In a speech to the Risk Management Association Annual Chief Risk Officer Conference, Australian Securities and Investments Commission (ASIC) Commissioner John Price has identified the regulator's priorities over the next year and outlined three new supervisory initiatives.  His comments in relation to each are briefly summarised below.  

‘Close and continuous monitoring’: embedding ASIC staff in large financial institutions.

Mr Price said that a 'key goal' of this initiative ‘is to modify the behaviour of the large institutions to further encourage them to place consumers first in their decision-making and quickly identify and respond to conduct that produces unfair outcomes’.

The initial focus of the teams will be to:

• Drive significant improvements to breach reporting. This work will build on work already completed and described in ASIC’s 'imminent' public report on breach reporting which he said would provide 'robust baseline data' against which future progress — 'how the institutions are improving their breach detection, reporting, rectification and customer remediation processes' — could be measured.  Mr Price added that it currently takes the entities who participated in the review around four years to identify a breach.
• Assessment of response to CBA prudential inquiry: Focus on assessing the specific internal governance issues raised by the CBA prudential inquiry across the other institutions and collaborate with APRA in assessing the banks’ responses.

[Note: APRA released the Final Report of the Prudential Inquiry into the Commonwealth Bank of Australia (CBA), which examined the frameworks and practices in relation to the governance, culture and accountability within the organisation, on 1 May.   The report includes 35 recommendations which APRA said 'provide a roadmap for the CBA Board and executive team to deliver organisational and cultural change across the CBA group' as well as 'important insight for all institutions particularly about the need to maintain a broad focus on all aspects of risk and stakeholder interest'.  For an overview of the report see: Governance News 04/05/2018]

• Assessment of 'appetite for change': Understand differences between institutions in appetite for change to culture and practices, governance, structure and organisation, reporting practices and gaps, products sold or distribution arrangements that affect the outcomes we are seeking and the ability to get effective changes (to inform longer term planning).
• Identify key decision-makers and influencers within each institution to engage with directly.
•  Future areas of focus?  Mr Price said that 'future areas of focus will be selected based on the potential for consumer harm, as well as other factors such as the suitability for intervention through on-site supervision, the prioritisation of issues by the relevant stakeholder team(s) and issues identified/resolved in other jurisdictions'.

Strengthening ASIC's 'supervision and enforcement focus of the superannuation sector'

Mr Price said that ASIC will be delivering an 'enhanced supervisory approach for superannuation' adding that the regulator has already 'strengthened our team focused on this area’.  Mr Price said that the 'enhanced' supervisory approach would include:

• an expanded range of supervisory techniques eg more frequent on-site visits;
• build on 'already significant public actions in the superannuation sector, including more enforcement outcomes'; 
• better leverage the data currently available to ASIC and APRA. In addition APRA will also make use of new data sources, including internal dispute resolution data that must be reported to ASIC, as well as data on life insurance claims coming from joint ASIC and APRA work;
• the incorporation of more consumer testing and shadow shopping; and 
• a 'more intensive engagement model, where superannuation stakeholders will deal with specific ASIC staff on a more consistent and regular basis'.

ASIC will work collaboratively with other regulators

Mr Price added that ASIC will work collaboratively and closely with both APRA and the Australian Taxation Office (ATO) who also have a common interest in superannuation.  He also acknowledged that there are 'boundaries to ASIC's jurisdiction in super, and some issues will be in the remit of other regulators.  Nevertheless, we plan to do everything within out powers to improve member outcomes in superannuation'. 

Other superannuation reforms

Mr Price noted that the new ASIC focus on superannuation is occurring in the context of other reforms, notably: 

• The Productivity Commission’s draft report on the competitiveness and efficiency of the super system (see: Governance News 04/06/2018);
• The implementation of the Insurance in Superannuation Voluntary Code of Practice;
• The Government’s announced Protecting Your Super reform package was announced in the 2018-2019 Federal Budget 

[Note: The Protecting Your Super reform package was announced in the 2018-2019 Federal Budget  (see Governance News 11/05/2018).  Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 is currently before the senate having passed the House of Representatives.]

Corporate Governance Taskforce

Referencing the recent announcement of additional funding for ASIC to undertake targeted reviews of corporate governance practices in large listed entities, Mr Price outlined three areas of focus. 

1. Director and officer risk oversight (especially of non-financial risk): Mr Price said that the role of the board and officers in the oversight (and in the case of officers, the management) of risk would be an area of focus.  More particularly, he said that 'Our review will look at how directors are actively exercising their stewardship functions, particularly in relation to non-financial risk'.  Questions ASIC will consider include:
   • 'How are directors and officers ensuring that they know enough about the entity to ask the right questions? How do they know what they are not being told?
   • How are they holding their executive teams to account?
   • In large, complex entities, how do they ensure that they have meaningful oversight over all material non-financial risks of the entity?
   • How are they satisfied that the compliance and risk functions of the entity are being adequately funded?'
2. Executive remuneration: Mr Price said that drawing on APRA's work in this area, ASIC will be 'looking at whether executive remuneration structures, grants and vesting of variable remuneration are driving the right behaviours and accountabilities of executives in Australia’s listed companies'.  He added that 'an initial issue we will be considering is focusing on the decisions by the board remuneration committee to award and grant variable remuneration'.
3. Quality of corporate governance disclosures: Mr Price said that a third priority for the regulator is consideration of the adequacy of periodic corporate governance disclosures with a focus on determining whether investors are being provided with meaningful disclosures about the effectiveness of a company’s corporate governance practices. 'We want to understand whether those stated policies and procedures are actually reflected in practice' he said.  He added that ASIC is currently 'working on the process' of selecting the entities to approach for review and noted that 'targets' would be chosen from a range of industries and would not be 'limited to financial services'. Mr Price said that ASIC is likely to publish a report at the end of the project, in which it will highlight practices that require improvement as well as those which represent good practice.

[Note: The work conducted into remuneration by APRA referred to by Mr Price appears to be the review of remuneration practices released earlier this year: APRA Information Paper — Remuneration practices at Large Financial Institutions April 2018.  See: Governance News 06/04/2018]

ASIC's role 

• Up to industry to change: Mr Price said that ultimately rebuilding trust and changing culture can only be achieved by industry not by regulators.  'I should say at the outset that while it is all well and good to have regulators speak about how they will improve conduct and build trust it perhaps misses a key point. That point is, of course, that it is the people we license to provide financial services or credit services and their employees that have the frontline role to comply with relevant laws and keep customers top of mind'.

• Having said this, Mr Price said that ASIC does have a role in 'driving the behaviours that will build and restore trust' and that it will do so by:
  • proactively identifying harms to consumers, investors and markets
  • prioritising and addressing the most significant harms
  • accelerating enforcement outcomes
  • implementing new supervisory approaches, and
  • promoting the adoption of regulatory technology (regtech) by industry.

  [Note: The new supervisory initiatives and approach outlined in Mr Price's speech reflect priorities/approach in ASIC's latest corporate plan and areas of focus released on 7 September.  See: ASIC's Corporate Plan 2018-22 Focus 2018-2019.  A very brief overview of the plan is also included in Governance News 10/09/2018] 

  [Sources: ASIC Commissioner John Price, speech at the Risk Management Association Annual Chief Risk Officer Conference 2018 04/09/2018]

  Queries? Please direct any queries regarding this article to Kate Hilder.