ASIC continues to reshape its approach to enforcement, with the focus on disclosure having shifted sharply in the last year to a focus on delivering better consumer outcomes. In the last 12 months, we have been discussing ASIC’s use of behavioural economic theory and the spectre of UK regulation that underpins ASIC’s drive towards product governance and intervention powers.
The latest step in this new approach is a call by ASIC to increase its powers to take civil action against firms and officers for poor organisational culture.
ASIC’s chairman, Greg Medcraft, told a Senate Estimates Committee on 3 June 2015 that poor culture in the financial services sector is leading to poor outcomes for consumers. According to Mr Medcraft, ASIC is focusing on culture, as it is a “big driver of conduct” in the financial services industry. As such, ASIC intends to target areas where poor practice may increase the potential for poor conduct, therefore increasing the risk to investor and consumer trust and confidence.
ASIC is planning to incorporate a focus on culture into its role as a conduct regulator and intends to:
- incorporate culture into ASIC’s risk-based surveillance reviews;
- use the surveillance findings to better understand how culture is driving conduct amount those ASIC regulates; and
- communicate to industry and firms where ASIC identifies issues with culture and conduct.
Mr Medcraft told the Committee that the officers and organisations should be subject to civil penalties where culture encouraged or permitted breaches of a law that ASIC administers. He said ASIC would continue to take criminal action where appropriate, but broadening ASIC’s powers to take civil action (where the burden of proof is lower) would be appropriate.
The persistent lobbying for broader enforcement powers continues to build steam ahead of the Government’s response to the Financial System Inquiry final report. Government’s response is expected before the end of the year.