November 18, 2020
ASIC has engaged Deloitte Access Economics to conduct a review of the level of competition in the funds management industry to see where it is effective and where it isn’t.
The study was flagged in a speech on Wednesday by acting chair Karen Chester as part of her detailed defence of the organisation.
The review starts from the level of fees charged for in some cases woeful performance and just how the two things can continue apparently unchecked.
The need for the ASIC defence was underlined by attacks from Josh Frydenberg suggesting it was intervening to put too much red tape before banks, which was restricting lending.
The ASIC attacks continued in a joint Parliamentary Committee investigation into its governance led by the highly regarded committee chair, senator James Patterson.
Patterson arranged the day to perfection, with the national auditor on first to raise concerns about the lack of internal oversight in spending on outgoing chair James Shipton and departed deputy Daniel Crennan.
The concern was justified but just maybe with ASIC in the spotlight the committee could have inquired about such issues as what the regulator will do to the ASX for its technology incompetence and what it plans to do about Crown.
Both are under obvious regulatory scrutiny and penalties should flow.
The remaining commissioners conceded the governance issue and told the committee that from now on all expenses incurred by commissions would be overseen by the full commission.
Chester noted that the flaw in the governance was that Shipton was chair, chief executive and head of office.
Chester is now implementing her own recommendations from her capability review five years ago, which means the present four-member commission will stay, there will be fewer executive directors at staff levels and Warren Day will emerge more powerful as a chief executive.
The problem confronting Chester is that the same politicians who attacked ASIC for not preventing the abuses outlined in the banking royal commission, demanding more action, now want ASIC to lay off business as the recovery happens.
CBA boss Matt Comyn spoke for many banks on Wednesday talking up the economy, which is exactly what you would expect a banker to say.
Comyn also acknowledges the big test will come next year, when government handouts end and any lack of lending is due more to lack of demand than regulatory oversight.
But when the government is in campaign mode the facts never get in the way of a good story and ASIC’s plight is that its governance snafu has played into the naysayers’ hands.
The Treasurer has plenty of weapons in his armoury with the appointment soon of the person to lead the new oversight body for both APRA and ASIC.
Former ACCC boss Graeme Samuel did his best to spruik his claims on Wednesday with evidence supporting ASIC governance concerns.
The most damaging claims were about former chair Shipton’s tax advice and former deputy Crennan’s relocation expenses, which by now are yesterday’s news.
Chester’s speech and testimony were all about the future and what was wrong with the old regime.
“So we have the tools. The software script is written. Now we just need to let the program run, while we watch and act if the program fails to deliver the desired outcomes,” she told the conference.
She told business: “The easiest way to stay off our radar is by living up to parliament’s and community expectations and following the DDO (design and distribution obligations) road map.
“Our new age is about awareness of market realities and placing a competitive market, and consumer outcomes, at the centre of everything we do.
“Because at the end of the day it’s our job. And we are simply getting on with it.”
The speech deferred to the Treasury, which is now back involved in policy and parliament, so ticked all the right boxes.
Trouble is ASIC has a lot of ground to catch up in Canberra and Frydenberg made clear he will use it as a scapegoat if anything goes wrong.
Which, of course, is what the ASX represents for ASIC — a convenient scapegoat — and given the naysayers want targeted action Crown and the ASX are perfect victims.
An Epic battleEpic Games boss Tim Sweeney is an unusual victim of alleged market abuse in that he is willing to stand and fight, rather than simply move on to another field as most competitors do. That is one reason why his Section 46 case against Apple is of such interest to ACCC boss Rod Sims, and another is his interest in digital platforms, which are fast becoming the epicentre of competition law.
The last time Section 46 was successfully used was three decades ago when Queensland Wire won against BHP over the supply of star pickets used for fencing.
The battleground today is over computer games and the advantage of the new Section 46 is you only have to prove the market abuse had the effect of lessening competition, not the purpose of hurting competitors.
This lower threshold should be easier to prove and for the Epic Games boss the big advantage of a win in Australia would mean Apple would have to dismantle its high charges around the world.
Apple of course does well in the technology game, given Google pays about $15bn a year to ensure its search engine is top of the list in its mobile operating system.
Section 46 was amended three years ago amid much debate, with big business firmly opposed. But sadly the ACCC has only launched one case under the section: against Tasmanian port operator Tasports for allegedly keeping competitor tugs from the northern Tasmanian ports.
This case centres on some $US53bn ($72bn) in revenue Apple collects from charging a 30 per cent fee on transactions conducted on apps downloaded from the App store.
That’s an extraordinarily high fee, especially when you consider Apple and Google control 95 per cent of the mobile phones market.
The argument is that if the fee was cut or not charged, more people would want to develop apps and there’d be more innovation.
Apple keeps strong control over its operating system, which is why the big three Australian banks (ANZ caved in early) tried unsuccessfully to get ACCC approval to jointly arbitrate with Apple over its Apple Pay entry fee.
In this case Sweeney takes the fight a step further, complaining that Apple not only charges you for being part of its “walled garden”, but transactions conducted on the platform must go through the Apple payments system.
Apple collects on the way in and, for as long as your app is on its platform, it keeps collecting.
