ASIC chairman James Shipton warns banks to come clean

Australian Financial Review Apr 5 2018 4:18 PM

James Eyers

The corporate regulator wants banks to improve the speed of reporting legal breaches, after the Hayne royal commission highlighted that banks had failed to file "breach reports" within the timelines set down by the Corporations Act.

The new chairman of the Australian Securities and Investments Commission, James Shipton, told the second day of The Australian Financial Review Banking & Wealth Summit that when it comes to reporting problems, "at its core, this requirement relies on participants identifying breaches and reporting them quickly".

"It is a core part of our regulatory system that allows us to identify both individual breaches as well as broader themes so that we can respond appropriately," he said.

"We will take very seriously any incidents where there has been a failure to report."

Mr Shipton urged banks to adopt a culture of disclosure and openness and to "engage openly with regulators and co-operate with them when problems arise".

The comments come as ASIC is investigating National Australia Bank after employees accepted cash bribes to facilitate loans based on fake documents, as revealed by the Hayne royal commission.

The commission said NAB did not provide ASIC with a so-called "section 912D breach report" for several months after a whistleblower report about the misconduct, despite the Corporations Act requiring one to be filed within 10 days of becoming aware of the breach.

Mr Shipton said on Thursday morning "adherence to the spirit of this requirement is as important, if not more so, than adherence to the letter of the obligation". He warned banks against defaulting to "highly technical legal analysis" rather than asking "what is the right thing to do".

With the banking royal commission judging banks by the subjective standard of "community expectations", Mr Shipton also said ASIC wanted banks to "act with integrity and fairness, not just comply with the law". He said financial services providers should "take into account community expectations and standards".

He wants banks to adopt a more professional approach. "Our regulatory system was not designed as a police state and this is deliberate. Instead, our system was designed on the premise that participants should also do their part to ensure the system operates appropriately," he said.

New powers

Mr Shipton also used his address to the Summit to outline expectations on financial products, after the government released draft legislation late last year giving ASIC new powers to intervene on the design of financial products, a key recommendation of the financial system inquiry.

"Financial products [should] do what they say they will do," he said.

He said ASIC expected "the design of products [to] not take advantage of asymmetric information, consumer biases or lack of knowledge about the product".

He wants banks to "prioritise the consumer's interest and put the consumer's interest before their own".

The design and distribution obligations being introduced by the government will make sure financial products are targeted at the right people and give ASIC a temporary, product intervention power when there is a risk of significant consumer detriment.