ASIC Annual Forum 2019 - ASIC Chair's introductory comments


A speech by ASIC Chair, James Shipton at the ASIC Annual Forum 2019, Sydney, 16 May 2019

1. Welcome and introduction

Thank you, Michael and Aunty Ann for that wonderful Welcome to Country.

I would like to begin by acknowledging the Traditional Custodians of the land on which we meet today – the Gadigal People – and pay my respects to their Elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples here today.

On behalf of my ASIC colleagues, I warmly welcome you to the 2019 ASIC Annual Forum. A particular welcome to those of you who have travelled long distances to be with us today.

This year’s Forum is being jointly held with the International Organisation of Securities Commissions (IOSCO). IOSCO is the international body of regulators that oversee the world’s securities and futures markets. Accordingly, our combined event brings together thought and regulatory leaders from Australia and around the world.

To this end, we will hear next from Ashley Alder, Chairman of the IOSCO Board and Chief Executive Officer of the Hong Kong Securities and Futures Commission who will outline the important international regulatory work of IOSCO. 

The theme for this year’s Forum is 'Other People’s Money'.

This is because every cent in the financial system ultimately belongs to people

  • Mutual funds exist for people investing in the market. 
  • Pension funds exist for people planning their retirement.
  • Sovereign wealth funds exist for citizens – in other words – people.

At this Forum we will explore how the financial services industry can better focus on the end user – people – and explore how financial market participants can better meet public expectations when dealing with 'other people's money'.

We want to explore in the coming two days how we can ensure finance stays true to its ultimate function of serving the economy, and people individually and collectively. In other words, expand the discussion beyond finance’s economic role and explore its societal one. 

Accordingly, this morning I will quickly cover:

  • what I mean by 'Other People’s Money' and the societal role of finance
  • the fairness imperative' and
  • ASIC’s strategic change program.

2. Other people’s money

Finance is a vital part of real people’s lives. Because we are dealing with other people’s money, we must never forget that when things go wrong in the financial system this can be catastrophic to people relying on that system.

The financial system provides vital functions for the economy and for the society. Finance exists to serve Australians: it is a means to an end; but not an end in itself. Therefore, finance always needs to be anchored to the core functions it serves for society. 

One of the best descriptions of the societal role of finance is from Professor John Kay's  book Other People’s Money. It has four parts:

  1. The first function is capital allocation - matching those who need capital with those with excess capital.
  2. Second, inter and intra generational transfers of wealth – such as retirement schemes.
  3. Third, hedging and insuring against risks – like insurance.
  4. And finally, the payment system itself – the core plumbing of our modern economy and society.

This means the financial industry needs to look at its broader value proposition to people as people and not just as customers.

Crucially, the financial industry, and the people in it, need to do more to support the proper functioning of the financial system towards these goals.

And part of this is that they need to take more of a leadership role in promoting:

  1. professionalism, as well as
  2. a community oriented mindset in their businesses.

Both of these goals, I believe, is ultimately helped by embedding the concept of ‘fairness’ into every corner of the financial system.

3. The fairness imperative

As I have been saying for a while now, ASIC is all about making Australia's financial system a fair, strong and efficient for all Australians.

Those three words – fair, strong and efficient – resonate well with a long-standing legal obligation of financial institutions under the Corporations law – to act efficiently, honestly and fairly.

For there to be meaningful improvement of the financial markets, I think financial institutions must embrace and embed fairness into everything they do. They must build systems and processes in their businesses that both embed the legal and community expectations of fairness as well as to act fairly and professionally.

Financial institutions must rise to this challenge.

We also do not want to see resistance and reluctance to the job that the community expects us to do as a conduct regulator and corporations’ law enforcer.

4. ASIC’s strategic change program

At tomorrow’s 'Meet the Commission' panel session you will hear more from our Commission members about ASIC’s strategic change program and what we are doing differently.

But here is a taste:

  • We are significantly increasing and accelerating court-based enforcement responses driven by our new enforcement strategy. At the same time, we are looking to use the full extent of our new penalties and powers through the prism of ‘Why Not Litigate?”;
  • We are embedding and expanding new supervisory approaches and promoting best practice and innovation in regulation, particularly through our Close and Continuous Monitoring program – that we call CCM; and
  • We are also implementing Parliament’s reforms and working towards our new obligations and responsibilities in response to the Financial Services Royal Commission. This includes an expanded role for ASIC to become the primary conduct regulator in superannuation.

There is also a panel session this afternoon on 'The regulatory toolkit', with ASIC Deputy Chairs Karen Chester and Dan Crennan QC. They will elaborate our new regulatory approaches and the continuing challenge on regulators to optimally deploy all our regulatory tools.

To introduce that discussion, I would like to now briefly touch on our new enforcement strategy and supervisory approaches.

New enforcement strategy

Last year, even before the Royal Commission issued its final report, ASIC adopted a ‘Why not litigate?’ enforcement stance and publicly committed to that posture going forward.

This is a very different concept to a 'litigate first' or a ‘litigate everything' strategy.

Why not litigate?’ is our own strategic construct and the aim of this is to deter future misconduct and address community expectations that wrongdoing be punished and publicly denounced through the courts.

This means that once:

  • ASIC is satisfied breaches of the law are more likely than not and
  • the facts of the case show pursuing the matter would be in the public interest,
  • then we will actively ask ourselves: why not litigate this matter? 

Our enforcement work has a core focus on deterrence, public denunciation and punishment of wrongdoing by way of litigation.

As I mentioned, Deputy Chair Crennan will elaborate further on this at the panel session later today. 

New supervisory approach

We have also enhanced our supervisory approach as part of our response to failures in the financial services industry.

This approach is all about promoting permanent cultural and behavioural changes in institutions individually and across the financial services industry more broadly.

Our new approach helps detect cultural, organisational and management failings that lead to conduct problems, breaches of the law and unfair outcomes. Supervision also adds a focus beyond current known non-compliance to look at things that create significant risk of future breaches. Importantly, we are increasingly using advanced data and market analytics in this work to detect misconduct early.

Moreover, supervision has a strong focus on governance and culture, thus allowing ASIC to better understand a firm’s business models and risk management processes. This allows us to adjust our regulatory approaches in response to the complexity, innovations and continuous change in entities and markets.

Already, through CCM (which started in October 2018) we are providing important feedback to CEOs and other business leaders on concerns we are finding in their management reporting and control systems.

At the same time, we are also reviewing corporate governance practices of the CCM institutions, as well as other financial services firms and selected ASX 100 entities. Key areas for this review are governance processes and practices on the oversight of non-financial risks, and practices around variable remuneration to key management.

We will provide public commentary on the CCM program’s findings towards the end of this year and publish our findings on the corporate governance review in the second half of 2019. These important reports will better inform our regulatory work moving forward.

5. Conclusion

In closing, again welcome everyone. I am looking forward to thought-provoking discussions over the next two days.

I will now hand over to Ashley.

Thank you. 


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