Australian Securities and Investments Commission (ASIC) Chairman Jeff Lucy was talking tough in Perth last week about jailing corporate crims, but he must be smarting from a less than complimentary Australian National Audit Office (ANAO) report saying the corporate cop has been too distracted by financial services licensing applications.

ANAO has been examining how ASIC handled the implementation of the Financial Services Reform Act (FSRA), in particular its role as the issuer of licences for all financial services activities.

It found ASIC significantly over-estimated the number of applications it would receive during the two-year transition period. And it says ASIC was also unprepared when the majority of applications arrived during the final six months before full implementation.

Based on its experience with earlier legislation, ASIC expected to grant 6600 applications over the two years to the end of the 2003/04 financial year. For this, and other FSRA implementation activities, it had a budget of $44.3 million over three years.

But by December last year its actual expenditure had blown out by $13.5 million, even though it only issued 3738 licences.

That left other areas of ASIC short-handed, with its surveillance unit conducting 1596 surveillances of licence-holders over the three years to June 2005 – just 54% of its target for the period.

ANAO found ASIC also reduced the scrutiny of licence applications in a bid to speed up processing times.  It says the lack of financial discipline “will affect the way regulators in a number of industries are viewed among the general public”.

“Deficiencies in application assessment work increase costs to business. They also increase government costs, in terms of the greater need for law reform to modify the law and correct anomalies.”

ASIC blames the generally poor quality of applications for the problems, but has agreed to implement all of ANAO’s recommendations, including an improved licensing system that ensures all decisions are documented and appropriately authorised.