ASIC enhancements may spare bank execs

Wayward banks but not the executives that lead them can expect to be named and shamed as part of a suite of reforms proposed as part of a positions paper being considered by the Turnbull government in response to recommendations put forward by the recent parliamentary inquiry into the banking sector.

‘Self-reporting of contraventions by financial services and credit licensees’ by the Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce includes a package of reforms now on the desk of Revenue and Financial Services Minister Kelly O'Dwyer and include – for the first time – possible concessions on details of breach reporting.

According to O’Dwyer, the proposed reforms will reduce ambiguity, enhance accountability, introduce new and heightened penalties, require ASIC to publish data on breach reports and introduce a new reporting regime.

A proposed breach register, which includes the name of the institution but not the executive in charge, has been proposed in the wake of the major banks’ reputational damage following a series of scandals, mismanagement and breaches of the Corporations Act that eroded public trust in the sector and hastened calls for a royal commission.

According to O’Dwyer, the public breach reporting regime will be delivered publicly every year and will include the name of the institution where the breach occurred.

"The proposals outlined in this paper are aimed at improving transparency and accountability in the financial services sector by broadening and strengthening the obligations on licensees to make timely reports to ASIC about misconduct or suspected misconduct that they become aware of," O’Dwyer said.

Naming and shaming

While the Minister conceded there is a dearth of examples globally where governments have sought the naming and shaming of those banking executives responsible for departments where breaches occur, O’Dwyer confirmed that the government was currently consulting on the possibility of its implementation.  

"We certainly do know when you increase the public reporting around particular financial institutions in a timely manner that this can have a significant cultural impact on those institutions," O’Dwyer said.

Public reporting of when banking executives go rogue has been a key recommendation from the Parliamentary inquiry into the major banks. According to Commonwealth Bank of Australia (CBA) chief executive Ian Narev, the identity of those executives drawn into breaches within their divisions should be protected.

Narev told the House of Representatives' standing committee’s latest public hearing that an executive register would achieve little.

"I don't believe naming would add anything to accountability," Narev said. "If a customer wants to know the name of the executive in charge of the division, that's something they can easily find out."

Westpac’s Brian Hartzer and National Australia Bank chief Andrew Thorburn agreed, both refusing to support the public reporting of individual breaches of the Corporations Act.

However, a split emerged last month when ANZ’s chief executive Shayne Elliott told the Chairman of the House of Representatives' Standing Committee on Economics, Liberal MP David Coleman, that the ANZ was "broadly supportive" of the public reporting of breaches.

O'Dwyer said the public and the government also shared concerns about rogue advisers going to ground and resurfacing at other institutions without reports being made regarding their misconduct.

"We want to make sure that any adviser or employee who's guilty of misconduct is appropriately dealt with and obviously not in a position to do harm in the future," she said.

Industry, consumer groups, academia

According to O’Dwyer, also back on the table is the stated preference of Coleman, that breaches should be reported within ten days of the breach instead of after the institution confirms the breach. Financial services licensees will also face penalties if they are caught out not reporting breaches to ASIC under the proposed reforms.

"It's all about ensuring that we have practical measures in place that ensure that our financial system is strong, that misconduct is exposed and penalties and sanctions apply when that occurs," O'Dwyer said.

Australian financial institutions must report significant breaches of the Corporations Act to the corporate watchdog already, however, any breaches remain beyond the public domain - sometimes for many years - until ASIC is able to conclude an investigation.

O’Dwyer said ASIC’s ability to deal appropriately with misconduct is “greatly enhanced” by timely reporting by licensees of significant breaches of the financial services laws.

The Government included breach reporting in the Terms of Reference for the ASIC Enforcement Review, so that any necessary changes to the reporting regime, to ensure it operates as effectively as possible, could be considered.

Membership of the Taskforce includes senior members of Treasury, the corporate watchdog, the Attorney-General’s Department and the office of the Commonwealth Director of Public Prosecutions (DPP), as well as representatives from industry, consumer groups and academia. 

The Taskforce will provide its recommendations to Government by the end of September 2017.

Upcoming Events
Australian Banking Innovation Summit 2021
Sydney, NSW, Australia
See all upcoming events
Subscribe to receive insights delivered straight to your inbox
Latest news, unbiased expert analysis and insights across banking and finance