The Government and the Australian Securities and Investments Commission's leadership must recalibrate ASIC's "reactive focus" and shift the organisation to a forward-looking strategy.This is the finding of the Capability Review of the Australian Securities and Investment Commission, whose report was released yesterday.The review said that, based on its own observations and stakeholder perceptions, "ASIC has a tendency to be reactive in the way it uses the regulatory tools at its disposal and is often driven by high profile events rather than more consistently strategic in its focus."The review made 34 recommendations, five of which the Government responded to yesterday.  They cover governance, organizational structure, leadership talent and work force capabilities, culture, development and communication of strategy and resource allocation.The review found that ASIC's governance architecture was sound and well designed but did not produce the best results possible. Under current arrangements ASIC commissioners have both management roles, where they are responsible for a line of business, and non-executive governance roles, with responsibility for oversight of the organisation.The review said the risk inherent in this structure was that it eroded the strength of internal accountability and may not leave enough scope for commissioners to focus on strategic issues.The organisation has an "inward-looking orientation" to its culture and practice. Its leadership spends insufficient time engaging with the market and tends to be overly focused on internal operations. The governance structure contributes to this inward orientation.The review recommended that time allocated to external engagement be increased considerably."Greater external engagement would allow ASIC to leverage a wider variety of perspectives to support the identification of emerging risks and trends to inform the selection of its strategic priorities," it said.The review identified a significant misalignment between the perceptions of external stakeholders and those of the ASIC leadership, relating to performance. This "expectations gap" was much greater than expected.The most significant gap occurred in relation to the extent to which ASIC was outward looking, proactive and forward looking and responsive to emerging risks and developments.Stakeholders also expressed more negative views than ASIC leadership about its use of resources and its success in cutting red tape.The review said ASIC either needed to improve its capabilities or the effectiveness of its communication. "This warrants immediate attention to improve clarity over ASIC's mandate, ensure strategic responses are appropriate and improve performance reporting," it said.And the review found that part of the reason ASIC operates in the way it does is the oversight of the organisation, such as the Parliamentary Joint Committee of Corporations and Financial Services, which is very issues driven.