A speech by John Price, Commissioner, Australian Securities and Investments Commission at the Australian Institute of Company Directors, Directors Briefing: Meet the Regulators (Perth, Australia) 22 July 2019.

Thank you for the invitation to be part of this session.  It is a good opportunity for me to speak about two important topics:  First, the Hayne Royal Commission and some key initiatives that ASIC is undertaking in response. 

Second, I will touch on some of ASIC’s new powers, including our new product intervention power and recent developments in that area. 

Royal Commission and ASIC's priorities

The Royal Commission clearly highlighted the harms that unlawful and unethical conduct can inflict on consumers. And we have also seen a breakdown in trust in the financial sector, which has had a flow on effect to the rest of corporate Australia.

So it is with these issues in mind that ASIC has set its strategic priorities for the year ahead.

We have seven key priorities:

1. Effective and efficient enforcement action
2. Addressing the Royal Commission’s recommendations and referrals
3. Establishing ASIC as conduct regulator for superannuation
4. Addressing harms in insurance
5. Improving governance and accountability
6. Protecting vulnerable consumers, and
7. Addressing poor financial advice outcomes.

Given the nature of today’s session I think it is worth focusing on one particular priority for a moment, namely improving governance and accountability.

Enhanced supervisory approaches

One of the key initiatives we have in place to improve practices in this area is our enhanced supervisory program.

This includes new initiatives such as our Close and Continuous Monitoring work involving large financial institutions and our Corporate Governance Taskforce. These programs will help detect cultural failings that lead to conduct problems and breaches of the law.

Under our Close and Continuous monitoring program we have already conducted hundreds of onsite interviews with banking staff at all levels to gain first hand insights into systems, practices and culture. And we are already providing important feedback to CEOs and boards on concerns we are finding in their management, reporting and control systems.

The Corporate Governance Taskforce covers a selection of large financial and non-financial entities. Key areas of work in this taskforce are:

• looking at governance processes and practices around the oversight of non-financial risk; and
• practices regarding payment of variable remuneration to key management personnel.

We will be issuing a series of public reports on our observations starting later this year, as well as providing specific feedback on our concerns to the companies involved.

ASIC’s enforcement approach

Turning now to other aspects of ASIC’s strategic change program, we have also altered our approach to enforcement.

We are significantly increasing and accelerating court-based enforcement outcomes driven by our new enforcement strategy, a 'why not litigate?' stance, and we are looking to use the full extent of our new penalties and powers. 

We will give particular focus to cases with high deterrence value and where there has been egregious harm, such as those impacting vulnerable consumers.

Law reform

For some years, the conversation around Law Reform has been moving beyond purely disclosure-based responses to be more focussed on issues like 'fairness' and 'unconscionability'. In this light and as part of the Government’s package of reforms from the Royal Commission and the ASIC Capability Review, there are two key measures for enhanced consumer and retail investor protection:

• a design and distribution obligation for financial services firms; and
• a product intervention power for ASIC.

These two reforms are an implicit recognition that in some cases disclosure alone is not an adequate answer to consumer protection. It places the onus on product issuers to take a more 'customer-focused approach', something that has been lacking in parts of the financial services industry. And where issuers fail to do that, and it results in harmful products being sold to consumers, we now have the power to step in and put a stop to it.

Last month we released a consultation paper on our proposed approach to the use of the product intervention power.

In line with this trend, we have subsequently issued two specific consultation papers showing how we propose to move beyond disclosure in relation to both 'Short Term Credit'[1] and 'Consumer Credit Insurance'[2].

These are very good examples of how a new approach could help reinforce ASIC’s ability to directly confront, and respond to, harms in the financial sector.

Conclusion

In closing, there are high community expectations on ASIC and the financial sector right now.

But we have also seen poor conduct by boards and management across various industries, as evidenced by the growing number of Royal Commissions we have seen in recent times.

And that is why ASIC has been emphasising the importance of fairness in a firm’s culture. That is, does the culture of your firm promote fair treatment of consumers and investors? Boards that have this factor at the forefront of their decisions will be well placed to both prosper over the long term and avoid regulatory and community scrutiny in the future.

Thank you.