ASIC chair slams industry for failing to remediate ‘crises’

“Our regulatory system was not designed as a police state, and this was deliberate,” Mr Shipton said.

“Instead, our system was designed on the premise that participants should do their part to ensure the system operates appropriately.”

Conceding that there are few sectors that have “as many regulations, or regulators, as we have in finance”, the ASIC chairman suggested that this was down to several reasons including:

• finance serves a very important underlying function or purpose for society and for individuals;
• unlike other industries, the underlying “commodity” or “product” in finance is money;
• the nature and complexity of finance is unlike any other sector; and
• the regulatory system in finance, globally, has not been performing “at capacity” for quite some time.

Indeed, touching on the latter, the chairman suggested that one of the reasons the finance sector was so heavily regulated was due to the failure of financial institutions to pull their weight.

“The regulatory system in finance, globally, has not been performing ‘at capacity’ for quite some time,” Mr Shipton said.

“And what I mean by this is that the financial participants themselves have not played their part.

“There have been repeated instances of industry failures that have led to crises that have not been remediated by the industry, leaving additional regulation as the only response. 

“Sure, financial regulators need to step up, but I genuinely think there are numerous examples of the industry ‘vacating the field’, meaning the regulators were the only ones left to act.”

He added: “Market participants need to play their part in the financial regulatory system in working towards the collective goal of an efficient and fair financial market.”

ASIC is “in the business of modifying behaviours”

Mr Shipton conceded that no regulatory agency can be “omnipresent” in its actions, but while he argued that ASIC’s role was much more than an enforcer of law, he said that this did not mean it would be “reticent about using [its] enforcement tools”.

“What I am saying is that when we discuss our regulatory system, we need to broaden this discourse beyond just the deployment of enforcement tools,” the chairman said. 

As a regulator, ASIC was “in the ‘business of modifying behaviours’”, which includes the “identification of and management of harms”.

According to the chairman, the prevention of “harm” goes beyond eliminating risk from financial markets; it extends to identifying and managing harms that prevent the “worthwhile enterprise of finance from properly serving its role in society”.

The chairman said: “It is unfeasible for regulators to totally eradicate harms. Nevertheless, regulation is a means to reduce or manage them by finding ways to disrupt, or sabotage, harmful behaviour.

“And another important point is that not all behaviour that creates harms is unlawful, and likewise, not everything that is unlawful is in fact harmful.”

ASIC would also need to ensure that market participants were meeting community expectations, Mr Shipton added.

“We must also recognise that the regulatory system is not just supported by formal rules, but also by norms, industry practices and, of equal importance, community expectations. 

“And this is why everyone in finance needs should not just ask if something is legally permissible, but also whether it is the right thing to do.”

[Related: ASIC formally bans flex commissions]