Former ASIC head Greg Medcraft urges banks to put customers first

Former ASIC head Greg Medcraft has urged banks to “plug the gap” between their behaviour and community expectations.

Former ASIC chairman Greg Medcraft. Picture: Chris Pavlich

Greg Medcraft, former head of the Australian Securities & Investments Commission, has urged banks to “plug the gap” between their behaviour and community expectations by putting customers “unequivocally first” or face the wrath of the “crowd”, “harnessed and amplified” by social media.

During a visit to Australia House in London alongside Reserve Bank board member Professor Ian Harper, Mr Medcraft said financial services around the world had become the least trusted segment of business, having haemorrhaged customer confidence in the wake of the financial crisis.

“Trust in business and financial services remains well below pre-crisis levels,” he said.

The most recent Edelman Trust Barometer, an international survey of consumer attitudes, showed trust in banking, including in Australia, fell this year, after a steady recovery since the crisis.

“The power of the crowd means spin doesn’t work any more,” he said. “The crowd will hold businesses to account if its conduct does not meet those expectations,” he added.

Mr Medcraft, who is now head of the OECD’s Financial and Enterprise Affairs Directorate in Paris, said social media were acting as a disciplinary device for business.

“The gap between what good behaviour looks like and what businesses actually do is more obvious to the public than it once was,” he said.

Mr Medcraft’s remarks came amid another shocking fortnight of royal commission hearings in Melbourne that canvassed potential criminal charges, further shaking confidence in the sector.

Mr Medcraft appeared to back a “social licence” for businesses — a controversial recommendation by an ASX governance committee that would require listed entities to justify their “social licence to operate”.

“The social licence is constantly evolving,” Mr Medcraft said at the launch of a new book — A Matter of Trust: The Practice of Ethics in Finance.

“Businesses need to monitor community expectations closely and make sure they don’t fall too short of them.

“Some still believe that things like responsible business conduct and good corporate governance do not necessarily align with long-term shareholder value,” he added.

Mr Medcraft spoke approvingly of BlackRock chief executive Larry Fink’s letter to shareholders in April.

“Society is demanding that companies, both public and private, serve a social purpose,” Mr Fink wrote, adding “companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate”.

Mr Medcraft, who once said corporate Australia was a “paradise” for white-collar criminals because of low penalties, said companies would be “judged by what they do, not what they say”.

ASIC has faced criticism during the royal commission for not being tough enough, including relying on “enforceable undertakings” — agreements to improve behaviour — rather than riskier legal action.

Mr Medcraft, who was commissioner and then chairman of ASIC from 2009 to 2017, took a tough line against the major banks as commissioner, initiating successful action against Westpac for attempting to manipulate wholesale interest rates. It was the first time a major bank had been convicted of rate rigging in the developed world. The other major banks settled out of court.

James Shipton, who succeeded Mr Medcraft in October last, has stressed the importance of improving ethics in financial institutions.

The government has boosted ASIC’s funding and powers since Mr Medcraft’s departure.