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Consumers have a role to play in deterring misconduct: APRA

by Tas Bindi5 minute read

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It’s not just regulators and financial service providers that have roles to play in deterring misconduct; consumers should vote with their wallets, according to the chair of APRA. 

Speaking at the Banking and Finance Oath’s Crossroads conference on Thursday (8 August), the chair of the Australian Prudential Regulation Authority (APRA), Wayne Byres, said that rather than just “sit around and complain” about the behaviour of financial service providers and expect the government and industry to take full responsibility for delivering better community outcomes, consumers should take action by changing providers. 

“If [people] don’t do anything, there’s no strong signal that the behaviour really needs to change because it’s going to affect long-term commercial viability,” Mr Byres said on a regulatory panel discussion. 

“The voice of the consumer only gets heard commercially when they start to take action.”


The APRA chair also mentioned that while there needs to be regulation and enforcement to deter misconduct, meaningful change in attitude, behaviour and culture won’t happen if the industry is driven solely by the “fear of getting caught or fear of getting fined”. 

“We won’t really get a modus operandi attitude approach to culture, which we’re aspiring to,” Mr Byres added. 

“We’ve got to find a balance between [policing] the game and [coaching] the game... help people find the right outcomes rather than just [set up] a boundary and penalise them if they step beyond the field.”

The APRA chair noted that the regulator doesn’t directly penalise institutions for breaching a prudential standard, instead, it guides them to fix issues. 

“We have a different way of operating. If you breach a prudential standard, then we can direct you to fix things. If you don’t fix things, then there can be [legal] consequences down the track,” Mr Byres said. 

He added that the revised standards that APRA is in the process of developing are “much higher than the bare minimum of the law”. 

“[The standards are] designed to keep them away from breaching the law,” Mr Byres said.

“It’s a different legal framework, a different set of consequences.”

He continued: “If it’s something that is egregious and it actually breaches the law, then we would be in the same territory as [the Australian Securities and Investments Commission].”

However, the chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, was more steadfast when expressing the importance of regulation and enforcement, saying that “firm behaviour depends very much on the regulatory environment” and that “the law shapes ethics as well”. 

He added that the reason why the banking and broader financial services industry is more regulated than others is because firms operating in the industry are known to behave poorly. 

“Don’t blame the government,” Mr Sims said. 

However, the ACCC chair noted that he prefers “general regulation” over “sector-specific regulation”.

“Things like making unfair contract terms illegal is just a no-brainer,” Mr Sims said.

He also expressed that he is in favour of introducing an “unfair practices provision”, using the “dreadful practices” of energy companies as an example of why regulation should apply to all industries. 

ASIC deputy chair Karen Chester, who was also a panellist at the Banking and Finance Oath conference, noted that “doing the right thing” by the customer not only makes sense from an ethical standpoint but also from a "profit and value" perspective. 

“If you take a look at the values of companies today, 80 per cent of the value is in intangible assets – your reputation, your consumers, your IP,” she said.

“We know from the royal commission and the prudential inquiry [into CBA] that mismanagement of non-financial risks resulted in about $10 billion in remediation… so there’s a financial risk as well.”

Ms Chester pointed out that the new penalty regime would mean firms could be fined up to $525 million for misconduct and individuals, up to $1.05 million. 

“Before the 30th of March this year, you could breach [Section 912A of the Corporations Act], but the penalty was zero,” she said. 

Both Mr Byres and Mr Sims pointed out that similar large companies (such as the big four banks) deliberately don’t compete with each other as fiercely as they could. 

“They know that if they try to grow share by lowering prices, then the others will follow,” Mr Sims said, adding that they know that it will ultimately reduce their profit margins.

Similarly, Mr Byres said: “We often hear executives complain they would like to curb a certain practice or stop selling a particular product but would suffer first mover disadvantage.”

The impact of less competition, according to Mr Sims, is a reduced need to “worry” about customers, which he pointed out was what led to the launch of the financial services royal commission. 

[Related: Building a healthy business culture]

Consumers have a role to play in deterring misconduct: APRA
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Tas Bindi

Tas Bindi


Tas Bindi is the features editor for The Adviser magazine. 


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