A clear direction for the regulator

The Australian Securities andInvestments Commission (ASIC) believes it has a better idea of the areas it needs to concentrate on in regard to regulating financial services after the events of 2006.

The biggest initiative taken on by the regulator during the year was the shadow shopping survey regarding superannuation switching advice, an exercise viewed by the whole industry as highly significant.

ASIC executive director, compliance directorate, Jennifer O’Donnell said: “The shadow shopper was significant for a couple of reasons. I think it was a good robust process to tell us where we were at the moment with advice. I think the really good news out of it was that we didn’t see a whole lot of mis-selling associated with superannuation switching advice, and that was a great result and a comforting thing.”

“The other thing it did for us of course though was highlight those areas where there was still some work to be done. That was also useful in focusing our work from there on, so it really showed us where there were still areas for improvement and enabled us to concentrate on those. I think it’s fair to say that it probably confirmed our focus in a number of areas for much of the year on the need to appropriately manage conflicts of interest,” she added.

O’Donnell feels the shadow shopping project helped stimulate discussion regarding the conflicts of interest issue, which has potentially helped to clarify the different points of view between the industry and the regulator.

“I think the whole debate around conflicts of interest has been a useful one and I think it’s now, after some initial and high tensions between us as a regulator and the industry, been focused in the right area. I think whereas initially people thought we were trying to eliminate all conflicts, we recognise that’s an impossible task,” she explained.

The executive director admitted the collapse of the Westpoint group of companies had put more emphasis on both the regulator and the industry to rebuild consumer confidence in the market as quickly as possible.

“There certainly needs to be confidence in the industry among consumers that you can invest in products and get advice from licensed advisers that would be a good thing for you and that you won’t lose your money. Obviously an incident like that damages confidence and I think it does present some challenges for us as a regulator to spot the early warning signs of similar activity, and we’ve put a lot of work into looking at some of those risks,” O’Donnell said.

To that end, she called on the professional bodies of the industry to be vigilant in enforcing their respective codes of conduct on their members.

“I think the industry response will be built by people like industry associations taking a hard look at any of their own members who have perhaps not acted in everybody’s best interests in the case of Westpoint and taking their own steps to deal with those things. I think, provided there is a strong response across the board, consumers ought to have confidence,” O’Donnell said.

One of the major achievements she cited for 2006 was a closer working relationship with the financial services industry as a whole.

“It’s been another busy year in a very dynamic environment but I think we have worked as a regulator more co-operatively with industry. We’ve heard some of the messages about the need to be closer and also more transparent about what we do,” O’Donnell reflected.

“I think we’ve made some real progress in those areas and I think it’s really set the scene now for things like financial services reform. We’re far enough out now from that transition and refinements aside to enable that regime to mature and to take a much more practical approach to it on all sides, whether that be the regulator or in industry,” she said.

— Darin Tyson-Chan