Restore Trust

ASIC chairman James Shipton has urged the financial industry to “move from rhetoric to reality” in restoring the trust deficit with the Australian public.

Speaking at the FSC'S The Summit 2018, Shipton said the revelations before the Banking Royal Commission had highlighted a core issue ASIC had been dealing with for some time: “How many people in finance have lost sight of the ultimate purpose of the financial system?”

“They have essentially forgotten that the system is all about managing other people’s money, and that finance serves a vital purpose for all Australians,” he said.

Those working in financial services, he said, were “firstly custodians of other people’s money” and were entrusted with these funds so that Australians can save and invest.

“In the case of compulsory superannuation, you hold other people’s money in a world where consumers have no choice but to entrust that money to you,” Shipton said.

Trust in superannuation, he said, had been eroded by the “exploitation of consumer disengagement”, poor advice, poor treatment of consumers in their interaction with the super system, and by practices which made it difficult for vulnerable consumers to access their super.

The ASIC chairman called for a wide review across all firms and institutions in the sector to “identify, manage and if appropriate remove every single conflict of interest.”

“It is clear to me that a number of institutions, and sectors, have not taken the management of conflicts of interests to heart,” he said.

“In fact there has been reluctance and often times resistance to addressing conflicts, especially those involved in remuneration – even when ASIC has pointed them out.

“This must change because conflicts of interest that are embedded in remuneration become embedded in corporate culture, with the result being that the culture is not one that will have the best interests of its customer in mind.”

Shipton said much of the responsibility lay with leaders in the finance industry to address this issue on a cultural level.

He also called for more investment in “emerging regtech solutions” which would better enable management to “meaningfully address conduct problems.”

“In my observation, there has not been enough investment in these systems and processes to date,” he said.

He cited the issue of breach reporting practices as a case in point.

Next month ASIC will release its view into breach reporting practices in 12 banking groups, and one of the key findings was that it took an average of over 1500 days – or more than four years – between an issue occurring and it being identified internally for investigation.

“There is an urgent need for investment in systems, procedures and policies that better and more quickly identify emerging conduct and systemic issues,” Shipton said

He said that there was already evidence that this area was subject to “enhanced attention” and noted that ASIC had experienced a 30 per cent increase in breach reports in the 2017-18 financial year.

The ASIC chairman also called on the financial industry leaders to “refresh or if necessary, create” their strategy for dealing with regulators, some of which had been “totally unacceptable and arguably illegal”.

“Based on my discussions with financial services leaders and their advisers, there often isn’t a coherent strategy for this,” he said.

“In fact there does not appear to be a single example of a strategic plan that articulates the principles of engagement with regulatory agencies.”

Later, in response to an audience question, Shipton agreed that the relationship with regulators was a “two-way street,” but said that industry and regulators had been “talking past each other.”