APRA – boards have themselves to blame for more pay regulation

Financial institutions can only blame themselves for prescriptive legislation, according to APRA Chairman Wayne Byres speaking at the 2019 Banking and Finance Oath Conference Sydney.

You had your chance

Mr Byres was unapologetic about the need for formal regulation, saying:

“Our intervention with a much more prescriptive framework follows a growing body of evidence that poorly designed incentives and an absence of accountability have been promoting conduct and decision-making that is often contrary to the long-term interests of firms and their stakeholders. A better solution – which I urged some time ago – would have been for industry participants to take up the challenge and not wait for regulatory intervention. Unfortunately, despite the efforts of some, stronger regulation seems unavoidable. ”

Laws are expensive so step up to the plate

Mr Byres admitted that the imposition of legislation is not the most efficient means ensuring companies act in the public interest because it increases costs to the industry, which will be passed on in their products.

And new laws will not fix the industry’s reputation problems: the industry needs to change. That is why the new laws are not intended to remove responsibility from the companies, but merely to push them back into the habit of regulating themselves.

“By giving industry codes of practice real teeth, and forcing firms to embed frameworks that adequately address accountability and misconduct, governments and regulators are seeking to empower the financial services sector to more effectively police itself – and creating the opportunity for more genuine self-regulation to play a role in helping win back lost trust,” he said.

If companies step up to the plate, the ultimate level of formal regulation will be reduced, and the financial system will be more efficient.

“Underpinned by society’s value and norms, there will always need to be a layer of formal regulation established by Government in the public interest, but it can be both much reduced, and at the same time made much more effective, when it is reinforced by three layers of robust self-regulation: at the industry level, at the company level, and at the level of the individual.”

Change is already here

Mr Byres highlighted the Australian Banking Association’s upgraded Banking Code of Practice and the decision by the Financial Services Council and the Insurance Council of Australia to review their industry codes of practice as evidence self-regulation is rebooting.

“It may have taken too long for the penny to drop, but industry can no longer be in any doubt that it’s not enough to provide after-the-event remediation once a problem is called out; customers expect firms to strive harder to avoid bad outcomes in the first place.”

The real test will be a culture evolution – channel your inner lawyer

Mr Byres recognised that it is impossible for boards to catch every case of wrongdoing. Therefore, culture change is imperative. Bankers need to stop thinking like bankers.

“The real evidence of change will be when industry participants are willing to stand against the tide, or even better stand up and call each other out for behaviour that damages the industry’s reputation and long-term standing,” he said, mentioning the oft-quoted “first mover disadvantage” excuse for not changing behaviour.

“A stronger foundation of professionalism, more akin to that for lawyers, accountants and actuaries, would no doubt help.”

You can find the original speech HERE .

© Guerdon Associates 2024
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