‘Corporate cops’ will proactively address misconduct: Treasurer

In a media conference on Tuesday (7 August), Mr Morrison spoke about the government’s commitment to providing a further $70 million to the Australian Securities and Investments Commission (ASIC) over two years, including $8 million to embed up to 20 supervisory officers into the big four banks and AMP to “monitor governance and compliance actions” across extended periods of time.  

Drawing similarities to football, the Treasurer said: “A good [referee] talks to the players on the field all the time… They’re clearly communicating their decisions before they blow whistles.

“This is about the regulator getting in there and being a part of the community in which they’re regulating.”

Against the backdrop of an ongoing royal commission, Mr Morrison highlighted the need for a proactive approach to addressing misconduct in the financial services industry, saying that “the best cops are the ones that prevent crimes from happening and misconduct in the first place, not just dealing with it once it’s occurred”.

“This is why we’re so supportive of this plan. It’s proactive. We want to stop things from happening, not just deal with those who have done the wrong thing after it happens,” the Treasurer added.

ASIC’s new chair, James Shipton, who had previously revealed his intention refocus the corporate regulator’s strategic direction on proactive enforcement, noted that the financial services sector was warned of the move and advised not to resist the regulator’s decision.

Mr Shipton said he expressed to senior executives that the best approach they could take moving forward would be to positively and productively engage with ASIC and other regulators.

“The best practice that they could employ and apply in these situations is a culture of engagement with the regulator, a culture of no surprises with the regulator,” the ASIC chair said at the press conference.

Initially, Mr Shipton said ASIC’s on-field supervisory officers will focus on governance structures and breach reporting.

He said to media on Tuesday (7 August): "What we will be doing is having a team of up to 20 people in our close continuing monitoring team for banks. They will be spending significant amounts of time inside financial institutions. That may be days, may be weeks, may be months, depending on the project at hand, depending on the task at hand and depending on the harm that we're trying to solve for...

"[T]hey will be engaging at every single point in a financial institution to provide that effective regulatory coverage. That could be the CEO, it could be the chair, all the way through to the men and women who are in the particular business unit. We will calibrate our response depending on the challenge at hand and the task that is before us."

The new ASIC chair said it has taken an average of four years for financial institutions to discover misconduct, and an average of 123 days for that misconduct to be reported, which he added was “too long”.

The Treasurer said the move could be extended to other industries once established and proven effective, similar to the way the open data model will be rolled out, starting with banking, then extending to energy and telecommunications.  

Minister for Revenue and Financial Services Kelly O’Dwyer, who co-announced the $70 million package, said the funding is to ensure that ASIC is not hindered by a shortage of funds when dealing with deep-pocketed industry players.

“It will focus very specifically on being able to ensure that ASIC can actually match the big financial institutions and their financial fire power when it comes to litigation by giving them additional funds for the Enforcement Special Account,” the Financial Services Minister said at the press conference.

The ASIC package also comprises $6 million for the development and adoption of regulatory technology solutions that make regulation enforcement and compliance easier.

“Regulation isn’t just putting together an encyclopedia, a phone book of regulation. That rarely helps anyone,” Mr Morrison said.

“Regulations are supposed to help institutions, help companies, help customers better understand what their obligations are, and what their rights are, and what their protections are.

“Regtech is a way of simplifying the morass of regulation which is out there which can just confuse people or make it harder for companies to actually comply with.”

The government is also investing $6.6 million to introduce amendments to whistleblower protection laws, which Ms O’Dwyer said will make it easier for staff to come forward about occurrences of misconduct.

In a recent submission to the banking royal commission, the Finance Sector Union noted that when bank employees raise concerns about culture or the ethics of certain practices, they are given “adverse behavioural ratings and are categorised as not being team players”.

In response to the government’s announcement, Anna Bligh, CEO of the Australian Banking Association, said that banks will “work proactively and in good faith” with ASIC to improve the monitoring of regulation and to boost transparency in the industry.

The CEO said the revised Code of Banking Practice, which was recently approved by ASIC, is an example of the industry cooperating with regulators to improve the banking system.

Other measures within ASIC’s funding package include:

• $26.2 million to “accelerate and increase the intensity of ASIC’s enforcement activities” and enhance its capacity to pursue actions for serious misconduct against well-funded litigants through the Enforcement Special Account.
• $6.8 million to establish a dedicated taskforce which will conduct “a proactive, targeted and thematic review into corporate governance to identify and pursue failings in large listed companies”, including deploying staff to conduct new on-site surveillance and investigations.

The remainder of the package will be used to improve consumer access to the Financial Advisers Register, enhance ASIC’s enforcement work on the unfair contract term protections for small businesses and ensure compliance by licensees and financial advisers with the Future of Financial Advice laws.

[Related: ASIC to embed staff within big four and AMP]