for less regulation, reduced "red tape", to help lift the shackles costing Australian businesses an estimated $160 billion a year and arguably putting a handbrake on national productivity. Loading...Many senior business leaders have become alarmed that, instead of a quiet word or a discreet phone call from the regulator, they've found themselves facing the full glare of the courts. But in an address to the Committee for the Economic Development of Australia (CEDA) this week, Court argued that strong law enforcement was essential for the country to have a stable environment for business and investors. "Strong enforcement sets expectations, deters misconduct and protects both market confidence and market participants," she said. Loading...Failure to do so exacerbates and entrenches problems that are only ever addressed once a scandal erupts, often with even more onerous laws and regulation. "Every failure leads to calls for new rules," she said. "Every new rule adds a layer of complexity. That is how regulatory burden creeps into the system, with flow-on effects to productivity. "When misconduct is addressed promptly, visibly and at the right level, it can prevent harm from spreading or repeating." Too big to operate? The uncomfortable truth, however, is that ASIC's remit is huge and its resources limited. Brutal assessments are often made not to pursue what could be legitimate complaints. "We have to make hard choices on a daily basis," she tells the ABC. "In some ways, that's a more heightened challenge than during my time at the ACCC because we are often talking about people's money, their retirement savings." But while every case may not be followed up, often they can form the basis of a campaign, to be put on an investment alert list or a scam list. ASIC is tasked with covering financial services, big banks, corporate behaviour, market oversight and soon, since the KPMG and PWC debacles, auditors and liquidators. Then there's data collection, the business registry, and a raft of other avenues over which it must keep watch. Is it too broad? "I don't think it's too big," she says. "A lot of the factors are complimentary." Court explains, for example, that ASIC's investment protocols neatly fit alongside financial services, which then relate directly to consumers. Separating them out could hamper the overall picture the organisation has of the investment landscape. Even the data it collects from its registry, which until now has been a cash cow for the federal government and largely separate, is planned to be used to support its regulatory role. "The danger in separating some of our roles is that things could fall between the cracks," she explains before adding: "We've just got to get better at joining the dots."