ASIC update and myth busting at breakfast
A speech by ASIC Deputy Chair Karen Chester at the ASIC Queensland Regional Liaison Breakfast, Brisbane, 28 August 2019
Thank you, Amanda. And congratulations, on your appointment as our Queensland Regional Commissioner. And thank you all for joining us this morning – for me, a return to state of origin.
I would like to welcome Greg Tanzer, who also joins us this morning. And in addition to my Commissioner colleagues, there is more than a posse of the senior leaders from our Brisbane office team here with us today.
Now Dan and I will tag team on our ASIC update for you this morning. Before I hand over to Dan to brief you on our enforcement initiatives, I would like to cover off on three things: first to bust two emerging myths about ASIC; second, to provide a real time update on our Corporate Plan – fresh off the press today. And third, to flag a few near term and significant projects soon to be released.
Turning first to myth busters at breakfast
And myth number one. Many commentators are suggesting that ASIC has become the ethics conduct regulator – ensuring ethical conduct across corporate Australia.
Let me jettison this myth with some royal references. The Royal Commission reminded us all of the four lines of defence for markets to deliver fair outcomes for Australian consumers. The first line of defence being public policy. The second line the consumer themselves. The third the conduct of firms and their directors. And the fourth and final line of defence, the regulator.
And all four breached, in each and every carefully curated case study of the Royal Commission.
It’s important to recognise we are the last line of defence. And with that poll position, comes an acknowledgment that we cannot singlehandedly deliver ethical behaviour across Corporate Australia. And nor should we try to do so.
At the end of the day, the regulator is an agent provocateur for change. And whilst we are acutely aware that it is the regulator that has ultimately been ‘left on the field’, as Commissioner Hayne stated, the ultimate responsibility for change rests with corporate Australia. And the individuals who make up corporate Australia – their shareholders, their directors, their management and their employees. Ethics – doing the right thing – can and should be seen to create value. Ultimately, ‘doing the right thing’ is proving today more than ever before to be a commercial ‘must have’, not a ‘nice to have’. As it ought to be.
Myth number two. Some commentators (including as recently as Monday this week) have proffered that ASIC has undergone a pendulum swing to become an agency solely focused on enforcement. Nothing could be further from the evidence or indeed regulatory logic.
Now Dan will shortly explain the regulatory method embodied in our approach to enforcement under our ‘Why not litigate?’ stance.
But on the broader regulatory logic, all the literature and international experience tells us that to be effective in enforcement-based deterrence we need to be seen to be active across our entire regulatory pyramid. We need to be seen and heard tap dancing fast and furiously across all our regulatory tools.
On the evidence, let me just highlight a few examples of our non-enforcement regulatory endeavour since the final Royal Commission report – so over the last six months.
On transparency, a critical regulatory lever, we have issued 21 reports, covering a range of topics such as consumer awareness and understanding of financial advice through to a review of car insurance claim investigations.
On regulatory guidance and policy, we have issued eight consultation papers, from responsible lending to internal dispute resolution (IDR) requirements. From our new product intervention power, and our two first proposed interventions using the power, through to newly legislated whistleblower policies
On targeted surveillance: our twin initiatives of the Close and Continuous Monitoring Program (CCM) and our Corporate Governance Taskforce (CGTF) are well advanced. CCM (focusing on IDR and breach reporting in five of our large financial institutions) has to date seen our staff onsite for 119 days, meetings with 425 banking staff at all levels, and reviewed thousands of documents. Whilst CGTF has reviewed the corporate governance practices as they relate to the management of non-financial risk and variable remuneration for key personnel for 21 large listed entities.
On remediation: we are overseeing significant remediation programs. To mention just two, in consumer credit insurance, this is expected to exceed $100 million paid to over 300,000 consumers. And relating to the sale of add-on insurance products in the car dealer distribution channel, in the first half of this year we finalised total refunds of over $130 million to over 245,000 consumers.
And on combined use of our regulatory tools, look no further than our recent endeavour on consumer credit insurance. Where we called on no less than five regulatory tools. First, transparency with a recently published work demonstrating CCI remains extremely poor value (where only 19 cents was recovered in claims for every premium dollar paid). Second, investigation into misconduct is underway which may ultimately result in enforcement action. Third, remediation – the $100 million referred to just before. Fourth, guidance to industry on product design and sales practices. And notably the fifth, intervention in our current consultation on banning (through the use of our modification powers) unsolicited outbound telephone sales of CCI and life insurance.
So hopefully, a few myths busted over breakfast.
Turning to our strategic priorities
Today we will release our Corporate Plan for 2019–20 to 2022–23. Our four-year roadmap on what we want to achieve and how we’ll try to do that. Importantly it has our seven strategic priorities for the coming 12 months. They are, and in no order of priority:
- Effective and efficient enforcement action
- Addressing the Royal Commission’s recommendations and referrals
- Establishing ASIC as conduct regulator for superannuation
- Addressing harms in insurance
- Improving governance and accountability
- Protecting vulnerable consumers, and
- Addressing poor financial advice outcomes.
Now this is by no means an exhaustive list of what we will do, but these priorities are the ones we’ve called out as mattering most and we’ve prioritised resourcing them. They are where we want to address consumer harm, influence conduct and behaviour, and apply all our regulatory tools (old, new or combinations) in doing so.
Common, indeed foundational, to all our priorities is the value of fairness. As we’ve seen that many firms in our financial system are not always delivering fair and competitive outcomes to consumers, especially vulnerable consumers.
Let me canter through six of our seven priorities (leaving enforcement action for Dan) and provide a couple of nearer term actions we have in mind to deliver on them.
Implementing the RC recommendations
ASIC fully supports the Royal Commission’s recommendations, indeed advocated many of them and for many years.
Importantly, the Royal Commission, in recommending the retention of the ‘twin peaks’ model of financial regulation, made many recommendations to strengthen and contemporise it. To this end, 34 of the Royal Commission’s total of 76 recommendations require legislative change that will expand ASIC’s remit, strengthen our powers and require more of the entities we regulate.
Last Monday, the Government released its Implementation Roadmap which sets the timetable for delivering on the Royal Commission recommendations. The Roadmap – with its 56 measures, 48 of them relevant to ASIC – is ambitious, with all legislation to be introduced by the end of 2020, and 90 per cent of it earlier, by mid-2020.
But getting these right matters. It matters much for the wellbeing of most Australians, the integrity of our financial system and markets. So most if not all of our teams have sleeves rolled up working alongside Treasury on the policy, the drafting instructions, the consultation, the regulations, the regulatory guidance, and ultimately getting ready to use the new powers and remit.
We also believe that a project of this scale needs meaningful consultation, most importantly the consumer voice is not lost but also industry to ensure workable legislation. Not exceptionalism but workable. At all times keeping in mind the harm these recommendations are targeting.
In the next two weeks we will publish an update on our progress implementing the Royal Commission recommendations: what we have done and will do, including interim measures we are taking ahead of legislative reform to stem consumer harm.
Delivering as conduct regulator for super
Perhaps one of the most significant changes for ASIC recommended by the Royal Commission is for ASIC to become the primary conduct regulator of superannuation. While giving full effect to this change requires legislative reform, we have already started to take on this enhanced role in super.
In addition to assisting Treasury with legislative reforms from the Royal Commission as well as the Productivity Commission inquiry, one focus area to cover today.
We will be driving better behaviour by trustees to ensure that they act in the best interests of consumers, by undertaking the necessary supervision and surveillance of superannuation trustees, with more frequent on-site visits. We have a strategy in place and our focus is on the areas of misconduct with the greatest potential member harm – in the form of persistent underperformance. We will pursue actions against misconduct by trustees where appropriate. We will also be closely monitoring implementation of the ‘Protecting Your Superannuation Package’ reforms.
And we will be working closely with APRA to deliver good outcomes effectively and efficiently.
Addressing harms in insurance
Three further actions of note.
We are continuing our reviews into specific insurance areas, such as Consumer Credit Insurance, Total and Permanent Disability insurance, Travel Insurance and Fraud Investigation Practices.
We have insurance mis-selling and product features and practices that raise concerns also on our radar for enforcement and other regulatory action.
And more broadly, we know for most consumers their insurance is secured through their superannuation. We will be actively supporting law reforms to standardise insurance terms and the other policy objectives informed by the Productivity Commission’s superannuation inquiry.
We will also be monitoring trustee conduct around insurance in super and the codes. And publicly contributing to data analysis about consumer outcomes from insurance in super.
Improving governance and accountability
ASIC’s work will – in the words of Counsel Assisting Michael Hodge QC – seek to ‘keep the lights on’. We have initiatives underway to better utilise transparency as a regulatory tool.
Our new strengthened, targeted surveillance in the form of Close and Continuous Monitoring and our Corporate Governance Taskforce. They will collectively afford us insight into whether change is happening and whether it looks enduring. And, as highlighted before, they are well advanced. Transparency here takes two forms. First, in the form of us sharing candidly the individual entity findings with their CEOs, their Chairs and their Boards. And second, our collective findings across all the entities will be published in several reports over coming months.
Protecting vulnerable consumers
In some ways this priority is foundational to all we do. How we often prioritise our work is by understanding the needs of vulnerable consumers and when they experience significant harm as a consumer of financial products and services. Our thinking has come a long way. We recognise that there is not a single cohort of vulnerable consumers; any consumer can experience vulnerability at some time in their life from a number of factors.
We will be engaging with industry on the application of fairness to the products and services we regulate and the consumer outcomes they should seek to achieve. And we will publish our work on what we think fairness in the financial system should look like, and not look like.
One of the many things that can lead to vulnerability is a consumer unable to meet repayments on their credit obligations due to hardship. So we have just got underway work to examine how lenders engage with consumers experiencing financial hardship. Asking for example whether the assistance they offer to consumers is effective. Does it allow consumer to get ‘back on track’ financially. And we will publish our findings.
Our new product intervention power and the design and distribution obligations will be game changers in two ways. First for our timely protection of vulnerable consumers. And second to ensure that the products which are designed for and sold to them meet their particular needs and achieve fair outcomes for them.
Improving financial advice outcomes
In terms of addressing misconduct and consumer harms that may arise from the industry’s shift towards ‘general advice models’, we will be consumer testing more appropriate labels and descriptors for general advice. This follows our Mind the Gap report published in March, earlier this year – which presented independent research revealing many consumers confuse ‘general’ and ‘personal’ advice. And in doing so, they think they are afforded protections when they are not.
We are closely monitoring potential harms that may result from the departure of larger institutions from the sector and will assess advice supply and demand dynamics and any potential impact on consumers. We will ask, and answer, what sort of financial advice consumers are demanding and whether that demand is being met. And we will publish a report on this review.
Now before I hand over to Dan, a few projects on our near term ‘to publish’ list. And I hope you’ve all been counting the number of times I’ve used the word publish this morning. Yes, the lights are on.
A few next cabs off the rank
In the next couple of days, a consumer research report on the consumer experience of home lending will be released.
In the next month, we will release:
- a report on our deep-dive into TPD insurance claim;
- the first of our Corporate Governance Taskforce reviews,
- a joint ASIC/Dutch Authority for Financial Markets research report on the limitations of disclosure as a regulatory tool. A must-read for directors and corporates in thinking about how to meet their design and distribution obligations.
In the following months:
- an update on our advice in superannuation project which looked at the advice provided to members across 25 super funds, and
- various responses and updated regulatory guidance following consultations across the year, such as on: fees and costs disclosure for superannuation and managed investment products; responsible lending; and internal dispute resolution policy.
And this is to name just a significant few.
So, on that final note of a significant few, allow me to hand over to Dan to update you on matters enforcement. Thank you.
 This sentence has been corrected since delivery.