ASIC boss reminds financial sector it’s ‘managing other people’s money’

The corporate watchdog has blasted the super industry, telling firms to stop exploiting people and to clean up their act.

19/03/2018. James Shipton, chairman ASIC, delivers his opening address at the ASIC Annual forum held at the Hilton hotel in Sydney. Britta Campion / The Australian

Corporate watchdog James Shipton has told the superannuation industry to stop exploiting people and immediately clean up its act.

In a blunt speech to financial services executives this morning, the chairman of the Australian Securities and Investments Commission said he had heard much rhetoric about addressing the industry’s “trust gap” with the community, but the time for action was now.

“Now is the time to move from rhetoric to reality,” Mr Shipton told the Financial Services Council annual summit.

“So, ladies and gentlemen, let’s get on with it.”

Mr Shipton said the misconduct revealed by the royal commission into financial services, which has been running since February and next month will hold hearings into super, reflected the community’s lack of trust in the scandal-plagued financial services sector.

He said many people in financial services had “essentially forgotten that this system is all about managing other people’s money”.

“This is a message that applies equally to the superannuation, financial advice, investment management and insurance sectors.”

“In the case of compulsory superannuation, you hold other people’s money in a world where consumers have no choice but to entrust that money to you.

“To be blunt, there has been too much focus in many parts of the superannuation sector on exploiting opportunities from Australians instead of focusing on the responsibilities that come from being custodians of other people’s money.

“This must change.”

Mr Shipton blasted the super industry over a laundry list of failures including making it hard to opt out of life insurance, poor self-managed super fund advice, misleading marketing, the exploitation of indigenous people and defensiveness including a reluctance by funds to disclose what investments they hold.

“This is indefensible when, as I said before, it’s other people’s money.”

He said there needed to be a “wholesale review” of conflicts of interest that are rife across the financial services industry and called on managers to tackle the issue.

“There has been a reluctance and oftentimes a resistance to addressing conflicts, especially those embedded in remuneration, even when ASIC pointed them out.

“This must change, because conflicts of interest that are embedded in the remuneration become embedded in corporate culture, with the result being that the culture is not one that will have the best interest of its customer in mind.”

Mr Shipton also slammed the industry’s habit of being extraordinarily slow to report of breaches to ASIC.

While the law requires financial service license holders to report a breach within 10 days of becoming aware of it, the average time in the industry between an incident occurring and being singled out for investigation is over four years.

This is then followed by what Mr Shipton “sometimes lengthy” investigation process before the breach is finally reported to the regulator.

“There is an urgent need for investment in systems, procedures and policies that better and more quickly identify emerging conduct and systemic issues so that they cannot only be reported to us more quickly but so that they can be resolved more quickly,” he said.

And he savaged the industry for having no idea about how it should deal with its regulators.

“There does not appear to be a single example of a strategic plan that articulates the principles of engagement with regulatory agencies,” he said.

“For an industry that prides itself on its strategic approach, this has come as a great surprise.”

He said this meant organisations dealt with regulators in an ad hoc or inconsistent way — with the problem worse at the big end of town.

“What’s worse, as the royal commission has highlighted, some of these dealings with regulators are totally unacceptable and arguable illegal.”

The industry needed to move now because reform “takes time”, he said.

“It will take much longer than we all think.

“We will not be able to get something done by the end of this year or this financial year.

“So that’s why I did call on all of you to get going now, to lean into these issues, not to wait, to be honest, for another regulatory guide from us or a report from somebody else.”