On 3 June 2015, ASIC Chairman, Greg Medcraft, addressed the Senate Estimates Committee. He reported the findings of ASIC’s work on the impact of culture on the performance of the financial industry, that being:

  • there is a strong connection between poor culture and poor conduct; and
  • poor culture can therefore pose a major threat to investor and consumer trust and confidence and the orderly and transparent.

On the basis of ASIC’s dissatisfaction with its current means of addressing culture (by way of administrative action), he announced ASIC’s further strategies to directly tackle the issue, as follows:

  • ASIC intends to more directly regulate culture (incorporate culture into risk-based surveillance reviews ,use surveillance findings to better understand how culture is driving culture and communicate to industry and firms);
  • ASIC has launched the ‘3 Cs’ framework (communication, challenge and complacency) on conduct risk for firms;
  • On the basis of analogous offences in Australia’s corporations and criminal law, ASIC wants to be empowered to pursue officers for civil penalties where that officer breaches a law ASIC administers and culture is responsible. ASIC considers the Financial System Inquiry’s broad review of penalties would be an opportune time to consider this issue;
  • ASIC has appointed Dr Simon Longstaff, executive director of St James Ethics Centre, to join ASIC’s External Advisory Panel to advise on organisational culture and ethics.

The Chairman’s address refers to consumers being ‘fleeced’ by financial service providers and a need to address all aspects of the problem which he considers extends to the culture of the firm.  The address follows ASIC’s investigations into the financial planning industry and pay day lending operators.  Implicit in the address is that poor behaviours are unlikely (in most cases) to emanate solely from a single professional but are likely to reflect the overall culture of an organisation and addressing the culture is critical to improving the quality of financial services provided to consumers.  We expect to see a continuing focus on this issue in the future investigations of the regulator.  Organisations should take this address as a signal to take a step back and consider the culture within their own organisation.

Please click here to read the whole speech.