Mutual understanding needed between regulator and regulated

  • By Christine St Anne

With increased scrutiny and heightened regulation, a regulation expert and former head of ASIC’s enforcement agency signals that mutual understanding in the sector is required to get the balance right between appropriate regulation and what the community expects. 

Joseph Longo recently joined global law firm Herbert Smith Freehills as a senior adviser. He joins the business from Deutsche Bank where he worked for 17 years. 

He also brings experience as a regulator, having been National Director, Enforcement, at the Australian Securities and Investments Commission (ASIC) from 1996 – 2001. 

The corporate regulator recently its quarterly enforcement report which revealed that an increase in the number of enforcement investigations buy 20 per cent. 

The report also announced that ASIC was to embark on a hiring spree as it prepares for more litigation with deputy chair Daniel Crennan telling the AFR that it was planning to put 50 matters into the court in the coming months. 

However, commenting more broadly on regulatory scrutiny, Longo acknowledged that the issues unearthed from the royal commission has led to a greater regulatory scrutiny. 

“There has been significant disruption to the industry following the royal commission,” Longo said. 

Here he notes that the recent self-assessment reports from APRA have also driven further oversight.  

ASIC needs to ensure it uses all the other tools properly to get the outcomes it wants rather than by merely litigating

“Wherever you look there is very intense scrutiny. The industry now needs to reassess its approach and strategy for delivering on wide ranging regulatory reforms as well as responding to community expectations.” 

The government has already moved to beef up the resources of ASIC  an announcement made as part of the Royal Commission’s recommendations.

The regulator also had its powers boosted after the Senate passed laws earlier this year to pursue harsher penalties. 

Amid this boost to resourcing and funding, Longo said good regulatory outcomes would ultimately require some level of cooperation.

“There needs to be a degree of mutual understanding between those being regulated and the regulators.”  

Longo highlights ASIC’s relatively recent ‘Why not litigate’ approach as particularly challenging. While  the community understandably expected matters involving serious misconduct to be tackled robustly as the Royal Commission found , this has to be approached in the right way.

“The regulatory response needs to be proportionate and effective as well. ASIC has made it clear that it is not just going to litigate. It has pointed out that there is range of tools in its regulatory toolkit,” Longo added. 

“The crucial point is that the regulator has be careful to make the right judgements about when it wants to litigate in the spirit of what was recommended in the Royal Commission. 

“ASIC needs to ensure it uses all the other tools properly to get the outcomes it wants rather than by merely litigating. Otherwise there will not be a complete response to all the issues found by the Royal Commission.”