Bigwigs in the finance sector who are tempted to point the finger at overly prescriptive laws for driving unethical conduct within their organisations need to be careful not to draw the ire of the regulators and, arguably more importantly, the public.
Australian Securities and Investments Commission deputy chair Peter Kell and Australian Prudential Regulation Authority deputy chair Helen Rowell imparted those messages at the Banking and Finance Oath’s inaugural Banking and Finance Ethics Conference in Sydney on June 8, 2017, during a panel titled “Has regulation become self-defeating?”.
Professor Dimity Kingsford Smith – who is director of the University of New South Wales Centre for Law, Markets and Regulation – argued that while government regulation of the financial services sector was obviously necessary, there were a number of areas where it has become “self-defeating or redundant”.
Kell said it would not fly in the court of public opinion for the sector to keep insisting it will do a better job of self-regulation.
“If the question is, ‘Can the industry be trusted to self-regulate?’ Well, we can have a nuanced discussion in this room but 99 per cent of the people out there will give you a resounding no,” he said. “That in itself is an interesting issue for people, like me, who do think the industry has an important role to play in this area.”
Kell noted the overwhelming lack of public trust in the financial services industry’s ability to self-regulate effectively and said industry standards needed to be enforced with consequences if they were to have any hope of being taken seriously.
“The key thing to making industry codes substantial is not just the content but what the consequences are if they are not adhered to,” he said. “And that’s the sticking point where I think the community has become cynical because they don’t see consequences and accountability when the standards, which might be good standards, are not met.”
Rowell was sceptical of the motives of many in the industry who complain that regulation is driving bad outcomes for consumers.
“Regulations have a role in laying the minimum foundation of standards, but…industry has to embrace that and unless you have the executives and the boards of organisations implementing that regulation understanding and adapting to what is required as community expectations evolve…then they will have problems.”
She urged executives and directors to make sure their businesses were acting “in the spirit of the regulations” rather than just meeting the letter of the law.
Rowell brushed off a suggestion that poor regulation was driving poor outcomes for consumers.
“There is an onus on regulators to always be open to reviewing and changing regulation if and when it becomes clear it is driving bad outcomes or unintended consequences,” she said. “But, to be blunt, often the criticism that we get about regulation… has drivers behind it other than bad consumer outcomes – such as the cost of implementation.”