Corporate watchdog Greg Medcraft has warned Australia's banks still have "subcultures" that are failing to get the message about the need to live up to community expectations after a year riddled with scandal.
The Australian Securities and Investments Commission chairman said the "long list" of issues targeted by the watchdog during 2016 was "troubling".
ASIC took action against the banks over problems in their management, life insurance and lending businesses, and launched a legal claim against Westpac, ANZ Banking Group and National Australia Bank over allegations they manipulated the key financial benchmark, the bank bill swap rate.
In late December, the watchdog also secured enforceable undertakings from Commonwealth Bank and NAB after their foreign exchange traders were found to have actively traded against their own clients.
Mr Medcraft said that while the push to improve culture had been embraced by boards and executive teams, the message might not be getting through to lower levels of management.
"I think the problem is that by the time it gets to the middle it's white noise. Many big banks have subcultures … and the problem is breaking through," he told The Australian Financial Review.
"Every single board is focused now on culture. They now know that getting a good culture is not about employing an army of compliance people, it's actually about making sure you've got the right people and setting the tone from the top.
"But the hardest thing for many of them is to recognise if you've got a subculture that is in conflict with the values you want to drive as an organisation.
"Stop saying it's a few bad apples. At some point you've got to look at the damn tree and say, what's wrong with us as an organisation? That's what I am saying to these guys."
Mr Medcraft, who spent his Christmas break in New York before a visit to Whistler in Canada, said ASIC's campaign on culture had been a success, but said the watchdog had "fairly significant surveillances and investigations under way" in wealth management, insurance and lending.
And he warned that in the age of digital disruption, banks could pay dearly if customers became disenchanted. "These days, the bigger that gap in trust the more prone you are to being disrupted."
NAB chief financial officer Gary Lennon said the forex trading case related to events that took place between 2008 and 2013 and "things have moved on a hell of a lot since then.
"I think we've done a significant amount of work on culture and improving the culture. It's something you can always do more on, so it's a great starting point," he said.
"If you focus on the customer and you do the right thing by the customer, a lot of these things fall by the wayside."
Mr Medcraft, who will leave his post in November after six years in the role, said he remained open to a settlement in the BBSW cases with Westpac, ANZ and NAB, which are due to go to trial in September. While the banks wanted the cases heard separately, ASIC had a significant win before Christmas when they were joined into one court action.
While the three banks appear determined to have their day in court, Mr Medcraft said he would "see what happens" between now and September. But he said the enforceable undertakings reached with NAB and CBA over the forex trading scandal showed he would be "pragmatic".
"We're always open to a settlement. Always. But any settlement must be credible. It's got to be commensurate with the behaviour; Australians wouldn't expect anything less."
ASIC will get another tool to deal with potential financial services scandals under the product intervention powers handed it by the Turnbull government. The powers allow ASIC to order amendments to the advertising of a product, change disclosure obligations or potentially band a product outright, or restrict its distribution.
Mr Medcraft said bedding down these powers would be a priority in 2017, but said they were less about banning products outright and more about "fine tuning" them.
He gave the example of complex products such as contracts for difference, which might be advertised to "really inappropriate investors".
"The powers allow for a much more precise targeting of where a problem is," Mr Medcraft said. "It's not going to be so much about banning of products, but fine tuning where a change needs to be made."
Mr Medcraft said that while he had been approached in relation to some "global-type roles" it was too early to say what role he would move on to.
"What interests me is doing stuff that's interesting and makes a difference. My wife is very happy living in Australia and my daughter is going to high school next year, so we'll just see what happens," he said.
"What I'm really pleased with is that many of the things that I've proposed over many years are now coming to fruition. You couldn't ask for a better legacy than that."This article was first published in http://www.afr.com
Author: James Thomson