Parliamentary Joint Committee on Corporations and Financial Services: Opening Statement - ASIC Chair James Shipton, 19 October 2018


Opening statement by James Shipton, Chair, Australian Securities and Investments Commission, Parliamentary Joint Committee on Corporations and Financial Services, 19 October 2018

Thank you Chair.

Firstly, I want to commend the Royal Commission on its important work and acknowledge the seriousness of the observations made in its Interim Report, including those made of ASIC.

The Royal Commission has very effectively highlighted widespread misconduct, and conduct that does not meet community standards, across the finance sector. Importantly, the human impacts and personal costs of this conduct have been in clear focus.

The Royal Commission has also appropriately questioned and commented on the role of regulators in preventing or dealing with poor conduct. The Royal Commission has also made observations and criticisms about ASIC’s approach to enforcement, especially in relation to court-based enforcement.

Whilst ASIC has always been committed, and dedicated, to preventing misconduct in the industry, we take these comments about our approach very seriously. We fully accept that we need to continue to make changes to our approach to enforcement to deliver more effective deterrence.

We have long recognised that the implications of misconduct in finance can have a devastating impact on individuals and families. The Royal Commission has reinforced that this conduct has a real and lasting impact across the community, including on more financially vulnerable consumers. The Royal Commission has also clearly reinforced that the financial industry has abandoned its core role that of being custodians of other peoples’ money.

At the outset it is important to identify, as the Royal Commission also did, that the root causes of the matters raised by the Royal Commission ultimately are:

  1. misconduct by financial institutions; and
  2. failure of financial institutions to adhere to their legal obligations to ensure that their organisations, and the people who work within them, act efficiently, honestly and fairly.

In relation to the second word – honestly - one clear conclusion in the Interim Report is that the financial industry has been repeatedly “dishonest” in its dealings with customers. Dishonest with the community and dishonest with its regulators. This dishonesty must not stand.

And unfortunately, whilst we are hearing important acknowledgements from leaders of financial institutions about change, such change is not happening as quickly as it should.

ASIC is still experiencing slow and delayed responses from financial institutions and, in some cases, overly technical responses aimed at delay. Due process is important, but it must not be manipulated to disrupt the achievement of fair, appropriate and honest outcomes.

I have said before this Committee and elsewhere that it is a professional obligation of financial institutions to be timely, open and honest in their dealings with regulators.

If institutions lie, or are otherwise dishonest with us, we will use every power available to us to punish that behaviour. I am a firm believer in the importance and effectiveness of court-based enforcement tools. They are the foundation of any regulator.

It is important to highlight that ASIC does, and continues to, utilise enforcement tools. To this end, Chair I seek permission to table our latest enforcement and compensation outcomes

My fellow Commissioners and I are committed to adopting reforms in our agency. We want to optimise the deployment of our enforcement and regulatory capabilities and maximise their impact. 

To this end, we have already begun work at ASIC to enhance our decision-making structures and processes (especially in relation to enforcement). We are committed to ensuring that ASIC be as strategic as possible – that is, it makes the best decisions and ‘regulatory choices’ it can.

We have recently announced a review into our enforcement processes led by our new Deputy Chair, Daniel Crennan QC. Given the importance of this body of work, we have appointed Michael Wyles QC to assist Deputy Chair Crennan. With permission Chair, I would like to table the Terms of Reference of this internal review.

Any analysis of court-based enforcement needs to also consider court processes as well as timeliness, cost and likely success, especially in relation to remediation. These considerations will be dealt with in our formal response to the Royal Commission – a submission that I do not want to pre-empt.

We will, of course, continue to be informed and guided by the Royal Commission. It is very important to note that the Interim Report of the Royal Commission is an interim report.

Again, our work on enhancing what we do is well underway. We have embraced the recommendations of the 2015 Capability Review into ASIC, particularly regarding the need for improved strategic governance.

This new strategic governance approach has already identified two urgent priorities – namely:

  1. Accelerating our enforcement outcomes; and
  2. Introducing new supervisory approaches – particularly, tools that have not been fully utilised by ASIC previously.

I have said previously and say again today, that there is a demonstrable need for ASIC to immediately accelerate its interventions, supervision and enforcement in financial services and credit. This is critical to rebuilding the community’s trust in the financial sector.

There are clear messages coming from the Royal Commission, the Government, Parliament and the community about their expectations of financial institutions and also, of ASIC.

It is clear that ASIC is expected to utilise enforcement tools more often, particularly against larger financial institutions because, as the Interim Report highlights, “important deterrents to misconduct are… missing”. The missing market deterrents include meaningful competitive pressures, fear of failure or collapse of the institution and fear of failure of individual financial transactions. The absence of these deterrents means that there are limited market cleansing mechanisms to counter misconduct.

These are insightful and important observations. The Interim Report goes on to state that because these other market deterrents are absent “only the regulator can mark and enforce those bounds”. This highlights not just the important, but unique, role of Australia’s financial regulators. We have additional responsibilities, and expectations, because of the particular characteristics, structure and settings of Australia’s financial system, especially the absence of these market deterrents.

But expectations need to be balanced against reality. The reality of how ASIC is empowered and resourced as well as the legal and regulatory settings within which ASIC operates.

We are doing what we can to meet those expectations through the strategic and structural reforms mentioned just now. 

In addition, there is an external piece to meeting these expectations - and that relates to ASIC’s powers, penalties and resourcing.

In terms of powers and penalties, it is vital that the increased penalties and regulatory powers - product intervention powers, design and distribution obligations, as well as a directions power - pass the Parliament as soon as possible. 

I say this as we are clearly expected to:

  • Pursue higher and more meaningful penalties in court. This is what current draft legislation will give us. In addition, we will be able to seek disgorgement of profits. With both higher penalties and disgorgement, there will be an even greater deterrence impact from court outcomes.
  • Intervene more proactively when financial products cause detriment. This is what the product intervention power will give us.
  • Enforce the obligation that financial products need to be designed and distributed with the end consumer in mind (instead of the financial institution). This is what the design and distribution obligations will give us.
  • A directions power would enable us to reform and remediate without negotiating with the wrongdoer. 

While I also note the Royal Commission’s comments about our regulatory approaches, alongside this we must discuss ASIC’s regulatory positioning as regards its size and resourcing.

I want to be clear that this not about any previous budget decision, or about any one government. We are very respectful of the system of Government that sets our budget.

Instead this is about how ASIC has been designed over the arc of its history and how Australia’s financial system has evolved over the years to have its own unique characteristics. Accordingly, with the introduction of a new industry funding regime (this financial year), now is the right time to ask whether ASIC should be resourced differently to meet the community’s expectations and the unique challenges of Australia’s financial system. 

Now is the right time, and this is the right forum, before a Parliamentary Committee, to discuss whether ASIC and its peers are “right sized”? Right sized in relation to the:

  • new industry funding model;
  • unique characteristics in Australia’s financial system;
  • size of Australia’s financial markets;
  • number of financial consumers in Australia;
  • number of people engaged in financial services; and
  • the clear expectations of the Australian community

This question is not a statement, nor a demand. It is instead a question aimed at starting an important policy conversation.

Such a question needs context. For me, my own experience as a regulator in Hong Kong, in a system that also has an industry funding model, is instructive. There, on an adjusted basis (in terms of financial services GDP and financial services population), Hong Kong’s financial regulators are three times the size of Australia’s.


In closing Chair, we hope to contribute to the important and constructive conversation around the expectations and performance of ASIC. To this end, we will continue to make changes at ASIC, particularly to improve our decision-making processes. 

We want to put our organisation on a footing that makes the most of our enforcement and other powers. This process will be informed by the ongoing work of the Royal Commission and important Committees like this.

Chair, my fellow Commissioners and I would be happy to take your questions.

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