News Regulations27 Jul 2018

Australia:Financial sector players lack strategy to engage regulators

| 27 Jul 2018

Financial industry leaders have to refresh--or if necessary, create-- their strategy for dealing with regulators, Australian Securities and Investments Commission chairman James Shipton has pointed out.

Speaking at the Financial Services Council Summit 2018 in on 26 July, he said, “Based on my discussions with financial services leaders and their advisers, there often isn’t a coherent and consistent strategy for this. In fact, there does not appear to be a single example of a strategic plan that articulates the principles of engagement with regulatory agencies.

“This means that issues are dealt with in an ad-hoc, and at times, inconsistent way. This is especially so in larger and more diverse organisations.

“What’s worse, as the Royal Commission hearings have highlighted, some of these dealings with regulators are totally unacceptable and arguably illegal. So, I want to encourage industry leaders to ask themselves if they have a clear strategy for engaging with ASIC and other regulators?”

This was a reference to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which was established in December 2017 and which is holding hearings on financial services misconduct.

Mr Shipton said that many people in the finance sector have lost sight of the ultimate purpose of the financial system.

He said that they have, essentially, forgotten that:

  • the financial system is all about managing other people’s money;
  • finance serves a vital purpose for all Australians.

He said, “This is a message that applies equally to the superannuation, financial advice, investment management and insurance sectors.”

He said that in the case of compulsory superannuation in particular, super funds hold other people’s money in a world where consumers have no choice but to entrust that money to the funds.

He added the misconduct highlighted by the Royal Commission hearings is reflective of a trust deficit facing the financial services sector in Australia.

For the finance industry to regain consumer trust, he made three suggestions:

Firstly, there needs to be wholesale review of conflicts of interests in firms, sectors and markets to identify, manage and, if appropriate, remove every single conflict of interest.

Secondly, there must be greater senior management attention to conduct issues that lead to poor consumer outcomes.

There needs to be more investment in management systems and processes to capture, diagnose and remediate conduct issues earlier, quicker and more efficiently. This includes the adoption of emerging regtech solutions.

Thirdly, industry leaders need to articulate the principles of engagement with regulatory agencies There needs to be genuine change and genuine vision on how to be a responsible corporate citizen vis-à-vis regulatory agencies specifically, and the community more generally.


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