CEDA keynote address

Keynote address by ASIC Chair, James Shipton at CEDA, Melbourne, 27 June 2019



Thank you Neil and good afternoon. Thank you also to CEDA for inviting me to speak today. Today, I would like to cover three things:

  1. Firstly – ASIC’s strategic change program and our key strategic priorities for the next 12 months,
  2. Secondly – an update on our implementation of the Royal Commission recommendations, and
  3. Finally, I will speak about ASIC’s new enforcement and supervisory approaches.

ASIC’s strategic change program and key strategic goals and priorities

Turning first to our strategic change program. Since last year we have been significantly increasing and accelerating court-based enforcement matters as part of our new enforcement strategy. We are also looking to use the full extent of our new penalties and powers through the discipline of ‘Why Not Litigate?”.

We are also embedding and expanding new supervisory approaches and promoting best practice and innovation in regulation – particularly through our Close & Continuous Monitoring program (or CCM) and our corporate governance review that is aimed at improving governance practices at the board level. We are also implementing new and existing reforms and working towards our new obligations and responsibilities in response to the Royal Commission.This includes an expanded role for ASIC to become the primary conduct regulator in superannuation.

Key strategic priorities

I thought it would be timely to give you a snapshot of ASIC’s strategic goals and priorities ahead of the release in August of our Corporate Plan for the coming financial year.

ASIC is a core part of the financial system and our vision is for a fair, strong and efficient financial system for all Australians.

We have developed seven principal strategic priorities for the coming 12 months to support that vision.

These priorities are by no means an exhaustive list of what we will do, but they represent the most significant ways to achieve the following strategic goals:

  • effectively address consumer harm;
  • influence culture and behaviour – including through promoting the ideas of fairness and professionalism across the industry; and
  • applying new regulatory tools, or new combinations of tools, to achieve this.
  • By way of example, we are looking to use the following new regulatory tools and powers:
    • The product intervention power – which will enable ASIC to take proactive action to improve standards and achieve fairer outcomes in the financial sector. This power will allow ASIC to respond to market problems in a targeted way.
      • As you may know, yesterday we released a consultation paper on how we would apply the new product intervention power,
    • We are also applying new technologies such as machine learning and artificial intelligence. We are also looking to better harness industry data, including through the collection of new and recurrent data,
    • We are also using behavioural insights to better understand what drives certain behaviours and how to influence them for the better, and
    • We are using ‘transparency’ in our public reports and statements – that is identifying entities – to drive improved industry behavior and improved consumer outcomes.

All of this is with the aim of giving effect to our vision and, in turn, our seven principal strategic priorities for the year ahead.

These strategic priorities are:

  1. Effective and efficient enforcement action,
  2. Addressing the Royal Commission’s recommendations and referrals,
  3. Establishing ASIC as conduct regulator for superannuation,
  4. Addressing harms in insurance,
  5. Improving governance and accountability,
  6. Protecting vulnerable consumers, and
  7. Addressing poor financial advice outcomes.

Enforcement action

Turning first to our enforcement plan that aims at effective and efficient enforcement action.

We will give particular focus to cases with a high deterrence value and where there has been egregious harm (such as those impacting vulnerable consumers).

This is because deterrence is a key regulatory tool in changing behaviours.

Secondly, we are addressing the Royal Commission’s recommendations and referrals

The Royal Commission highlighted the need for significant reforms across the financial services industry. Many of these reforms ASIC had advocated for quite some time.

We stand ready to support key law reforms to implement the recommendations of the Royal Commission.

We are also prioritising the Royal Commission’s enforcement referrals – something I will speak about in a moment.

Thirdly – Establishing ASIC as the conduct regulator for superannuation

By becoming the primary conduct regulator of superannuation, we will aim to improve outcomes in superannuation through:

  • taking decisive action, including enforcement action, to address and deter misconduct;
  • enhancing supervision and surveillance of superannuation trustees to ensure they act in the best interests of members and treat them fairly; and
  • implementing the Royal Commission’s and other Government recommendations on superannuation.

Fourth – Addressing harms in insurance:

We will review insurance product features and industry practices that raise concern. We are also looking to take enforcement action against entities and individuals who engage in the misselling of insurance products, particularly to vulnerable consumers.

We will further support and implement the Government’s proposed insurance law reforms, as well as commence data collection to establish baseline evidence for our future regulatory work and support these reforms when adopted.

These reforms include unfair contract terms in insurance contracts and acting against unfair practices in claims handling.

We will take appropriate regulatory action once these reforms are in place to make them effective.

Fifth – Improving governance and accountability

We are prioritising enforcement cases which hold individuals accountable for governance failures in financial institutions and superannuation trustees.

We are also conducting enhanced and intensive supervision of entities that are crucial to our financial system – particularly through our CCM program that monitors the Big 4 banks and AMP as well as our review of the corporate governance practices of 21 large listed companies.

Through our Corporate Governance Taskforce we are reviewing the governance practices of these 21 listed entities by reference to how directors and officers have overseen and managed:

  • non-financial risk; and
  • variable remuneration for key managers.

Importantly, we will also support the proposed conduct accountability regime – BEAR for conduct – when legislated. This regime will hold senior office holders and managers accountable for poor conduct in the financial sector.

And, we will support government initiatives to combat illegal phoenix activities (including the Phoenix Taskforce and the Serious Financial Crime Taskforce). We will also support the proposed phoenix reforms to deter company directors and practitioners facilitating phoenixing.

Sixth – Protecting vulnerable consumers

In everything that we do, we will consider harmful practices within the financial system, particularly where they impact those who are vulnerable (including our indigenous communities).

Importantly, we will take regulatory action to ensure consumers in financial hardship are treated fairly and that financial services providers act responsibly and with accountability.

We are updating our responsible lending guidance to provide more certainty for lenders and mortgage brokers. This will encourage more consistent practices across the industry, while retaining flexibility for licensees to appropriately tailor lending processes to the circumstances of borrowers.

We are conducting a public consultation to update our responsible lending guidance.

  • And, for the first time as part of this process, we will be holding public hearings to robustly test some of the issues and views that have been raised in submissions.

I will take the opportunity here to acknowledge that while the responsible lending requirements have remained unchanged for almost a decade, and that we have been consistent in our expectations of those requirements, we know house prices have declined over the past year, with fewer consumers seeking finance.

Through any economic cycle, responsible provision of credit is critical to the long-term sustainability of the economy as well as being a cornerstone consumer protection. This is why we have the responsible lending requirements and why we are consulting to update our expectations on them.

Seventh – Addressing poor financial advice outcomes

We are focussed on improving the professionalism of financial advisers. We will address misconduct and consumer harm in the advice sector, particularly as they may arise from the industry’s shift towards using general advice models.

For example:

  • We are enhancing the Financial Adviser Register to incorporate training and professionalism reforms,
  • We are consumer testing more appropriate labels and descriptors for general advice, and
  • We are examining financial advisers’ compliance with fee disclosure and opt-in requirements, and are also monitoring the remediation programs of large financial institutions for fee-for-no-service breaches.

We will also monitor any potential structural impact on the industry and consumers as a result of larger institutions exiting from the advice sector.

Update on the implementation of Royal Commission recommendations

Our strategic priorities interact with the recommendations of the Royal Commission in many ways – so this is a good opportunity to provide an update on how we are going in implementing those recommendations.

I would like to start with our approach to enforcement and the Royal Commission’s referrals and case studies:

  • ASIC continues to implement our strengthened enforcement approach, including applying the ‘Why not litigate?’ discipline.
  • We are continuing to progress the investigation and, where appropriate, litigation arising from the 13 Royal Commission referrals and 30 case studies.
  • While we do not ordinarily comment on actual or potential investigations, we are prioritising these matters and will continue to provide public updates on actions when appropriate.
  • Since our last public update, penalties and regulatory tools available to ASIC have been strengthened by new legislation – this includes:
    • Increased penalties for offences,
    • The creation of Design and Distribution Obligations;
      • We will consult on the Design and Distribution Obligations by the end of the year (noting that there is a 2-year transition on DDOs).
  • The granting to ASIC of Product Intervention Powers to take action against financial products that result in significant consumer detriment.
    • In relation to this important tool, we will be issuing general guidance on our Product Intervention Power following the consultation process that started yesterday and closes in August.

We are also establishing an Office of Enforcement, that is responsible to the Commission, for enhancing our investigation and enforcement of contraventions of the laws that ASIC administers.

As mentioned, we have been accelerating court-based enforcement matters. From February 2018 to June 2019:

  • there has been a 21% increase in the number of ASIC enforcement investigations,
  • a 74% increase in enforcement investigations involving the big six (or their officers or subsidiary companies), and
  • a 166% increase in wealth management investigations.

Other Measures

ASIC is also actively pursuing measures that can be implemented, in whole or in part, without requiring new legislation.

We are working to commence monitoring and reporting on the extent to which product issuers are preparing to end the grandfathering of conflicted remuneration by 2021.

ASIC also recognises the important emphasis placed on regulatory cooperation and information sharing mentioned in the Royal Commission’s final report. To this end:

  • We are working closely with APRA to formalise and enhance information sharing arrangements, and working to update our Memorandum of Understanding to reflect our closer working relationship, and
  • We are working closer than ever with AUSTRAC, AFCA, the New Zealand Financial Markets Authority and other international and domestic regulators.

ASIC’s new enforcement and supervisory approaches

Based on various comments from industry, it is clear that there has been some misreading of our new approaches to enforcement and supervision.

So, I will take this opportunity to elaborate on these new approaches.

Enforcement approach

ASIC’s enforcement work has a core focus on deterrence, public denunciation and punishment of wrongdoing by way of litigation.

I want to be clear – the “Why not litigate?” discipline we have adopted does not mean ‘litigate first’ or ‘litigate everything’.

‘Why not litigate?’ is ASIC’s own strategic construct.

The aim of this discipline is to ensure that we are doing our job to deter future misconduct and fulfil community expectations that wrongdoing be punished and publicly denounced through the courts.

This means that once:

  • ASIC is satisfied breaches of the law are more likely than not and
  • the facts of the case show pursuing the matter would be in the public interest,
  • then we will actively ask ourselves: why not litigate this matter?

The approach does not suggest ASIC will take every matter to court as the default option, or that we will pursue litigation where it would be inappropriate, or not in the public interest, to do so.

We will, in asking ourselves ‘why not litigate?’, consider a number of key factors including our model litigant obligations and the likelihood of achieving regulatory outcomes.

Supervisory approach

I also want to clarify the objectives of ASIC’s new supervisory approaches, including our CCM program and the corporate governance review.

These supervisory activities are focused on the early identification of deficient practices in specific areas inside entities. They are also aimed at promoting improved corporate governance and corporate culture over the long term.

  • These supervisory approaches help detect cultural, organisational and management failings that lead to conduct problems, breaches of the law and unfair outcomes.
  • Supervision, as a regulatory tool, also adds a focus beyond current known non-compliance to look at things that create a significant risk of future breaches.

As part of this supervisory work, we have been providing important, detailed and targeted feedback to CEOs, Chairs and other business leaders on our concerns and observations.

We emphasise that while the objective of supervisory activities is preventative in nature, if ASIC identifies illegal behaviour during the course of our supervisory work we will actively consider the appropriate regulatory response, including enforcement.

Ultimately, the ‘first line’ compliance responsibilities sit with licensees. Our supervisory efforts are aimed at improving financial firms’ ability to fulfil that cornerstone responsibility.

We plan to provide further commentary on the findings of our CCM and corporate governance work in due course.

  • We expect this will provide valuable insights for the sector.

However, by way of brief update, in respect of our CCM work:

  • ASIC staff have been onsite in one or more of the CCM institutions for a total of 119 days since we launched the program in October 2018.
  • We have held meetings with more than 425 banking staff at all levels, and reviewed thousands of documents.

And, in respect of our corporate governance review:

  • We have reviewed 21 entities,
  • Received and reviewed over 43,000 documents; and
  • ASIC staff have completed 97 interviews – with CEOs, Chairs, Board Risk Committee Chairs, Chief Risk Officers, Internal Auditors and Company Secretaries.

And our work continues.


In closing, there are high community expectations on ASIC and the financial sector right now.

Importantly, we have very high expectations on ourselves and the firms and people we regulate.

Ultimately – all of us, the regulators and the regulated, must strive for a fair, strong and efficient financial system for all Australians.

Thank you.

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