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Privatising big data: Will the ASIC treasure trove be sold off or sold out?

September 17, 2014
Business strategy

​​​​​​​​​​​​​​​​Transparency and access issues cloud government plans for a windfall

​In this year’s federal budget, the Australian government set aside A$11.5 million for a scoping study on how to privatise the business database of the peak corporate watchdog, the Australian Securities and Investments Commission (ASIC). An initial public offering was cited as a preferred option. 

ASIC's chairman, Greg Medcraft, is a fan of selling off the information, saying it is a technology function that is a distraction from the regulator’s core role.​

But the proposal has raised questions and objections. Should Canberra simply try to get the highest possible price for the registry business as part of its plans to cut debt and reduce the footprint of the federal government? Or should the priority be to provide cheaper access to the data to ensure greater corporate transparency?

Jeffrey Knapp, a lecturer in accounting and financial management at UNSW Business School, is concerned that any privatisation deal will “entrench the current exorbitant fees for information”. With a search fee for just one company financial report or other public information often costing A$18 to A$40, Knapp says such costs act as a constraint on fair and efficient markets. 

Privatising this important data will serve to maintain or push up fees, Knapp says, and goes against the notion of informing the public and investors.

“As soon as you put it in private hands, the objective is not the public interest,” Knapp says.

Valuable resource

​ASIC’s registry business – which includes oversight of business registrations, company searches and other documents – collected A$680 million in fees in 2012-13 while spending A$142 million running the service.

It provides information on business names, business histories, financial records and the background of directors for about two million companies in Australia. This is an important role given that only about 2000 of those companies are listed on the ASX, where they are subject to continuous disclosure obligations. 

The Abbott Government has identified the registry service as an ideal prospect for sale, along with three other government-owned companies: Australian Hearing, Defence Housing Australia and the Royal Australian Mint. Finance Minister Mathias Cormann is on record as saying the sale of more government-owned assets will lead to more efficient delivery of services and open the way for sale proceeds to be injected into productivity-enhancing infrastructure. 

So what price can the registry’s sale expect to deliver? Suggested figures in the media have ranged from A$1 billion to A$6 billion, depending on the model used for privatisation. Key factors include what functions the government sells, the cost structures that go with them, and how fees and charges will be determined. 

'Transparency of company information and company interests is the enemy of corruption and fraud' 

– JEFFREY KNAPP

Grey areas

​Kayleen Manwaring,​ a lecturer in the school of taxation and business law at UNSW Business School, says there are many grey areas with the proposed sell-off. 

“The devil is going to be in the detail,” she says.

Manwaring believes the key to any possible sale of the registry services would be the conditions the federal government imposed on a private operator. For instance, would the new owner have freedom to set its own fee structure for information searches, or would prices be tied to inflation?

“If there is any restriction on the fees they can charge, that’s going to be the big killer of any sale price,” Manwaring says.

And Manwaring believes that privatisation of the registry services must lead to questions about how the protection of the database would be ensured. For example, ASIC’s rights to continued access to the database would have to be determined. Protections would also have to be put in place in the event that the private operator went out of business. And rules regarding the ownership and licensing of software would have to be agreed upon, including provisions for any future modifications made to the database.

“They’re the sorts of things that tend to be dealt with in outsourcing agreements,” Manwaring says. “And we don’t know if this is going to be a straight sale or an outsourcing agreement set-up.”

Far from a done deal

​Complexity around the possible sale of the ASIC database has shades of plans to privatise the Land Registry in Britain, a move the Cameron government has dropped after heated rows with its coalition partners, the Liberal Democrats. A government-owned business, the Land Registry controls records of all property sales in England and Wales and has been targeted for a sell-off, with big-data companies seen as the most logical purchasers.

The ASIC database sale is also far from being a done deal. For a start, the watchdog has existing contracts with other information brokers such as SAI Global, Trisearch, Veda, InfoTrack and Dun & Bradstreet which allow the public to pay for fee-based database searches through them.

“I imagine it’s a bit of a fly in the ointment, unless they broke those contracts,” Knapp says.

Such issues notwithstanding, Knapp believes the price of information searches remains the critical shortcoming of the present ASIC registry service, with fees being much higher than for equivalent services in the US, New Zealand and the UK. The Companies House in Britain and the Companies Office in New Zealand make the annual accounts of companies available for a notional charge of £1 or NZ$1, respectively. 

Knapp says that under ASIC's present system, it can cost about A$38 for a single PDF resulting from a company search to be emailed to a buyer – and multiple searches are often required to do due diligence on a business. 

While such fees are couched in terms of covering the cost of ASIC’s registry functions, Knapp argues that “A$38 is not cost recovery for one document sent to me by PDF. That is just exorbitant price gouging.”

To illustrate the problem, he notes that a personal research project he hopes to conduct, which would help inform public policy debate about accounting by private companies in Australia, requires information searches on about 1500 Australian private companies – a search that would incur a bill of A$171,000, payable to ASIC.

According to Knapp, these high fees defy economic principles that minimising transaction costs makes markets more efficient and transparent. 

Security of data

​Manwaring also raises concerns over the security of data if it is handed over to a private operator. The final structure of any deal would be critical. For example, while a lot of the information in the ASIC database is public, some of it is not. 

Manwaring raises the possibility that a deal could be struck whereby highly confidential information may remain with ASIC, while the collection and delivery of less-sensitive public data could be managed by a private business. The biggest question mark would be over ASIC’s ongoing access to information that it needs as a regulator, “particularly if something goes wrong with the private operator”.

“The government is looking to save some money. So there’s got to be concern about whether or not they are going to trade off some protections against the price,” Manwaring says.

Knapp argues that, in a post-GFC world, governments should be insisting on measures that make access to business information cheaper, not more expensive. He adds that multinational corporations and large companies that are not listed on the stock exchange must be accountable given the significant impact they have on the economy and society. It is no longer acceptable for them to hide behind a screen of being a private business.

“Transparency of company information and company interests is the enemy of corruption and fraud," Knapp says.

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