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ASIC rejects criticism of new ‘mandate’

Chair of the corporate regulator, James Shipton, has addressed “push back” from ASIC’s “clear mandate” to use its new enforcement powers to monitor and penalise financial institutions for compliance breaches.

In his address to the AFR Banking & Wealth Summit, the chair of the Australian Securities and Investments Commission (ASIC), James Shipton, noted the recent criticism directed at the regulator in response to new supervisory and enforcement capabilities endowed to it by government.

Mr Shipton said that financial industry stakeholders have been critical of ASIC’s ‘Why not litigate?’ approach to enforcement, introduced off the back of scrutiny from the banking royal commission.  

“In only 50 days since the handing down of the royal commission’s final report, we are already reading criticisms of our approach to litigation,” he said.

“ASIC’s mandate is crystal clear: if the law is broken, we need to enforce it.”


He added: “We are doing the job the community expects us to do.”

The ASIC chair said that there is “resistance to a meaningful mindset change” in the financial sector, adding there is “fundamental misunderstanding” of ASIC’s mandate.

“[The push back] suggests we would use our powers inappropriately, irresponsibly and without foundation to – it has been suggested – unfairly target particular names,” he said.

“Most importantly, it suggests there are still things to hide.”

Mr Shipton continued: “These sentiments ultimately and unfortunately perpetuate an unhelpful culture of resistance and reluctance.

“Accordingly, they run counter to our role of enforcing the law, protecting consumers and catalysing positive behavioural change.”

Mr Shipton told critics that the “simple solution” to such concerns is “don’t break the law”.

“Build systems and processes within the law and within community expectations of fairness,” he added.

“Act fairly and professionally. If you are confident about your governance, management and operational systems, as well as the way you go about your business, there is nothing to worry about.”

Mr Shipton revealed that from February 2018 to March 2019, there has been a 15 per cent increase in the number of ASIC enforcement investigations, a 65 per cent increase in enforcement investigations involving the “big six” (or their officers or subsidiary companies), and a 129 per cent increase in wealth management investigations.

Mr Shipton also noted ASIC’s work to enhance its adoption of a “more intensive supervisory approach”.

The chair of the corporate regulator reported that since ASIC commenced its pilot supervision program in October 2018, it has conducted over 170 on-site interviews with banking staff at all levels, with continuing engagement with CEOs and CROs.

“Initial findings are proving of significant regulatory value and will be fully and frankly disclosed to CEOs and boards to improve their processes, systems and culture,” Mr Shipton said.

Consumers confusing ‘general’ and ‘personal’ advice

ASIC has also released new research revealing many consumers confuse “general” and “personal” advice, exposing them to “greater risk of poor financial decisions”. 

ASIC has claimed that its report, Financial advice: Mind the gap (REP 614), identifies “substantial gaps in consumer comprehension”.

“This disturbing gap in understanding whether the advice they are getting is personal or not means many consumers are under the false premise their interests are being prioritised, when no such protection exists,” ASIC deputy chair Karen Chester said.

“The survey not only revealed consumers are not familiar with the concepts of general and personal advice, but only 53 per cent of those surveyed correctly identified ‘general’ advice. And even when provided the general advice warning, nearly 40 per cent of those surveyed wrongly believed the adviser had an obligation to take their personal circumstances into account.”

ASIC noted that the report highlights the importance of consumer awareness and understanding of the distinction between personal and general advice, with the Future of Financial Advice protections only applying when personal advice is provided.

According to Ms Chester, the survey also revealed that the responsibilities of financial advisers, when providing general advice, is “not well understood”, with nearly 40 per cent of those surveyed unaware that advisers were not required by law to act in their clients’ best interests.

ASIC said that it anticipates the need for financial advice to grow, reflecting an ageing population and many financial products, especially retirement products, becoming more complex.

ASIC added that it expects much of the advice to be general advice, stating that while appropriate in some circumstances, it is “inevitably of limited use”.

“ASIC is seeing increased sales of complex financial products under general advice models – so not tailored to personal circumstances – leaving many consumers, especially retirees, exposed to the potential risk of financial loss,” Ms Chester said.

“Whilst the financial services royal commission, and the government’s response, dealt with the most egregious risks of hawking of complex financial products, consumer confusion about what is personal and general advice needs to be addressed.”

ASIC added that the report’s findings reinforce those of the Murray Financial System Inquiry and the Productivity Commission reports on the financial and superannuation systems, which made recommendations about the use of the term ‘general advice’, which is likely to lead to false consumer expectations as to the value of, and protections afforded, the advice received. 

Ms Chester added: “This consumer research is timely. It comes as the government is considering policy recommendations on financial advice from the Productivity Commission’s twin reports on Australia’s financial and superannuation systems.

“At a time when the financial system itself undergoes much change, following the intense scrutiny of the financial services royal commission, including considering new financial advice and distribution business models.”

[Related: ASIC to focus on ‘public denunciation’ of misconduct]


ASIC rejects criticism of new ‘mandate’
James Shipton

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