Federal Parliament’s removal of ASIC from its obligation to engage staff under the Public Service Act “has been a long time coming” and is an “entirely appropriate” step in equipping the regulator with the talent it needs, ASIC Commissioner John Price says.
Most of the people the regulator employs are from outside the public service, Price told the CIMA Society of Australia Conference in Sydney on November 1, 2018, and the graduated, structured and rigid pay-scale approach that applies to the public service has been a problem when recruiting people with specialist skills in high demand.
“What we want to be able to do is recruit the best people available, and we think that moving outside the public service act assists with that,” Price said. “The real and most important impact in my view is one around being competitive in the marketplace.”
The Turnbull government introduced legislation into Parliament in March removing the requirement for ASIC to employ people under the Public Service Act 1999, arguing it would give the regulator the ability to attract and retain the most appropriate people, and bring it into line with the Australian Prudential Regulation Authority and the Reserve Bank of Australia.
Responding to questions from the audience, Price also said Commissioner Kenneth Hayne – who presides over the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – has made a “reasonable case” that ASIC needs to change its enforcement powers.
ASIC needed to question the remedies it was seeking in response to misconduct as part of an enforcement review, Price said. Should the regulator continue its current approach of seeking negotiated outcomes in litigation in order to compensate investors, or should it seek “something harder” to deter others in the market from misconduct?
“There is a very important part of [Commissioner Hayne’s] interim report, and not a lot of people have picked it up,” Price said. “What Commissioner Hayne has said is because there is a lack of competition in some very important aspects of Australia’s financial services industry, there is extra responsibility on the regulator to provide market discipline.”
But institutions themselves would still need to play the “frontline responsibility” in regulating their conduct, Price said.
“The whole basis of the regulatory structure in Australia is that institutions themselves have the front line,” he said. “If that fails, Parliament swings back, and sometimes that works and sometimes that doesn’t. So I think it’s in everybody’s interest for us to fix that.”
Price said ASIC believed heightening professionalism in the finance sector would help ensure community standards were met when investment decisions were being made. This involved ensuring people in the sector had a sufficient level of skill to be confident in their roles but also that they were conscientious enough to care about the impacts of their decisions.
The focus should not be just on short-term returns but should consider a range of factors, such as ethical decision-making, remuneration practices and long- and short-term risks.Conflicted remuneration structures were often a cause of poor conduct, he said.
But another cause was the argument – which ASIC regularly confronts – that “I can’t change my own firm because everyone else in the industry is doing the same thing,” Price said. “In my view, such an argument has always been a poor excuse, and it’s clear it’s becoming increasingly unacceptable to the community at large.”
The importance of cross-industry initiatives will increase over time, he said, and firms will need to step up to ensure their own conduct – and that of the broader industry – is up to scratch.