ethics - asic home | asic · in 2001-02, asic • employed 1,284 full time equivalent staff around...

[2] ASIC report of operations 2001-02

in funds protected, compensation orders or assets frozen for investors and creditors, 19 criminals jailed for terms totalling 74set frozen for investors and creditors, 19 criminals jailed for terms totalling 74 years: 11 dishonest company officers and 8 othminals jailed for terms totalling 74 years: 11 dishonest company officers and 8 others who cheated investors, .$401 million in

ars: 11 dishonest company officers and 8 others who cheated investors, .$401 million in funds protected, compensation orders hers who cheated in vestors, .$401 million in funds protected, compensation orders or assets frozen for investors and creditorfunds protected, com pensation orders or assets frozen for investors and creditors, 19 criminals jailed for terms totalling 74 yes frozen for investors and creditors,19 criminals jailed for terms totalling 74 years: 11 dishonest company officers and 8 others9 criminals jailed for terms totalling 74 years: 11 dishonest company officers and 8 others who cheated investors, .$401 millions: 11 dishonest company officers and 8 others who cheated investors, .$401 million in funds protected, compensation orders oho cheated investors, .$401 million in funds prote cted, compensation orders or assets frozen for investors and creditors, 19 cr

otected, compensation orders or assets frozen for i nvestors and creditors, 19 criminals jailed for terms totalling 74 years: 11 dor investors and creditors, 19 criminals jailed for terms totalling 74 years: 11 dishonest company officers and 8 others who che

tackling ethics and governance

Annual Report 2001–02

An independent Commonwealth government body, ASIChas regulated financial markets, securities, futures andcorporations since January 1991. From 1998, we becameresponsible for consumer protection in superannuation,insurance, deposit taking and, from 2002, credit. ASICworks with other financial and law enforcement agenciesin Australia and internationally. For where we fit in theregulatory picture, see page 12.

In 2001-02, ASIC

• employed 1,284 full time equivalent staff around Australia, see page 68.

• outputs cost $160 million and we collected $379 millionin fees for the Commonwealth, see page 8.

• operated under three full time Commissioners appointed by the Governor-General on the nomination of the Treasurer, see page 16.

The Australian Securities and InvestmentsCommission enforces and regulatescompany and financial services laws toprotect consumers, investors and creditors.

ASIC’s profile

ASIC report of operations 2001-02 [1]

• 19 criminals jailed for terms totalling 74 years: 11 dishonest company officersand 8 others who cheated investors,page 26.

• $401 million in funds protected,compensation orders or assets frozen for investors and creditors, page 28.

• Higher standards of competence,compliance and capacity set for financialservices businesses. New licensing systemdelivered on time for financial servicesreform, page 36.

• Government increased our funding by$90.8 million over four years to pay forfinancial services reform andenforcement, page 8.

• 13% increase in complaints to ASICabout corporate and financialmisconduct. We extended moreassistance and resolution, page 58.

• Public use of ASIC’s corporate databaseup 32%, with a record 6.1 millionenquiries, page 57.

tackling ethics and governance 2001-02

[1]

Highlights

Chairman’s report

Financial report

Organisation chart

Three year perspective

The regulatory picture

ASIC directorates

Commissioners

Governance, ethics and audit

Community involvement

Enforcement

Financial servicesregulation

Market regulation and policy

Consumer protection

International andregional coordination

Public and commercial services

Infrastructure

Our staff

Audit

Appendices

Six year summary

Financial statements

Index

Highlights and results for 2001-02

David Knott reports on key issues, outcomes and resources

Meeting expanding demands

ASIC’s organisation chart

A three year summary of results and future plans

Where ASIC fits, who we regulated, how we did it, and other regulators

Seven directorate profiles, results and plans

Commissioners’ qualifications, experience, photos

How ASIC is run, ethical standards and audit

Relations with consumers, business and professionals

19 criminals jailed, 81 civil actions, 65 bannings and disciplinary actions

Financial services reform, licensing, surveillance and technical issues

Corporate finance, market regulation and policy

Compliance, policy and education, researchConsumer Advisory Panel report

International enforcement and cooperation State and Territory service maintained

Company information, helping complainants, enquiry services

IT, human resources, finance and management services

Staff numbers, employment and working conditions

Audit Committee report and internal audit

Publications, Freedom of information, Disability strategyElectoral Act disclosure, cost comparisons

Data on business, ASIC performance and finance

Reporting on operational and administered finances

1, 3

4

8

9

10

12

14

16

18

22

24

34

40

46

52

56

62

68

72

76

78

79

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Inside this report

About this reportThis report was produced under the Commonwealth Authorities and Companies Act 1997. Themembers of the Commission are responsible under s9 of that Act for the preparation and content of the report of operations in accordance with the Finance Minister’s Orders.

To meet high standards of disclosure, as well as legal requirements, we used feedback fromParliamentarians and the public. Last year’s report won ASIC’s third Gold Award from theAustralasian Reporting Awards Inc.


Results for 2001-02

• 19 criminals jailed, 21 directors and 35 people banned from financialservices, 10 auditors and liquidators disciplined.

• $401 million in funds protected, assets frozen and compensation orders.

• Successful proceedings against directors and officers of HIH, and Harris Scarfe.

• Consumer education strategy to promote financial literacy

• Resolved more than 50% of public complaints, up from 37%.

• Doubled visits to our consumer website to 488,000.

• 200+ organisations join our new Electronic Funds Transfer Code.

• 6.1 million free internet searches, up 32%, paid online searches up 4% to 2.9 million.

• 141,000 searches of licensed and banned advisers, up 38%.

• Financial services businesses guided by new ASIC policy and standardsfor competence, compliance and capacity.

• Championed auditor independence and proposed reforms.

• Comparable protection for Australian and Singaporean investors trading in each other’s market.

• 92% of cases against individuals and companies successful.

• 246 new investigations.

• Increased civil litigation to preserve assets.

• Wound up failed solicitors mortgage schemes, 2 jail terms for fraud and reduced defaults.

• 96 stop orders on inadequate prospectuses, targeting unsubstantiatedforecasts.

• Halted potentially misleading advertisements about performance ofinvestment funds.

• Delivered new online system for applicants for financial services licenceson time.

• Electronic reporting system for insolvency practitioners.

• 71% of new companies registered electronically.

• Initiated new skills and leadership programs.

• Approved a new 3 year strategic plan, see page 11.

• $90.8 million in extra funding over four years resulting from a full reviewof the cost of all ASIC’s outputs.

• Expenditure reached $160 million, as costs rose for enforcement andfinancial services reform, see page 8.

• Collected $379 million in fees on behalf of the Commonwealth, up 4%.

Public impactUphold the laweffectively and quickly

Promote confidentand informedconsumers andinvestors

Make companyinformation available quickly

Improve performanceof financial systemand entities within it

OperationsFight fraud andmisconduct

Tackle patterns ofmisconduct

Build e-commercecapacities

Our staffLead, develop andchallenge staff

FinanceControl costs, increaseefficiency and alignwith core business.

What we planned to do What we achieved



In this section:

• tackling ethics and governance

• outcomes delivered in 2001–2002

• civil penalty and criminal remedies

• resources increased• the Commission• staff

David Knott,ASIC Chairman from November 2000 for a five year term.

Chairman’s report

Tackling ethics andgovernanceThe theme of this annual report‘Tackling Ethics and Governance’encapsulates concerns that havegripped many developed economiesduring the past year. Major companyfailures in the USA have exposed abreakdown in corporate ethics andgovernance, corroded during aprolonged period of market prosperity.

In Australia we have not come outunscathed. However, with a fewserious and troubling exceptions, we have avoided the worst excessesexposed by the failures in the USA. In part this is due to Government andregulatory responses to the crashes of the 1980s, which significantlyenhanced our vigilance and caution.Moreover, in the main, Australianbusiness leaders have acted with adegree of restraint and conservatismwhich compares well with theiroffshore counterparts. Domesticinvestor confidence, while unsettled,has not been threatened to theextent obvious in America.

During 2002-03, Australia will review the causes and appropriateresponses to recent corporatefailures. The Government’s corporatelaw reform program will form thecentrepiece of that review, but othercontributions will be important.

The review will be informed byinitiatives in the United States and by the work of key internationalforums, including the InternationalOrganisation of SecuritiesCommissions and the FinancialStability Forum. Where relevant, ourdomestic responses should conform tointernational best practice, particularlyin areas of accounting standards,audit and executive remuneration.

However, Australia’s response togovernance failures should alsoreflect our own experiences. Weneed to consider the long termeffects of new policy initiatives.Legislation focused on coreobjectives that facilitates prompt,effective intervention by theregulator will serve the publicinterest far better than voluminousrules and complicated procedures for sanction. This will be ASIC’sapproach in our own submissions on domestic law reform and in our contributions to internationalstandard setting.

In the meantime, the Australianregulatory system and theperformance of its regulators willform part of the HIH RoyalCommission’s enquiries. Suchaccountability is appropriate, and ASIC will respond positively to recommendations that will improve our regulatory system or our own performance.

1

“Legislationfocused on coreobjectives that

facilitatesprompt, effective

intervention bythe regulatorwill serve the

public interestfar better than

voluminousrules and

complicatedprocedures

for sanction.”


Outcomes delivered in2001–02Impressive outcomes are againevident in this annual report. Wehave concluded another year ofintense activity in which we have:

• successfully prosecuted 42 offenders (resulting in 19 custodial sentences)

• obtained substantial protectiveand compensation orders forinvestors

• commenced implementing themost ambitious reforms tofinancial services regulation everattempted, and

• intervened as never before to improve standards ofdisclosure to investors.

Full details are set out elsewhere.

These outcomes have been attainedat a time when demand for ourservices has never been greater.Volatility in our markets, coupled withincreased recognition of ASIC as aneffective regulator, has resulted in a massive increase in public requests for our assistance.

We have responded by extendingmore assistance and by expandingour range of information andregulatory services. Our new nationalstructure has increased our capacityto identify emerging risks and toallocate resources to them. We haveoverhauled our complaints processesto better correlate and assessinformation received from the public.We have embarked on strategies

which, over the next three years, willcompletely re-engineer how weaccess, analyse and share informationacross the organisation. All of theseinitiatives are improving ASIC’sabilities to discharge our mandate.

We have also commenced a reviewof the methods by which wemeasure and report our regulatoryoutcomes. This involves amodernised system for tracking andreporting enforcement results, andperformance measurements that arebetter correlated to our strategicand business plans. These initiativeswill be reflected in next year’sannual report.

Civil penalty andcriminal remediesOver the past two years ASIC hassuccessfully litigated against a numberof company officers under the civilpenalty provisions of the CorporationsAct. In the past, ASIC has beencriticised for infrequently using thesepowers. More recently, concerns havebeen expressed that their use mayresult in the decriminalisation ofserious offences.

The civil penalty provisions wereincluded in the Corporations Act asan express recognition that breachesof duties by directors and officers willnot always be criminal. They enableserious breaches which mightotherwise escape prosecution to be enforced by ASIC. They can be effective not only to establishbreaches but also to disqualifyoffenders from participation in

years: 11 dishonest company officeand 8 others who cheated investor,01 million in funds protected, comers or assets frozen for investors aneditors, 19 criminals jailed for termstalling 74 years: 11 dishonest compy officers and 8 others who cheate

vestors, .$401 million in funds proteed, compensation orders or assetsfren for investors and creditors,19 crinals jailed for terms totalling 74 yes: 11 dishonest company officers anothers who cheated investors, .$401llion in funds protected, compensa

on orders or assets frozen for inveors and creditors, 19 criminals jailedr terms totalling 74 years: 11 dishest company officers and 8 others

ho cheated investors, .$401 millionfunds protected, compensation

ders or assets frozen for investorsd creditors, 19 criminals jailed forrms totalling 74 years: 11 dishonestmpany officers and 8 others whoeated investors, .$401 million in fuotected, compensation orders or ass frozen for investors and creditors,

criminals jailed for terms totallingyears: 11 dishonest company officed 8 others who cheated investors,01 million in funds protected, comnsation orders or assets frozen forvestors and creditors, 19 criminalsled for terms totalling 74 years: 11shonest company officers and 8 oths who cheated investors, .$401 milln in funds protected, compensationders or assets frozen for investorsd creditors, 19 criminals jailed forrms totalling 74 years: 11 dishonestmpany officers and 8 others whoeated investors, .$401 million innds protected, compensationordersmor assets frozen for investors andeditors, 19 criminals jailed for termstalling 74 years: 11 dishonest comny officers and 8 others who cheatted investors,.$401 million in fundsotected, compensation orders or asts frozen for investors and credito19 criminals jailed for terms totall

ing 74 years:11 dishonest companyficers and 8 others who cheated invtors, .$401 million in funds protect, compensation orders or assets fro

ozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,

ors.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,



ors.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,rs,.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,rs.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,

ors.$401 million in funds protected,d f

1


Chairman’s report

company management, obtaincompensation and impose financialpenalties.

Prior to commencing civil penaltyproceedings, ASIC invariably consultswith the Director of PublicProsecutions to determine how hisoffice assesses the prospects forcriminal charges. If those prospects aresufficiently strong and a prosecutioncan commence within an acceptabletimeframe, it is ASIC’s policy to preferthe laying of criminal charges.

The importance of timing should not be underestimated. ASIC iscommitted to achieving enforcementresults within the quickest possibletimeframe, both in fairness todefendants but also to underscoreconfidence in the regulatory system.That is one of the considerations wetake into account when consideringhow best to prosecute a matter.

It should also be noted that a civilpenalty suit can be followed bysubsequent criminal charges if the circumstances dictate. The two remedies are not necessarilymutually exclusive.

Finally, to put our civil penaltyproceedings in context, we currentlyhave 111 persons facing criminalcharges compared to 20 civil penalty actions.

Resources increasedIncreased funding in this year’sbudget will enable us to implementlicensing and regulatoryresponsibilities under the FinancialServices Reform Act, and will

supplement our generalenforcement resources. Part of thatfunding will be applied to increasingour regulatory support toadministrators and liquidators of insolvent companies.

The CommissionIn November 2001 Professor Berna Collier was appointed to theCommission for a three year term.Professor Collier has broughtsignificant experience and skills tothe Commission and acts as ASIC’srepresentative member on the Board of the Australian PrudentialRegulation Authority. She is the first full-time Commission memberresident in Brisbane.

Pending Professor Collier’sappointment, Mr Ian Johnston(Executive Director, Financial ServicesRegulation) acted for extendedperiods as a Commission member. I extend my thanks for hisconsiderable support and assistance.

I also acknowledge ASIC’s gratitudeto Jillian Segal who resigned asDeputy Chair on 30th June to takeup a position as a member of theCommittee of Inquiry into thecompetition provisions of the TradePractices Act. I reiterate the tributesmade to Jillian in last year’s annualreport and again thank her for five years of dedicated work as a member of the Commission.


StaffLike most public sector organisationsASIC suffers a remunerationdisadvantage when competing forskilled staff. Despite that fact, weare served by officers whoseprofessional competency and workethic loses nothing in comparison to the private sector.

The Commission recognises theneed to invest more in training anddevelopment opportunities for staff,and has approved new initiatives inthis year’s budget. In the meantime,on behalf of the Commission, I thank all of those who have workedbeyond reasonable expectation overthe past 12 months.

We have said goodbye to a numberof senior officers whose serviceshave been sought by internationalregulators, in particular, former NSWRegional Commissioner, Jane Diplock,appointed Chairman of the NewZealand Securities Commission;former head of Policy and MarketsRegulation, Shane Tregillis, appointedAssistant Managing Director of theMonetary Authority of Singapore;and former Chief Accountant, Ian Mackintosh, appointed RegionalFinance Manager of the World Bank.

Although it is always sad to farewelltalented colleagues and friends, the seniority of their appointmentsreflects their outstanding credentialsand the respect in which ASIC isregarded by other countries. I thankeach of them and wish them well.

My report, and the rest of thisannual report except for the financialstatements, constitutes ASIC’s reportof operations in accordance with aresolution of Commissioners madeon 13 August 2002.

David KnottChairman


In this section:

• costs of outputs• expenses• revenue collected

Financial report 2001–022ASIC’s financial performancereflected increased activities toimplement financial services reformand to enforce the law. Ouroperating result produced a deficit of$5.6 million, after the small surplus in 2000-01. This largely resulted fromincreased expenditure on goods andservices related to investigations andlitigation into high profile matters.

With the Department of Finance andAdministration, we conducted an‘Output Pricing Review’ that resultedin additional funding over the nextfour years for ASIC’s substantiallyincreased workload in financialservices reform and enforcement.

The Review also benchmarked ourcorporate services with public andprivate sectors. The results were veryfavourable, and confirmed that wehave managed our resourcesefficiently. Our Financial Statementsbegin on page 79.

Costs of outputsThe cost of ASIC’s outputs was$159.8 million, up from $143.3million. We received an increasedParliamentary appropriation, with aspecial one-off funding of $7.1 millionrelating to the HIH investigation andto the HIH Royal Commission. Of that,$2.85 million represents unspentfunding associated with the HIH RoyalCommission. This has been disclosedas unearned revenue and deferred to 2002–03.

The costs of each ASIC output was:

Output* Cost

1. Policy and guidance about laws administered by ASIC $9.0m

2. Comprehensive and accurate information on companies and corporate activity $42.7m

3. Compliance monitoring and licensing of participants in the financial system to protect consumer interests and ensure market integrity $44.2m

4. Enforcement activity to give effect to the laws administered by ASIC $63.9m

Total $159.8m

*Infrastructure costs are apportioned tothese outputs

ExpensesEmployee expenses, our majoroutlay, rose to $85.2 million, up by2.6%, reflecting increased staff inenforcement and financial services.

Goods and services (excludingproperty) increased to $41.6 millionreflecting increased expenditure onexternally sourced legal, accountingand forensic expenses for majorenforcement matters. Propertyexpenses of $19.8 million fell by$0.3 million, a cost we arecontinuing to manage tightly as we recruit extra staff.

Cash used to purchase plant andequipment was $8.4 million, morethan half of which was ininformation technology assets.

Revenue Total Corporations Act fees andcharges amounted to $379 million.

“The resultswere very

favourable, andconfirmed that

we havemanaged our

resourcesefficiently.”


Commission

Chairman, David Knott

Deputy Chair, Jillian Segal*

Commissioner, Berna Collier

General CounselBrendan Byrne

Chief Accountantvacant

Executive Directors

EnforcementPeter Wood

FinancialServices

RegulationIan Johnston

Policy &Markets

RegulationMalcolmRodgers

ConsumerProtectionPeter Kell

Public &Commercial

ServicesMark Drysdale

RegionalCoordination &International

RelationsGreg Tanzer

Infrastructure& StrategicPlanning

Carlos Iglesias

Regional Commissioners

Peter Kell (NSW)

Mark Drysdale (VIC)

Greg Tanzer (QLD)

Michael Gething (WA)

Karen Axford (SA)

Ron Ladlay (ACT)

Simon Dwyer (TAS)

Anthony Beven (NT)

Organisational chart

* Jillian Segal resigned in June 2002. (The Treasurer appointed Ian Johnston Acting Commissioner, see page 17.)

3


Result 2001/02 2000/01 1999/00

Staff (full time equivalents) increased for enforcement and financial services reform 1,284 1,221 1,234Annual change 5% -1% 2%

Operating expenses rose to pay for extra workload$ millions 160 143 143Annual change 12% nil -1%

Revenue collected for the Commonwealth up$ millions 379 363 361Annual change 4% 1% 9%

Successful court results remained above 70% target*Litigation concluded 205 150 173% successful 92% 71% 75%

More investigations 246 214 200Annual change 15% 7% -3%

More dealers, advisers, fund managers, insurance brokers licensedTotal licences, registrations on issue 4,040 3,917 3,705Annual change 3% 6% 9%

More inadequate prospectuses stoppedStop orders issued 96 81 n/aProspectuses and offer documents** 2,089 2,744 1,033Annual change -24% 166% 46%

Complaints about financial and corporate misconduct up 7,827 6,946 5,534Annual change 13% 26% 5%

Use of our databases increasedFree website browses 6,135,856 4,626,700 3,214,852Annual change 32% 44% n/a

ASIC websites used more oftenVisits to www.asic.gov.au 3,365,000 2,366,000 1,777,000Visits to our consumer site www.fido.asic.gov.au 488,000 241,000 58,000

% company data lodged on time 93% 93% 94%Annual change nil -1% 1%

Infoline answered more phone calls 161,000 123,000 107,000Annual change 30% 15% 3%

* Prior year figures understated success rate, see page 25.** More than one prospectus can exist for the same product, for example 576 short

form prospectuses received incorporated a long form prospectus for the same product.

Three year perspectiveResults: 1999–2000 to 2001–024

Three years’results and asummary ofASIC’s new

three year planfor 2002–05


Plan for 2002–05

What we plan to deliver over next 3 years

• Manage high profile investigations to achieve timely and successful results.

• Seek Government and Parliamentary support for more flexibleenforcement remedies where appropriate.

• Act against misleading and deceptive conduct affecting consumers.

• Promote public awareness about scams and fraud as part of ourconsumer education strategy.

Objectives

Fight fraud andmisconduct.

Raise standards infinancial services andfurther build ourexpertise.

Make a greater impact in the board room and improve thefinancial system.

Detect and act onearly warning signs.

Maintain optimalfunding, relevanceand efficiency.

• Achieve consistent regulation and consumer protection bysuccessfully implementing financial services reforms.

• Offer industry a smooth transition and adjust our policies if required.

• Raise standards through effective licence assessment, policy,surveillance, industry campaigns and targeted enforcement.

• Help consumers make more informed decisions about theirsuperannuation.

• Maintain confidence in superannuation and insurance by improvingsales and disclosure practices and by increasing our expertise.

• Enhance confidence in Australian financial markets througheffective market regulation, transparency and accountability.

• Encourage a culture of disclosure and compliance by directors andothers with financial reporting and audit obligations.

• Encourage improved corporate governance and greater compliancewith Corporations Act.

• Contribute to better financial reporting and auditing byparticipating in international and domestic standard setting.

• Assist Australian market operators and financial service providers in global markets by effective cross border regulation.

• Maintain Australia’s relevance as a capital market for ourcorporations by influencing global standards.

• Reduce compliance burden on companies by implementing lawreform when enacted.

• Assist law reform proposals on corporate insolvency, and implementthose reforms if enacted.

• Prepare and implement an ASIC-wide framework for knowledgemanagement processes and technologies.

• Reduce risk and protect the public by identifying systemic problemsearlier and acting promptly.

• Conduct and publish research about markets and financial servicesto inform public debate and influence law reform.

• Advise Government on our responsibilities and funding.

• Improve our electronic interface with stakeholders.

• Improve access to and maintenance of Australia’s corporate database through technology and streamlining back-office processes.

• Increase internal efficiencies, especially in infrastructure costs.


Where ASIC fits in the regulatory picture

In this section:

• who we regulate• how we regulate them

“ASIC regulatescompanies

and financialservices, and

promotesinvestor,

creditor andconsumer

protection”

5ASIC regulates companies andfinancial services, and promotesinvestor, creditor and consumerprotection under the AustralianSecurities and InvestmentsCommission Act 2001; CorporationsAct 2001; Insurance Act 1973;Insurance (Agents and Brokers) Act1984; Insurance Contracts Act 1984;Superannuation (Resolution ofComplaints) Act 1993; Life InsuranceAct 1995; Retirement SavingsAccounts Act 1997; and theSuperannuation Industry(Supervision) Act 1993.

In summary, the ASIC Act requires us to:

• uphold the law uniformly,effectively, and quickly

• promote confident and informedparticipation by investors andconsumers in the financial system

• make information aboutcompanies and other bodiesavailable to the public

• improve the performance of thefinancial system and entitieswithin it.

Two other Commonwealthgovernment bodies regulateAustralia’s financial system:

• Australian Prudential RegulationAuthority (APRA) regulatesprudent management of deposittaking institutions, insurancecompanies, and largersuperannuation funds.

• Reserve Bank of Australia (RBA)regulates monetary policy and thestability of the financial system.


How we regulate them

Investigate and act against misconduct by company directors and officers.

Grant or refuse their requests for relief from the law.

Receive prospectuses before money is raised.

Uphold the law on financial reporting and company mergers and acquisitions.

Register each company with a unique number, and record the number, name, directors and other information on a public register.

Who we regulate

1.25 million companies

Australian StockExchange Ltd

Sydney FuturesExchange

Other financialmarkets authorised bythe Minister

Financial servicesbusinesses, includingfund managers,stockbrokers, financialadvisers, insurancebrokers

Superannuation funds

Life and generalinsurance companies

Deposit takinginstitutions

Registered managedinvestment schemes

Credit providers

Investigate and act against misconduct by listed companies, brokers and traders.

Advise the Minister about rule changes and whether to approve new markets.

Monitor what ASX Ltd does as a listed company, and trading in its shares.

License them before they start operating.

Set standards for education, training and operations.

Investigate and act against misconduct.

Record their details and their authorised representatives on a public register.

Report on how they comply with codes of practice.

Approve consumer complaint resolution schemes.


Co-operate with APRA.

Register them before they start operating.


Record their details and the names on a public register.

Investigate and act against misleading and deceptive conduct.

Co-operate with State and Territory regulators.

Register them before they start operating.


Company auditors andliquidators


Description of ASICdirectorates6

Enforcement

318 staff

Investigate and actagainst misconduct.

Global marketsshaken by failings infinancial reportingand governance.

19 people jailed for74 years; 20 directorsfined or banned; 35banned from financialservices.

Successful courtproceedings on HIH,Harris Scarfe, BritishMarine Bank scam,Yandal.

15% increase ininvestigations, withnumerous largematters on hand.

Manage high profilecases and achievesuccessfuloutcomes.

Seek more flexibleenforcementremedies.

Act againstmisleading conductaffecting consumers.

Financial servicesregulation

146 staff

Regulate financialadvice and retailfinancial products.

Financial ServicesReform Actcommenced March 2002.

Financial servicesreform projectdelivered guidance,online licensing andadvice on time.

Wound up failedsolicitors mortgageschemes, reduceddefaults tomanageable levels.

Action on highcommissionadvisers: licencesrevoked, 27 advisersinspected.

Achieve consistentindustry regulationand consumerprotection.

Offer a smoothtransition forfinancial servicesreforms.

Use licensing andsurveillance to raiseindustry standards.

Marketregulation and policy109 staff

Regulate markets,fundraising,takeovers andfinancial reporting;develop policy.

Australian marketperformed well,compared withsignificant declinesoverseas.

Stricter standards onforecasts in equityprospectusesresulting in 77 stop orders.

Spoke out on auditindependence andfinancial reporting.

Developed 9 policyand guidancepapers toimplement financialservices reform.

Encourage a cultureof disclosure andstrengthen corporategovernance.

Greatertransparency andaccountability in our markets.

Influence globalstandards to maintainAustralia’s relevanceas a capital market

Staff**

Role

Key events

Results

Targets for next 3 years

* The work of these directorates received substantial support from other directorates.** Full time equivalents, not including 23 staff supporting the Commission, General Counsel,

Chief Accountant and 32 supporting the Superannuation Complaints Tribunal and other statutory bodies.

*** Includes 16 full time graduates working for other Directorates


Consumerprotection*

18 staff

Identify and act onconsumer issues,approve complaintsschemes, reviewcodes of practice.

ASIC consumereducation strategylaunched to promotefinancial literacy.

Corrected misleadingpast performanceadvertising anddenial of travelinsurance claims.

Reported oncombatinginternational coldcalling investmentscams costingAustralians about$400 million.

New Electronic FundsTransfer Codelaunched, increasingconsumer protection.

Promote publicawareness ofdomestic andinternational scamsand fraud.

Consumers makemore informeddecisions aboutsuperannuation.

Reduce risk byidentifying systemicproblems, and acting promptly.

International &regionalcoordination*11 staff

Coordinateinternational matters,State and Territoryoffices.

Asian authoritiesacted oninternational coldcalling investmentscams.

Prompted action byoverseas authoritiesagainst cold callingscams.

Handled 304requests forinternationalassistance.

Maintained regionalservice levels in allStates and Territories.

Work oninternationalstandards ofdisclosure, audit,clearing andsettlement.

Improve internationalenforcement capacity.

Maintain regionalservice levels in allStates and Territories.

Public andcommercialservices332 staff

Maintain companydatabase, assesspublic complaints,answer phoneenquiries, sellimaging services.

Governmentannounced furtherstreamlining ofcompany law.

Free internet searchesincreased by 32%

Assessed 7,827public complaintsabout corporatemisconduct, up 13%.

Increased help tothose reportingmisconduct: 50%resolved, up from37% last year.

Further improveaccess to, andmaintenance of,Australia’s corporatedatabase.

Implement newnational structure forassessing risingnumbers of publiccomplaints.

Implement lawreform affectingsmall companies, if enacted.

Infrastructure andstrategic planning

295 staff***

IT and knowledgemanagement, HR, finance,management servicesand strategicplanning.

Governmentreviewed andincreased ASICfunding.

Managed $160million in expenditureand $379 million inrevenue.

Benchmarked costsand outputs withpublic, private andinternationalcounterparts.

Commissionapproved new 3 yearStrategic Plan, anddoubling funds forstaff development.

Develop andimplementknowledgemanagementstrategies.

Extend our electronicinterface withstakeholders.

Increase internalefficiencies andaccountability forcosts.


Commissioners7

David Knott LLB

ASIC Chairman from November 2000for a five year term.

David Knott is a lawyer and Fellowof the Australian Institute ofCompany Directors. In 2002 he waselected Chairman of the TechnicalCommittee of the InternationalOrganisation of SecuritiesCommissions. Member: Companiesand Markets Advisory Committee,Council of Financial Regulators,Steering Committee to establish anAustralian Crime Commission.Previously ASIC Deputy Chairmanfrom July 1999.

His career covers 13 years in privatelegal practice, specialising incompany and commercial law, 10 years in senior roles in investmentbanking, and nine years in the publicsector. He has been a partner atArthur Robinson and Co, SeniorExecutive Director Capel Court,Executive Director of the AustralianFinancial Institutions Commission,Chief Executive of CommonwealthFunds Management and ChiefOperating Officer of APRA.

Jillian Segal BA, LLB, LLM (Harv.)

ASIC Deputy Chair from November2000 until 28 June 2002.

Jillian Segal is a lawyer and Fellow ofthe Australian Institute of CompanyDirectors. She was previously ASICCommissioner from October 1997.

She has been Special Counsel atDunhill Madden Butler advising onissues management, a partner andconsultant to Allen, Allen andHemsley, and a company directorwith particular experience in financialservices. She was a ProfessorialFellow in the Faculty of Law at theUniversity of Wollongong, a memberof the legal sub-committee of theCompanies and Securities AdvisoryCommittee and a member of theconsultative committee for theCorporate Law Simplification project.


Berna Collier BA, LLB (Hons)(Qld), LLM (Melb)

ASIC Commissioner from November2001 for a three year term.

Professor Berna Collier is a lawyerand a member of the Insolvency, theCompany Law and the Banking andFinance Committees of the LawCouncil of Australia. She serves onthe Advisory Board of Axiss Australia,and as ASIC’s nominee on the boardof the Australian PrudentialRegulation Authority.

She has worked in and writtenextensively about commercial andinsolvency law for 15 years, both in the professional and universityenvironment. Professor Collier wasmost recently Professor of CommercialLaw at the Queensland University of Technology and an educationalconsultant with CPA Australia. Shepreviously practised law in Melbourneand Brisbane. During 1999 and 2000Professor Collier chaired the federalgovernment Taskforce on Industry Self-Regulation.

Ian JohnstonActing Commissioner from June toNovember 2001 (and from July 2002).

Ian Johnston is a lawyer and is ASICExecutive Director, Financial ServicesRegulation. He previously served insenior ASIC roles, and has been acompany director in the financialservices sector and CEO of a majortrustee company. He served asActing Commissioner until theappointment of Professor Collier. (InJuly 2002, the Treasurer appointedhim to act until the appointment ofa Deputy Chair.)


ASIC governance, ethicsand audit

In this section:

• governance• Commissioners’

appointment and remuneration

• reporting to Parliament

• role of the responsible Minister

• role of State Ministers• ethics• fraud control• investigating

complaints about staff• indemnity and

insurance policies• audit

“ASIC staff aresubject to the

Values andCode of Conduct

specified in thePublic Service

Act 1999.”

8GovernanceThree full time Commissionersdirected ASIC’s affairs, making formal decisions at 17 Commission meetings.

Commissioner Eligible to attend Attended

David Knott 16 15

Jillian Segal 17 17

Berna Collier 11 11

Ian Johnston 5 5(acting)

Our operations are organised intoseven directorates, managed byExecutive Directors reporting to the Commission. Commissioners andExecutive Directors together formedan Executive Committee that metfortnightly and identified andmanaged significant issues and risks.

Independent legal and accountingexperts advised on specific matters.All Commissioners are legallyqualified, but where necessary anindividual Commissioner may obtainindependent legal advice at ASICexpense.

Commissioners’appointment andremunerationThe Governor-General, on thenomination of the Minister,appointed Chairman David Knottand Deputy Chair Jillian Segal in November 2000 and Professor Berna Collier in November 2001 onfixed terms that may be terminatedearlier only for reasons set out insection 111 of the ASIC Act.

The Remuneration Tribunal setCommissioners’ remuneration; see also page 107.

Reporting to ParliamentCommissioners reported toParliament and the responsibleMinister on ASIC’s performance.

We appeared six times before threeCommonwealth ParliamentaryCommittees: the Parliamentary JointCommittee on Corporations andFinancial Services twice, the SenateEconomics Committee three times,and the Senate Select Committee on Superannuation and FinancialServices once.

We submitted an annual report andresponded to inquiries on behalf ofconstituents.

Role of the responsible MinisterThe Ministers responsible for ASICare the Treasurer, the Hon PeterCostello MP and, in mattersdetermined by him, the ParliamentarySecretary to the Treasurer, Senatorthe Hon Ian Campbell (fromDecember 2001; previously the Hon Joe Hockey MP, Minister forFinancial Services and Regulation).

Under section 12 of the ASIC Act,the responsible Minister may directASIC about policies and priorities inusing our powers or performing ourfunctions, but he must not direct usabout a particular case.


Under section 14, he may direct us to investigate suspectedcontraventions or other particularmatters. He gave no directions thisyear. Only one has ever been given,in September 1992, aboutcollaboration, consultation andresolving issues between us and theDirector of Public Prosecutions in the investigation and prosecution of serious corporate wrongdoing.

Under section 28 of theCommonwealth Authorities andCompanies Act, the Minister mayalso notify Commissioners in writingof general policies of theCommonwealth Government thatare to apply to ASIC. No suchnotifications were received. The Minister approved contractsexceeding $250,000 as required by our legislation.

Commissioners met regularly withthe Parliamentary Secretary. We alsobriefed the Treasury about currentissues and proposed changes to the law.

Role of State MinistersCommissioners appointed RegionalCommissioners in consultation withthe relevant State and TerritoryMinisters, and submitted half yearlyreports on our performance to thoseMinisters. We attended theMinisterial Council on Corporations,comprising Commonwealth, Stateand Territory Ministers, as anobserver and to answer questions.

EthicsASIC staff are subject to the APS Values and Code of Conductspecified in the Public Service Act 1999.

Formal procedures require disclosureof any real or apparent conflict ofinterest. Commissioners and staff arerequired to take no part in decisionswhere real or apparent conflicts ofinterest may arise. We set up specialreporting and decision makingprocedures to maintain the integrity of our decisions.

The Chairman and Commissionersdisclosed to the Minister all direct or indirect pecuniary interests inbusinesses, companies, or financialproducts regulated by ASIC.

years: 11 dishonest company officeand 8 others who cheated investor,01 million in funds protected, comers or assets frozen for investors aneditors, 19 criminals jailed for termstalling 74 years: 11 dishonest compy officers and 8 others who cheate

vestors, .$401 million in funds proteed, compensation orders or assetsfren for investors and creditors,19 crinals jailed for terms totalling 74 yes: 11 dishonest company officers anothers who cheated investors, .$401llion in funds protected, compensa

on orders or assets frozen for inveors and creditors, 19 criminals jailedr terms totalling 74 years: 11 dishest company officers and 8 others

ho cheated investors, .$401 millionfunds protected, compensation

ders or assets frozen for investorsd creditors, 19 criminals jailed forrms totalling 74 years: 11 dishonestmpany officers and 8 others whoeated investors, .$401 million in fuotected, compensation orders or ass frozen for investors and creditors,

criminals jailed for terms totallingyears: 11 dishonest company officed 8 others who cheated investors,01 million in funds protected, comnsation orders or assets frozen forvestors and creditors, 19 criminalsled for terms totalling 74 years: 11shonest company officers and 8 oths who cheated investors, .$401 milln in funds protected, compensationders or assets frozen for investorsd creditors, 19 criminals jailed forrms totalling 74 years: 11 dishonestmpany officers and 8 others whoeated investors, .$401 million innds protected, compensationordersmor assets frozen for investors andeditors, 19 criminals jailed for termstalling 74 years: 11 dishonest comny officers and 8 others who cheatted investors,.$401 million in fundsotected, compensation orders or asts frozen for investors and credito19 criminals jailed for terms totall

ing 74 years:11 dishonest companyficers and 8 others who cheated invtors, .$401 million in funds protect, compensation orders or assets fro

ozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,




ors.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,rs,.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,rs.$401 million in funds protected,mpensation orders or assets frozenozen for investors and creditors, 19minals jailed for terms totalling 74ars: 11 dishonest company officersd 8 others who cheated investors,

ors.$401 million in funds protected,d f

8


ASIC governance, ethicsand auditStaff were required to keep registersof interests at work that supervisorsmay inspect at any time.Commissioners appointed seniordisclosure officers to advisemanagers and staff on how to handle possible conflicts.

To safeguard confidentialinformation, strict proceduresreinforced the ASIC Act and the criminal law.

Fraud controlASIC assessed the risks it faces fromfraud and produced a fraud controlplan for 2001-03. The Attorney-General’s Department approved oursoftware, risk assessment methodologyand the fraud control plan.

The plan outlines the strategies andprocesses to avoid, detect, investigateand minimise the effects of fraud. Weadopted reporting and data collectionmechanisms that meet our needs andcomply with Commonwealth FraudControl Guidelines.

Investigatingcomplaints about staffTo maintain public confidence in ourstaff and how they used theirpowers, we maintained formalinquiry procedures to investigateserious complaints.

We received 14 complaints this year,seven more than last year. Themajority of the complaints allegedprofessional misconduct. Sevencomplaints were found to be

unsubstantiated, one complaintpartially substantiated, two complaintswere withdrawn and four complaintsare still under investigation.

The partially substantiated complaintconcerned poor service during arecruitment process. The staffinvolved have been counselled. Of the one matter under investigationat 30 June last year, the complaintwas unsubstantiated. We informedcomplainants of the outcome.

Indemnity andinsurance policiesConsistent with the CommonwealthAuthorities and Companies Act, ASIC

• entered into (a) indemnityagreements with Commissionmembers for liabilities, includinglegal costs, incurred by them inthe course of the conduct oftheir duties; and (b) indemnityagreements with former ASICrepresentatives on the APRABoard for their legal costs inrespect of the HIH RoyalCommission. ASIC paid $20,483 under one of theselatter agreements.

• paid a premium of $30,400 forDirectors and Officers’ insuranceand Employment Practicesinsurance, which covered allcurrent and former Commissionmembers and ASIC staffmembers for liabilities, includinglegal costs, incurred by them inthe performance of their duties.


AuditThe Commonwealth Auditor-Generalaudited ASIC’s financial statements,see page 80.

The Commission’s Audit Committeeexamined internal and external auditmatters and risk assessment, seepage 72. The independent Chair, Ms Merran Kelsall, is a seniorchartered accountant and companydirector in private practice. TheDeputy Chair is also independent.The Committee’s charter conformswith Australian National Audit Officeand Australian Institute of CompanyDirectors guidelines.


Community involvement

In this section:

• supporting a consumer voice

• building relationships• consulting regions

and business • meeting investors and

consumers• computers for schools• supporting

professional standards

“More than4,500 people

attended ASIC Speaks

seminars aboutimplementingthe Financial

Services Reform Act.”

Supporting a consumer voiceWe funded a 10 member ConsumerAdvisory Panel including consumerand investor advocates experiencedin financial services and anindependent Chair to recommendresearch, alert us to issues andcomment on policy affectinginvestors and consumers. Read thePanel’s report on page 50. We alsoconsulted other investor andconsumer organisations.

Building relationshipsIn November 2001, we organised a consumer–industry forum aboutconsumer complaints handling in financial services. Representativesattended from about 50 organisations.

We ran our seventh Summer Schoolon ‘Changes in the Financial ServicesLandscape: Improving InvestorConfidence’, led by international and Australian experts. The five daySchool strengthened relationshipsbetween 95 local and overseasparticipants from the consumermovement, financial servicesorganisations, government and our own staff.

Consulting regions and businessTo ensure that we understandspecific needs in all the States and Territories, we convened seven Regional Liaison Committeesrepresenting the business communityin each State and Territory. They met on average four times,received information on ourperformance and service, andoffered ideas. A Commissionerusually attended these meetings.

We met regularly with about 18 peak industry and professionalassociations, and consulted otherorganisations, companies andprofessionals, and helped thousandsof directors and professionals overthe phone.

We invited comment on proposedpolicies. More than 4,500 peopleattended ASIC Speaks seminarsabout implementing the FinancialServices Reform Act.

Meeting investors and consumersOur Regional Commissioners andConsumer Protection Directoratecoordinated ASIC stalls at investmentexpos, and we ran a series of seminarsin rural Western Australia with theInstitute of Chartered Accountants.

9


Computers for schoolsFollowing a recent upgrade of ASIC’spersonal computers, we donated oldPCs to primary schools, as part of anAustralian Public Service initiative, toencourage students’ computer skills.

Supporting professionalstandardsTo encourage professional educationin the financial industry, wesponsored prizes for two SecuritiesInstitute courses: Financial MarketsLaw, Regulation and Compliance,Superannuation and RetirementPlanning and the ASIC prize inCorporate Law at University ofWollongong.

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