Update, 26 June 2014: Today the Senate’s Economic References Committee released its report on the performance of ASIC and referred to two of my suggestions when making their recommendations.
An effective financial services regulator means you get better advice.
Over the last few months, two Fairfax journalists, Adele Ferguson and Chris Vedalago, exposed some of the inherent problems within the bank-owned financial planning groups. Their expose uncovered some terrible advice given by CBA and brought into question the ability of ASIC to regulate the industry effectively. Their efforts not only won them a well deserved Walkley Award nomination, but resulted in a Senate Inquiry into the Australian Securities and Investments Commission.
Submissions are welcome from the public or anyone in the industry who wants to have their say. Sadly, despite criticism from around the industry for ASIC’s handling of such issues, there have been no submissions from the banks, industry associations or lobby groups. And hardly a practical or constructive submission from any individual working in financial services who might have some insight into why ASIC has failed to deal with issues such as those at CBA.
If people don’t speak up publicly and provide thoughts on how ASIC might become more effective, nothing will change and you remain in danger of getting bad advice.
With that in mind, this week I made the following submission to the Inquiry.
My Submission to Senate Inquiry into ASIC
I have 17 years experience in a wide range of financial services businesses, from banks to small independent licensees. Through working on both the compliance and operations management sides of financial advice businesses, I understand how a licensee integrates the processes required for it to meet its legal and compliance obligations with those used to operate a commercial advice business.
Like most people in the financial services industry, I’m motivated in helping to ensure the industry is filled with good people providing quality advice to confident and informed consumers. In this, my goals are aligned with those of ASIC. I believe ASIC has an important role, but that it can do more to support licensees meet their obligations.
In this submission, I want to focus less on the historic failures and more on practical ways in which I think ASIC can improve its support to licensees.
I understand that CBA received more than 20 separate Notices between 2004 and 2008 but they never received any feedback from ASIC. Licensees are required to review their representatives, provide feedback and remediate any identified issues, regardless of how small. The regulator should be expected to do the same. A lack of response causes uncertainty and many of the issues at CBA could have been addressed before they became systemic or profound failures.
Open and Transparent Surveillance
If the regulator asks for 70 files and finds a serious problem exists after a few files are reviewed, they should provide a preliminary response to the licensee, rather than wait months, or even years (as with CBA).
Prompt responses, transparency and early constructive engagement would have allowed ASIC to solve the problems at CBA more quickly and prevent their recurrence. Had they been motivated to do so, many of the catastrophic failures could have been prevented or at least mitigated.
Keep Database of Findings
ASIC do not appear to maintain an effective database of surveillances, findings and Notices – and certainly not one that allows interrogation and root cause analysis. This is ironic given ASIC’s advice to the industry on the importance of such systems. ASIC do not retain, consider or exploit the information in their possession and they compound this failure with a difficulty in retaining corporate knowledge.
The fact that ASIC asks the same questions each review suggests they don’t reflect on information or act on previous findings.
Licensees want to do the right thing and commit considerable resources to their compliance. If ASIC more frequently published key findings from their various reviews, or developed benchmarks based on their reviews, licensees could take a more proactive action in addressing these issues.
Encourage Open Dialogue
Licensees understand ASIC’s role and share broadly similar aims and objectives, but ASIC often fail to recognise common interests and fail to engage effectively with licensees and advisers. The open engagement offered by ASIC seems to have traditionally been a lecture with a reluctance to tolerate dissent. On occasions, they don’t even pretend to listen. In some circumstances, openness is inappropriate but care should be taken to ensure engagements are not exercises in antagonism and condescension.
The lack of consistency and delays in response also contribute to an increase in costs and a lack of confidence from the licensee in the regulator.
Recruit and Retain Quality Staff
The key to better outcomes must be based on better processes and better people, but ASIC has repeatedly demonstrated an inability to recruit and retain quality staff. While recruiting en masse from a major law firm may ensure a level of consistency in approach; practical knowledge, industry insight and interpersonal skills are more important. The benefits of retaining staff with these qualities would be significant. Better relationships with the industry will lead to better working conditions and better prospects for staff, which will ultimately lead to the regulator becoming a more attractive employer.
Contact me if you’ve had a bad experience with a financial adviser.
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