ASIC warns poor culture leads to poor outcomes

ASIC Chairman Greg Medcraft yesterday appeared before the Senate Estimates Committee, keen to demonstrate the work ASIC is doing around the issue of culture.

"Given there is a strong connection between poor culture and poor conduct, ASIC thinks culture is a major risk to investor and consumer trust and confidence, and to the fair, orderly and transparent operation of our markets," he said in a prepared opening statement.

ASIC is planning to incorporate culture into its role as a "conduct regulator", targeting examples of poor culture within businesses that may increase the potential for poor conduct and therefore increase the risk to investor and consumer trust and confidence.

Medcraft told the committee that, where there is a problem with conduct in a particular firm, ASIC could take administrative enforcement action. "For example, ASIC can seek to remove the firm's licence on the basis that it's not providing its services efficiently, honestly and fairly," he said. "But there are only limited ways to address culture directly in the laws ASIC administers."

For instance, it is addressed in some parts of the Corporations Law and particularly in the Commonwealth Criminal Code.

In response to ASIC's calls, the Financial System Inquiry has recommended a broad review of penalties.
Medcraft said this would be an opportune time to consider these issues.

"Of course, this in no way suggests ASIC is turning away from criminal prosecution on culture. ASIC is still very focused and very determined on taking criminal action," Medcraft said, adding: "Chairman, when I talk about poor outcomes for customers, this is a polite way of saying people are getting fleeced.

"And sadly, those who get fleeced are usually not necessarily the country's wealthy, but everyday Australians, who might have no more than their house and their super and perhaps a nest egg - those who can least afford it.

"And that is why cleaning up culture is crucial. That is why restoring trust and confidence is crucial.

Medcraft added that, "on the topic of culture", he was pleased to announce that Simon Longstaff, executive director of the St James Ethics Centre, would join ASIC's External Advisory Panel.