An ASIC update by John Price, Commissioner

A speech by John Price, Commissioner, Australian Securities and Investments Commission at the FINSIA 'the Regulators' panel event, (Melbourne, Australia) 15 November 2018

Introduction

It is a pleasure to be here today to speak about ASIC's key strategic priorities and focus areas over the coming year. Today I will be especially focusing on our important new supervisory approaches.

Firstly, I would like to acknowledge that 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.

This goes to the heart of a trust deficit facing the financial services sector and, more broadly, corporate Australia.

As a starting point to establishing trust, individuals, firms and industry need to improve their conduct. To support better conduct, cultural change and better governance are also vital. Industry needs to address systemic issues, such as conflicts of interest. Firms need to ensure they adopt a culture of professionalism and make sure it is cascaded through the entire firm and sector.

ASIC is an important part of the financial system. We have an important role in driving the behaviours that will build and restore trust. We will do this by being a strategic as well as a forceful regulator, and by:

  • proactively identifying harms to consumers, investors and markets
  • prioritising and addressing the most significant harms
  • accelerating enforcement outcomes
  • implementing new supervisory approaches, and
  • promoting the adoption of regulatory technology (regtech) by industry.

ASIC's vision

In ASIC's latest Corporate Plan, released in August, we set out our new vision and mission statements, and how we will meet our strategic goals over the next year and beyond.

Our vision – A fair, strong and efficient financial system for all Australians – reflects our purpose as Australia’s conduct regulator for corporate, markets, financial services and consumer credit, and highlights the important role we play on behalf of all Australians.

We will continue to work with Government on the significant upgrade to ASIC's enforcement powers and penalties that is in train, and the proposed financial product governance obligations and intervention powers. We will also continue to support whistleblower reforms and continue to implement the ASIC competition mandate.

In addition, we look forward to the final recommendations from the important work of the Financial Services Royal Commission.

As an organisation, we will adapt and evolve in responding to the rapid changes in the financial sector. To this end, we have enhanced our internal governance frameworks to better support strategic decision making.

Implementing new supervisory approaches

Now I will move on to providing you with some further details on our new supervisory approaches.

A key part of our work over the next year will be implementing these new approaches. This work follows additional funding which was announced by Government recently to progress our strategic priorities.

This funding will improve ASIC's enforcement capabilities and enable it to undertake new regulatory activities, so as to better deliver on its mandate of combating misconduct in corporations and in the financial services industry.

The funding covers a number of initiatives in relation to our new supervisory approach, but I will focus in particular on three items.

Close and continuous monitoring

The first is implementing a new and more intensive supervisory approach by regularly placing ASIC staff onsite in major financial institutions to closely monitor their governance and compliance with laws – we call this new programme of work 'close and continuous monitoring' (CCM).

A key goal of this new approach is to modify the behaviour of the large institutions to further encourage them to place consumers first in their decision making and quickly identify and respond to conduct that produces unfair outcomes. The first focus area for onsite supervisory visits will be breach reporting by large institutions. Future areas of focus will be selected based on the potential for consumer harm, as well as other factors. By way of update, our new CCM team commenced its first onsite visit in October.

Strengthening our supervision and enforcement focus of the superannuation sector

Another new project we will be implementing is to deliver an enhanced supervisory approach for superannuation.

We have already strengthened our team focused on this area and the team will also move towards a more intensive engagement model, where superannuation stakeholders will deal with specific ASIC staff on a more consistent and regular basis.

Our planned enhanced supervisory approach will:

  • use an expanded range of supervisory techniques, including more frequent onsite visits
  • build on our already significant public actions in the superannuation sector, including more enforcement outcomes, and
  • better leverage the data currently available to ASIC and APRA and also make use of new data sources.

We will also increase our focus on the consumer perspective through the incorporation of more consumer testing and shadow shopping.

Our enhanced approach will continue to build on our already close working relationship with both APRA and the ATO.

Corporate Governance Taskforce

The third and final new supervisory initiative I will discuss today is our Corporate Governance Taskforce. This taskforce will undertake targeted reviews of corporate governance practices in large listed entities. This will allow us to shine a light on 'good’'and 'bad' practices observed across these entities.

As part of this work, we will look at a range of issues, three of which I will outline now.

Director and officer oversight

The first is the role of the board and officers in the oversight (and in the case of officers, the management) of risk.

The independence of the board from management and proper information flows to the board is necessary for the board to effectively hold management to account. Our review will look at how directors are actively exercising their stewardship functions, particularly in relation to non-financial risk.

Executive remuneration

The second issue we will be investigating is executive remuneration practices. We will do this with the benefit of recent work that APRA has also done in this space.

Remuneration is a clear driver of conduct. We will be looking at whether executive remuneration structures, grants and vesting of variable remuneration are driving the right behaviours and accountabilities of executives in Australia's listed companies

Corporate disclosures

Finally, we will be considering the adequacy of periodic corporate governance disclosures.

We will be looking to see whether investors are being provided with meaningful disclosures about the effectiveness of a company's corporate governance practices. At the moment most disclosure focuses on what policies and procedures companies have in place regarding corporate governance. We want to understand whether those stated policies and procedures are actually reflected in practice.

Conclusion

As I said in my introduction, ASIC is an important part of the financial system. We have a role in influencing behaviours that build and restore trust, and our work over the coming year, some of which I discussed today, is focused on this. However, equally importantly, it is the people we license to provide financial services or credit services and their employees that have the frontline role to comply with relevant laws and keep customers top of mind. We all need to get on with it to rebuild trust and confidence in finance.

Thank you, and I look forward to the panel discussion.

 

 

 

 

Last updated: 15/11/2018 12:00