7.1 Independent nonexecutive directors?


ASIC is a body corporate.[1] Its membership comprises at least three and not more than eight members.[2] At least three members must be appointed as full-time members.[3] A Chairperson must be appointed.[4] Up to two Deputy Chairpersons may be appointed.[5]

ASIC’s ultimate governing body is now comprised entirely by full-time members. The members of the Commission, the ‘Commissioners’, are collectively responsible for the achievement of ASIC’s objectives.[6] Major strategic decisions are made at bi-monthly Commissioners’ meetings.[7]

The Commissioners work together, and with other ASIC officers, on a day-to-day basis. The members have in the past exercised considerable independent authority. In many cases, one or more of the members will have had an active role in items discussed at meetings of the Commissioners.

ASIC has recently taken steps that seek to remove Commissioners from operational decisionmaking. Until those changes came into effect, the members of ASIC exercised considerable executive power in making operational decisions, as well as exercising governance powers.

It has long been considered good practice for a majority of the directors of a publicly listed corporation to be nonexecutive and independent.[8] The United Kingdom’s Higgs Review[9] describes nonexecutive directors as ‘custodians of the governance process’.

There may be said to be no obvious reason why ASIC would not benefit in the same ways that listed entities do from the inclusion of non-executive directors on their boards. It may be argued that adding non-executive directors to ASIC may yield three chief benefits.

First, it may be said to improve the scope and quality of internal oversight, by placing independent, disinterested voices within ASIC’s highest forum. The non-executive directors would stand apart from operational decisionmaking and be more distant from the senior executives with operational responsibility. That distance may help to bring different perspectives to important questions.

Second, adding non-executive directors may be said to provide an opportunity to increase – and potentially broaden – the skills and experience of ASIC’s ultimate governing body.

Third, non-executive directors may be said to reinforce the independence of the Commission from those it regulates and from the government of the day.[10]

To this point, ASIC has not had non-executive members. But there is nothing novel in the suggestion. In Australia, the RBA and the Payments Systems Board each have nonexecutive directors. In the United Kingdom the Bank of England (which, through the Prudential Regulation Authority, remains the prudential regulator), the Financial Conduct Authority (FCA), the Competition and Markets Authority and the Payments Systems Regulator all have non-executive directors in some cases, a majority of nonexecutive directors. And in Hong Kong the Securities and Futures Commission has a number of non-executive directors.

Even so, I am not persuaded that change of this kind should now be made. To do so would add to the already radical changes upon which ASIC must now embark. I recommend that its already large remit be expanded in the ways I have described. ASIC itself recognises that its enforcement culture must change. The membership of the Commission has changed. As is explained further below, I recommend that ASIC, and APRA, should be subject to additional external review and accountability. I think the choice of those who are to perform the role of external review is more urgent and important than appointing nonexecutive members to ASIC. The essential requirement for both the role of external review and for a nonexecutive member of the Commission would be the same: deeply experienced, independently minded, people prepared to question what the fulltime members of ASIC and the staff of ASIC do. The pool of suitable appointees is not large.

All this being so, I do not favour now recommending the appointment of additional, nonexecutive, members to ASIC.


In its initial formation, APRA’s board was constituted by a full-time chair, a full-time CEO, two representatives of the RBA, a representative of ASIC and four part-time members.[11]

That structure was replaced with a smaller board comprised entirely of full-time members following a recommendation by the HIH Royal Commission.[12] One reason for that change was a concern that the presence of a member of ASIC on the board of APRA resulted in an assumption by staff of both organisations that information exchange was occurring at that level. [13] Another concern may have been that there was an insufficient number of full-time executives on the board.[14]

Those considerations would not speak against the presence of a small number of non-executive directors being appointed to APRA. But, having said that, APRA’s remit is more confined than ASIC’s. It also has a considerably smaller board, currently comprising four members, with a statutory maximum of five members.[15]

While I think that APRA could benefit from the appointment of one or two non-executive directors, I do not recommend making that change. It may be, I do not say it should be, a matter to be revisited as part of the capability review that I recommend below.

[1] ASIC Act s 8(1).

[2] ASIC Act s 9(1).

[3] ASIC Act s 9(3).

[4] ASIC Act s 10(1).

[5] ASIC Act ss 10(2)(3).

[6] Exhibit 7.63, Witness statement of James Shipton, 7 November 2018, 16 [46].

[7] Exhibit 7.63, Witness statement of James Shipton, 7 November 2018, 16 [47].

[8] ASX Corporate Governance Council, Corporate Governance Principles and Recommendations 3rd edition, Australian Securities Exchange Ltd, 2014, Recommendation 2.4, 17.

[9] Derek Higgs, Review of the Role and Effectiveness of Non-Executive Directors, January 2003, 11 [1.6].

[10] For the Minister’s power to direct ASIC, see ASIC Act s 12; but see also s 11(17).

[11] See APRA Act, ss 19 and 27(5) as they stood before Act No 42 of 2003. Those sections were repealed by s 20, Australian Prudential Regulation Authority Amendment Act 2003 (Cth) (Act No 42 of 2003).

[12] HIH Royal Commission, Final Report, vol 1, lxix [18].

[13] HIH Royal Commission, Final Report, vol 1, 209.

[14] HIH Royal Commission, Final Report, vol 1, 2079.

[15] APRA Act s 16(1).