The release of ASIC’s corporate plan for the coming three years marks the beginning of a new era of conduct regulation in Australia; one in which organisations may face enforcement action for having a culture that is not adequately consumer-centric or for taking advantage of consumer biases which lead to poor consumer decision making.
We have been talking about consumer behavioural economics as the driving rationale behind the Financial System Inquiry (FSI) consumer protection recommendations; but the release of the corporate plan confirms how central behavioural economics has become to ASIC’s approach to surveillance and enforcement, how important it considers this new approach to its regulatory objectives and how confident it is of changes arising from the FSI report. So much so that when releasing the corporate plan for the period 2015/16 to 2018/19 (the Plan) on 31 August 2015, the ASIC Chairman Mr Medcraft stated, “[w]e are on the cusp of change and our Corporate Plan shows that we are well placed to embrace the likely opportunities to flow from the Government’s response to the Financial System Inquiry and the Government’s capability review of ASIC.”
The Plan focuses on ASIC’s principal areas of concern in the foreseeable future, which include poor culture and gatekeeping responsibilities, misalignment between retail product design and distribution with consumer understanding, digital-disruption (particularly cyber-attacks) and cross-border regulation.
Central to the Plan are concerns that organisations are taking advantage of poor consumer choices (or behavioural biases), including concerns that consumers are consistently misjudging their risk, even in less complex everyday products such as home insurance. ASIC considers that all of these factors have resulted in an erosion of trust and confidence in the market.
Following in the steps of the English model, and the focus of APRA on a good risk culture in financial institutions, ASIC considers that the behaviour of gatekeepers can be influenced by cultural incentives and deterrence. Accordingly, ASIC is seeking to take a far more proactive approach to risk identification and management than we have seen before. ASIC’s plans include taking enforcement in the form of enforceable undertakings, infringement notices and licence cancellations. It will be looking closely at governance frameworks and taking action against individual officers and directors where it considers appropriate.
Notwithstanding that the regulator acknowledges that it cannot categorise, influence and enforce against all drivers of risk, it appears that ASIC is ready and willing to exercise any powers that may be handed to it as a result of the Government’s response to the FSI recommendations (in fact it appears to be looking forward to those “opportunities”).
The full report and ASIC media release is available here.
We will report further on the Government’s response to the FSI report, which is expected any time now.