The ATO is the training expert and it is their responsibility to make an assessment and generate a report on how they wish to proceed. In my experience all they have to do is send this report to their FOI and get the approval to carry on. So long as their assesment is based upon the regulation there is no reason for anyone to question it.
Many ATOs are reluctant to read the regulation and make decisions, possibly because they have had someone else to do it for them in the past.