ASIC released its four-year corporate plan in September, outlining its plans to 2022.
The ASIC has identified five key long-term challenges to ASIC’s vision.
The first among these challenges is culture and conduct: “aligning conduct in a market-based system with investor and consumer trust and confidence”. While ambiguous, we expect that what was meant was to align conduct with expectations of trust and confidence.
In the plan, ASIC has provided a brief definition of corporate culture: “Corporate culture is the shared values and beliefs of an organisation’s staff and management – which is reflected in their conduct and behaviour.”
ASIC has also for the first time recognised publicly that the complex nature of culture means it cannot be influenced solely from the top. To improve culture, it believes firms need to embed values such as responsibility, accountability and communication across all levels of staff and management.
It has found that companies’ misaligned incentives, represented by conflicted remuneration structures, have negatively affected investor and consumer outcomes.
GA comment: There has been much discussion of “misaligned” incentives in the Sedgwick (see HERE) and Hayne inquires (see HERE), and by inference, APRA reports. If behaviour is driven by rational self-interest (as postulated by Adam Smith two and half centuries ago), one needs to consider the complete ecosystem of incentives and disincentives. In this regard, profit was not impacted by poor behaviour. ASIC and other regulators have a role in ensuring profit is impacted by poor behaviour. In this environment remuneration incentives, even if largely unchanged in nature, will work as intended. Guerdon Associates will have more to say on this in our response to the Hayne Royal Commission interim report.
ASIC intends to respond to the “culture and conduct” challenge by scrutinisingremuneration, rewards, incentives and promotions; recruitment and training policies; whistle-blower policies; and general policies and procedures and corporate governance. Its key concern is whether company frameworks support a customer-centric culture.
In terms of remuneration, particular areas of scrutiny include life insurance, mortgage brokers and registered liquidators.
ASIC has been focussed on culture for a number of years now (See HERE, HERE, HERE and HERE.) It will be interesting to see if it can make the transition from thoughts around regulating culture (which as itself admits is difficult) to regulating the outcomes of good or poor culture.
The other four areas of challenge ASIC identified other than culture are digital disruption and cyber resilience, globalisation, building financial capability, structural and demographic change.
The corporate plan can be found HERE.
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