By Kerensa Sneyd

Professionalism in financial services was the topic addressed last Thursday 11 October by a range of speakers presenting at the 2018 FINSIA Summit.  Throughout this year, key regulators have spoken openly about the importance of professionalism in the banking sector and the role it plays in rebuilding community trust. The public hearings of the Royal Commission into Misconduct in Banking, Superannuation and Financial Services has also highlighted the significant work that lies ahead in order to restore trust and confidence in the sector.

During his speech, Wayne Byres (Chair of the Australian Prudential Regulation Authority (APRA)) reflected on the Royal Commission’s suggestion[1] that regulators should do more to actively enforce standards of behaviour within the financial sector and noted that this was “quite a reasonable conclusion”.

Enforcing standards of behaviour and individual misconduct has not traditionally been the role of APRA, given its primary focus is on protecting financial system stability and the interests of deposit-holders. The Australian Securities and Investment Commission (ASIC) has always held primary responsibility for enforcing good behaviour and acting against misconduct.

This is an important distinction and one that the regulators have emphasised when questioned on their enforcement practices.

However, it appears the Royal Commission may be a catalyst for looking at a different supervisory and enforcement approach. Mr Byres commented to the summit attendees that “APRA has traditionally examined cases of poor conduct as an indicator of risk, but not a direct prudential risk in and of itself, unless it was likely to jeopardise the stability of the system or an individual institution. We will clearly need to reflect on that approach”.

This observation is quite telling of the challenges facing APRA and ASIC in a post Royal Commission world. For example, if in the future conduct risk is considered a direct prudential risk:

  • How might that impact APRA’s enforcement of the Banking Executive Accountability Regime?
  • Does this change the current role of ASIC in policing misconduct?
  • Would changes be required to regulated entities’ operational risk and compliance frameworks as a result?

In its Interim Report, the Royal Commission has posed the questions “what are regulators doing to meet the danger of conduct risk?” and “what should regulators be doing to meet it?” Responses to these questions may provide the clearest articulation yet of how each of APRA and ASIC views its role when it comes to policing individual behaviours, and what regulatory and enforcement changes may follow as a result.

[1] Chapter 8, Regulation and the Regulators, Interim Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry


Tony Coburn

Tony Coburn
+61 2 9322 4976