ASIC’s view of challenges facing the financial services sector

In a recent speech ASIC Chair James Shipton discussed the challenges facing the financial services sector and evidence received to date by the Financial Services Royal Commission.

He observed that “Australia’s corporations, and the finance sector in particular, are suffering from a trust deficit. And this current predicament is of the sector’s own making. And because it is largely of its own making, the sector must be held to account and must take responsibility for its repair…. the first line of responsibility for ensuring compliance, and the fairness of financial services provided, rests with firms themselves.”

While acknowledging that ASIC and other regulators have a crucial role to play he noted that the Royal Commission hearings have highlighted unacceptably poor levels of self-identification, transparency and disclosure by the industry in identifying, reporting and dealing with misconduct.

With respect to conflicts of interest he commented that:

“what has surprised me is that: many Australian financial firms have turned a blind eye to the risks that conflicts pose to customer outcomes as their businesses evolved or grew; 

they didn’t have a management system, a management culture, or codes that were attuned to identifying and resolving conflicts; and 

there has been reluctance, and often resistance, to addressing conflicts, especially those embedded in remuneration – even when ASIC pointed them out….

it is time for Australia’s financial services sector to remember its purpose – and remember always that they are dealing with other people’s money; it must focus on the outcomes it delivers to its customers. 

Accordingly, there must be a wholesale review by firms to identify, manage and, if appropriate, remove every conflict.  Only when this is done can the journey of rebuilding trust with our communities begin.”

With respect to section 912A of the Corporations Act which requires that licensed firms ‘must take reasonable steps to ensure that its representatives comply with financial services laws’ he said that he sees “a large difference with what firms consider as their statutory obligation to take ‘reasonable steps’ to ensure good behaviour of their representatives – especially when compared to the expectations of our regulators, legislators and the broader community.”

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