Opening remarks by ASIC Chair, James Shipton, to the Australia and New Zealand School of Government (ANZSOG) National Regulators Community of Practice (NRCoP) webinar on ‘Regulation, Trust and Social Licence’, Tuesday 11 August 2020.
Thank you, Marianne and good morning everyone.
Following on from Edward’s very insightful presentation, I want to touch on three things:
- What is trust and why trust is so important
- I will then apply those concepts to the financial system – the system that we regulate – and explore how that intersects with the concept of a social license. In doing so, I will also explore the role of a regulator in catalysing trust in the system and the participants that it regulates; and
- I will touch upon the importance of a regulator in developing trust itself in order to do its job effectively.
And, of course, I look forward to taking questions.
What is trust? Trustworthiness
So, what is trust?
According to some very useful work by the CFA Institute, trust requires one to be worthy of trust – in other words one must be trustworthy.
So how does one become trustworthy?
The CFA identified three factors that assist:
- competence – that is, having the right skills and knowledge to do the job.
- care – that is, attention and consideration applied to doing something correctly and avoiding risk, harm or damage for the recipient.
- ethics – that is, doing the right thing, even when no one else is watching.
Overlaying all of this is that trust has to be earned – it cannot automatically appear or be legislated for overnight.
Reflecting all of this is that we, as human beings, are more likely to go to a close friend or family member for advice or guidance.
We do this because we know that they care for us. They are looking out for us. They have our best interests to heart.
This is where the concept of ‘professionalism’ comes in.
Professionalism is a cultural concept that we have been advocating for quite some time.
Professionalism is constituted by:
Referring back to Edward’s presentation where we saw that the New Zealand fire fighters had the highest levels of trust in Government. I would submit that this is because:
- they’re competent – they train and exercise – all the time
- they’ve earned that trust through brave, selfless and courageous acts
- they care – they put themselves into harm’s way to protect us
- they are professional in everything they do. They are competent and conscientious.
More broadly, I think a professional culture can help with:
- remedying the trust deficit that we are seeing
- ensuring better adherence to the law and society’s expectations – something that manifests itself in the social license to operate in society.
Why is trust important?
Now turning to why trust is so important.
Trust is crucial to the efficient functioning of every part of society.
We put our trust in the broader societal system every single day.
- Trust in the train driver.
- Trust in other drivers on the road.
- Trust in the grocery store and the supply chains behind it.
- Trust in banks.
Trust is everywhere – or should I say trust is needed everywhere.
Economists talk in terms of ‘confidence’ and the need for it for economic resilience and growth.
Put another way, ‘confidence’ is having faith or trust in something.
So, our economic system, in large part, relies on trust and confidence.
This is something we can see in stark relief right now as societal confidence is under strain.
We, ASIC, regulate the financial system and corporations.
In the interests of time, I’m just going to concentrate my observations here on the financial system because it impacts every single Australian.
Every single Australian.
I firmly believe that the financial system exists to serve people – because the financial system is, ultimately, dealing with other people’s money and by that I mean: our money.
The financial system relies on trust.
- We trust banks to keep our savings safe
- We trust superannuation funds to support our retirement.
Everywhere within the financial system trust is needed and relied upon.
In fact, the origin of the word ‘credit’ is the Latin word for trust – ‘credere’
Every single cent in the financial system is other people’s money.
Too often we just think of the financial system as an amalgam of companies, pension funds, mutual funds, sovereign wealth funds and so you.
Yet at the end of each corporate structure – at the end of every shareholding chain – is people:
- pension funds exist for retirees
- mutual funds exist for individual investors
- sovereign wealth funds exist for citizens.
All these platforms exist for people.
As I have said before, the financial industry deals with other people’s money.
Accordingly, it is profoundly important that people have trust in that system – more so than ever now.
The idea that corporations act in the service of people also gives rise to concepts like the ‘social licence to operate’.
In many ways the motivation for the calling of the Financial Services Royal Commission was because poor conduct by many financial institutions was fraying the trust the community had in the financial sector and putting at risk that social licence.
That’s why the Royal Commission looked at not just breaches of the law but also community expectations.
What is the role of a corporate & financial regulator?
So, what is the role of a corporate and financial regulator in all of this?
Ultimately ASIC’s mission is to work towards a fair, strong and efficient financial system for all Australians.
As we know, Australia faces significant challenges as a result of the COVID‑19 pandemic.
ASIC is committed to making a real difference in the way our economy and our community navigates this difficult time.
We have responded rapidly and strategically to the challenges created by the pandemic, focusing on protecting vulnerable consumers, maintaining the integrity of markets and supporting businesses.
We’re doing this ultimately with the aim of ensuring confidence and trust is maintained in the system so it can support Australians in this time of economic strain.
Trust in institutions
So, the challenge for us in the public service – working for public institutions – is to both:
- catalyse trust in the systems we regulate or influence
- at the same time build up trust in our own institutions – or build institutional credibility.
Unfortunately, we are starting at a less than ideal position – according to the latest Edelman Trust Barometer, trust in Australian governmental institutions is only at 41% and only 50% for business.
Compare this with an 80% trust level in the scientific community.
Again, I think the New Zealand Fire Service provides a great example.
Their ability to respond effectively and efficiently is because of the trust the community places in them.
I know it’s not really a like for like example, but there is no cohort of critics who stand on the side of the road telling the firemen and women how to do their job or criticise them as they do it.
We trust them to get on and fight the fire.
In summary, we can’t legislate for trust, but we can work towards some of its component parts – which are:
- being competent and conscientious – that is, being professional, acting with competence, conscientiousness and care
- being caring – by embracing and embedding concepts of care (and fairness). We are advocating fairness in the financial system with the aim that it demonstrates genuine human care and concern
- earning that trust – as the brave firefighters, and medical workers, have so clearly done.
Thank you and I look forward to discussing further.