The Australian Securities and Investments Commission’s campaign to revive its credentials as a regulator hasn’t lasted more than a few days, courtesy of government intervention and an unfortunate Senate estimates exchange.

On Monday, ASIC launched its 2014-15 Strategic Outlook, indicating its priorities for the financial year. Given the travails of both ASIC itself and the “target-rich environment” that is retail sector of the financial planning industry this year, that sector was always going to be a priority, despite the regulator’s diminishing level of government funding:

“We remain concerned about the culture of financial services businesses, and the incentive structures they use. A financial services business should have policies, processes and procedures in place to comply with their legal obligations. The welfare of their customers should be at the heart of their business … Structural change in the financial system through increasing assets held in superannuation (including self-managed superannuation funds) and globalisation is magnifying this risk. Larger amounts of retirement savings are at risk and investors and financial consumers have more products to choose from. Investors and financial consumers need access to good-quality tailored advice that is not conflicted.”

As a consequence, ASIC would “target the six largest financial advice institutions to test how they comply with high-risk areas of the law”.

We’ve heard a lot of this before, of course. For years, ASIC has been responding to various inquiries that have exposed its failings with the assurance that things would now be rectified, that previous mistakes — for which, inevitably, it took “full responsibility”, were a learning experience for the regulator and it was now set to fulfill community expectations about our premier corporate regulatory body.

But back up this new level of regulatory aggression. ASIC chairman Greg Medcraft spoke at a Walkley Foundation function on Tuesday about the need to “lift the fear and suppress the greed” of financial advisers. Medcraft also lamented the inadequacy of penalties for corporate wrongdoing in Australia, and his own level of resourcing, admitting that he had just 25 staff to regulate the entire financial planning industry. “This is a bit of a paradise, Australia, for white collar.” It was a statement of the bleeding obvious, given the lack of strong corporate law penalties, ASIC’s record of ineptitude, and the significant cuts that ASIC has suffered at exactly the moment the government was restoring conflicted remuneration through its gutting of the Future of Financial Advice reforms.

But within hours, Medcraft had backed away from his statement of the obvious after pressure from Finance Minister Mathias Cormann, who issued a media statement explicitly contradicting Medcraft. At estimates yesterday, Medcraft said: “The point I was making was not that we are a paradise, but we need to be careful that we don’t become, we’re not seen as, a haven.” Well that clears that up.

Medcraft was a bit clearer, however, in confirming 200 staff had left ASIC recently as a result of funding cuts and another 100 would in the next 12 months, out of an organisation of around 1800 people in 2012-13.

“Facebook has taken advantage of this to declare Facebook Australia is a small company below the thresholds required to lodge financial statements — despite earning Australian revenues apparently far in excess of those thresholds.”

With such limited and diminishing resources, ASIC relies heavily on various forms of co-regulation and self-regulation, such as enforceable undertakings, which were at the heart of the Commonwealth Financial Planning scandal. That debacle include perhaps the high point of Australian regulatory ineptitude in recent decades when the Commonwealth Bank itself alerted ASIC about a breach of its undertaking and ASIC ignored it and lost the document.

Another “co-regulatory” mechanism is ASIC’s use of its “class order” powers to allow companies to declare that they’re small subsidiaries of foreign companies, and thus avoid lodging audited financial statements. As Fairfax’s Georgia Wilkins and Madeleine Heffernan have shown, internet giant Facebook has taken advantage of this to declare Facebook Australia is a small company below the thresholds required to lodge financial statements — despite earning Australian revenues apparently far in excess of those thresholds.

In yesterday’s Senate estimates hearings, Greens Leader Christine Milne followed this up, asking ASIC about Facebook’s status as small business. The regulator’s senior staff wanted to take the questions on notice, conveniently — answers to questions on notice don’t become public for some months, and can be carefully parsed by both the agency and the minister’s office to ensure there’s nothing problematic about them. But we did learn a little bit about how this regulatory mechanism worked.

“It’s up to companies to work out whether they fall within the terms of that order, at least initially, then ASIC has an active program to identify and follow-up on companies that appear to be required to lodge financial reports but in fact have not done so.” ASIC Commissioner John Price told Milne. Had ASIC “followed up” on Facebook’s claim to be a small company, Milne inquired? Price took that on notice. But he told Milne “these exemptions operate in such a way that … you don’t need to notify us if you’re relying on the exemptions. So if you meet the various conditions that are set out, you are able as a right to rely on that exemption.”

What auditing was done of whether companies should be relying on the exemption or not? “In terms of what checking do we do to make sure that people are complying with individual class orders,” Price said, “typically we would not undertake such a process. That’s part of our general surveillance.”

It will doubtless be some months before we learn whether ASIC has done any follow-up on the mum-and-dad corner store business Facebook apparently operates here, or simply took its claims at face value.

Of course, if ASIC wanted to get serious about properly policing how companies exploit its class orders, there’s a very good question about where the staff would come from to do it. With another 100 people to be culled from ASIC, the issue is surely what regulatory functions ASIC will be ceasing to perform, rather than what more it could be doing.

Correction: This article originally stated that Fairfax’s Michael West had broken the Facebook story for Fairfax; in fact, it was Georgia Wilkins and Madeleine Heffernan – the error is entirely the author’s.