The corporate watchdog will ramp up its surveillance of the wealth management arms of Australia’s major banks and AMP and has slammed the industry for failing to act in customers' interests and manage conflicts of interest. The dressing down came as Ian Silk, the chief executive of retirement savings giant Australian Super, said it was likely banks would ultimately scrap conflicted forms of remuneration, and there would probably be further restrictions on how people in the sector were paid.
In a strongly worded speech in Sydney, Australian Securities and Investments Commission (ASIC) chairman James Shipton said the finance sector’s failure to deal with conflicts of interest was “verging on a systemic issue” and this lay at the heart of many of the sector’s woes.
Mr Shipton said ASIC would use “every inch of [its] powers" to lift standards, but also slammed the behaviour of some businesses for not co-operating with the watchdog, or obstructing its work.
He flagged that ASIC would be ramping up its wealth management project – an investigation into the largest providers of wealth services including Commonwealth Bank, ANZ Bank, National Australia Bank, Westpac and AMP.
“Much of what we saw in the financial advice round of the royal commission hearings was based on the work of our wealth management project,” he said at the Australian Council of Superannuation Investors (ACSI) conference on Thursday. “We intend to accelerate and expand this intense program.”
After the latest round of royal commission hearings exposed serious misconduct in financial advice - including poor advice and customer rip-offs - Mr Shipton urged banks and other advice businesses to scrap conflicted payments in the sector.
Conflicts of interest were always a challenge for businesses, he said, but it was clear that “a number of institutions have not taken the management of conflicts of interest to heart”.
“This is verging on a systemic issue. Indeed, it is the source of much of the misconduct ASIC has been responding to and which is being highlighted by the royal commission hearings,” he said.
On the sidelines of the conference, Mr Silk told Fairfax Media conflicted forms of pay were generally designed to encourage a certain form of behaviour and it looked as though they would be removed, partly as a result of the royal commission.
“It is likely we’re going to face a new regulatory structure around remuneration, I would imagine," said Mr Silk, who is also president of ACSI.
Ian Silk said there was likely to be a new regulatory structure around remuneration.
Photo: Louie Douvis
Some non-executive directors speaking at the conference also highlighted the role of incentives and the likelihood of future reform to force a longer-term focus.
Non-executive director Elana Rubin questioned whether short-term incentives would still exist in 10 years, saying the corporate world was at a "tipping point" in remuneration structures.
The chairwoman of the Australian Institute of Company Directors, Elizabeth Proust, said Ms Rubin was "probably right" about short-term bonuses, which may no longer exist "in a few years".
Amid growing scrutiny of their wealth management businesses in particular, many banks are looking to cut their exposure to this part of the industry, and on Thursday Macquarie Group said it was cutting some financial adviser jobs as it focused more on wealthy clients. It said an unspecified number of advisers would be affected by its move to merge its private bank and private wealth businesses.
Mr Shipton said the industry’s “trust deficit” stemmed from the fact that many in finance appeared to have lost track of the financial system’s ultimate purpose – to manage “other people’s money”.
"Instead of focusing on these functions, I worry that many financial services companies have become insular by focusing only on how they can maximise earnings," Mr Shipton said.
“Accordingly, the first job of the sector is to refocus on these core purposes, instead of exploiting opportunities to make money from its customers - often to the consumer's considerable detriment.”
Mr Shipton, who has been chairman of ASIC since earlier this year, said he had been surprised that many financial services businesses appeared to “turn a blind eye” to the risks created by conflicts of interest, and had been reluctant to address these problems when the regulator intervened.
As well as ramping up its wealth management project, Mr Shipton said ASIC was looking at how to build on its enforcement, which might include greater use of external experts, which would help it respond more quickly.This article was first published by https://www.smh.com.au
Author: Clancy Yeates