The twin peaks model remains but ASIC’s and APRA’s approaches to enforcement are now more public to deter misconduct.
ASIC has begun this by embedding staff onsite in major institutes while APRA has adopted a “why not” attitude towards enforcement and BEAR is set to expand beyond the banking sector.
Financial institutes will need to adapt to these changes and more, particularly after it was noted in the final report that they needed to change their engagement approach.
The Governance Institute of Australia together with LexisNexis has produced a green paper looking into institutions and their relationships with regulators, with the aim to produce practical measures.
The paper was created after a roundtable with industry bodies that found 60 per cent of entities already had strategies in place for dealing with regulators, 82 per cent of which fit in the post-Hayne world.
Despite this, 50 per cent of respondents still had a defensive approach to regulatory engagement with no appetite for change, with 90 per cent of respondents reporting no change to the custodian of regulatory engagement.
The roundtable also uncovered that 70 per cent were not changing their organisation’s approach to remuneration, despite being the main focus of the final report.
Commissioner Kenneth Hayne blamed remuneration and incentives as the sources of most of the unethical and illegal problems uncovered by the commission, pushing the responsibility to fix this onto the remuneration committees.
It seems from the Governance Institute that committees will not be changing approach, although all major banks have committed to a change of some sort in remuneration.
The green paper said the culture had to change to ensure bad news was raised and dealt quickly.
“The culture needs to be there so that bad news rises quickly. Also, once the bad news has risen to the top this needs to be acted on quickly. For example, are victims remediated? Are the root causes of the problem identified and does the organisation change its course?” said one respondent.
The roundtable also expressed concerns about the effect of the new approaches particularly around legal protections against self-incrimination.
“People no longer want everything committed to writing. ASIC says that if it isn’t written down it didn’t happen, yet third line staff need to be candid and call it as it is. However, boards are becoming increasingly concerned about applications under Freedom of Information and shareholder litigation and this has extended well beyond the financial services industry,” said one respondent.
It was generally agreed by the roundtable that each regulator was different and as such would need different approaches each time.
“Dealing with ASX is very different to engaging with ASIC and APRA. You need to engage with each regulator differently and use different skill sets,” said a respondent.
Responding to this challenge will be complex and costly but necessary to ensure a better financial system in Australia.
“The challenges for boards and management will lie in ensuring the right information reaches the board and embedding an open, transparent and accountable culture within the organisation,” said the paper.
