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Finding harmony with community expectations

by Matthew Smith | 15 Jun 2017

Gauging and adapting to the community’s expectations remains the biggest challenge the financial services industry faces on its path to professionalism, regulators and senior professionals conclude during the Banking & Finance Oath’s latest conference.

shutterstock_220123321“The interpretation of what the regulation says, and movement of that interpretation, that’s really a big source of angst in the community,” says Pauline Vamos, who was until recently the chief executive of the Association of Superannuation Funds of Australia.

Vamos leads a panel discussion opening the BFO’s conference in Sydney in the last week asking the question: “Has regulation become self defeating?”

On the panel were ASIC’s deputy chairman, Peter Kell; APRA’s deputy chairperson, Helen Rowell; BT Financial Group’s CEO, Brad Cooper; and Steve Weston, formerly CEO of Barclay’s mortgage business in the UK.

“As an industry, you have to keep progressive and keep up to date on the community’s expectations, which are continually moving,” BT’s Cooper points out.

The problem is that the community’s expectations can and often do move quicker than the actions of the professions, which is what happened in the financial services industry in the UK, says Weston, who shared his views with InFinance earlier in the year relating to how the Australian experience is mirroring what’s already happened in the UK.

While regulation might not necessarily be “self defeating”, it’s really up to the industry participants to remain in tune with community expectations, the professionals outline.

“With disclosure, for instance, you don’t want the black letter of the law, you want some interpretation, but you also want to be able to operate understanding your interpretation of fairness given those circumstances will be level with the community’s expectations,” Cooper notes.

“What you find is the community’s expectations tend to move,” Cooper adds.

Keeping in step

Efficiently functioning associations can be a good way for professions to keep in step with community expectations, APRA’s Rowell says.

“You create an interpretive segment of the community who begin to agree what their interpretations of the regulations mean in practice,” Rowell outlines.

“They provide peer support and mentoring and professional support for those coming behind them,” she says.

However, ASIC’s Kell makes the point that industry has its work cut out convincing the community it’s making best efforts to professionalise.

“People think codes [codes of conduct] is window dressing, the important thing I think with having a code of conduct is that there’s actually consequences when it’s not adhered to,” Kell says.

“That’s the sticking point and I think that’s where the community becomes cynical because they can see there aren’t repercussions when the standards aren’t met,” he says.

There are some examples where regulation can be considered “self defeating”, says Dimity Kingsford Smith, UNSW’s Centre for Law Markets & Regulation professor.

Weight of disclosure

“I think there’s some examples… particularly in the retail sector where disclosure bears far too much weight,” Kingsford Smith notes.

“We need to bring in more protection for consumers and make sure products that are offered to them are targeted to the right market,” she says.

Indeed, after decades of inquiries and regimes requiring more disclosure, there’s no clear evidence that consumers are any better informed or making any better decisions, BT’s Cooper points out.

“This is on the back of the Financial System Inquiry [the ‘Murray Inquiry’], which is some 20 years on from the ‘Wallis inquiry’, which is where the disclosure regime actually came from,” Cooper highlights.

“As a practitioner, you end up with product disclosure booklets and a cynical view would be that providers are hiding behind those disclosures, practitioners might look at that and say they have an obligation to meet the laws,” he says.

“It’s clear the regime does not work for consumers,” he adds.

Since the global financial crisis (GFC) there have been some 39 probes into Financial Services. Of these, 22 are complete and 17 are still under way.

“All of them come with public airing of the issues, recommendations, new regulations, and some aren’t even implemented from the last one… at some point we need time to imbed the recommendations and do the hard work,” Cooper highlights.

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