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Acting for You, June 2019

ASIC Annual Forum 2019: Meet the Commission

This year’s forum included a session in which participants had the opportunity of hearing from the Chair and the Commissioners about ASIC’s new approach to supervision and enforcement. ASIC will focus on the ‘craft’ of regulation — using the rights tools at the right time. It intends to be more strategic and to take a whole-of-Commission approach.

Areas highlighted during the session included:

  • Close and continuous monitoring (CCM) — this initiative involves ASIC staff making onsite visits to major financial institutions. The aim is to identify potential harms at an early stage and intervene by providing real time feedback before a breach occurs. CCM is not being used in isolation, but in combination with other regulatory approaches. ASIC has received additional funding for CCM which is likely to be rolled out more As part of this program ASIC has held 300 meetings with C-suite executives in these organisations. ASIC has found it illuminating to speak to executives directly, rather than simply read through documents. The program also involves interacting with staff in the various business lines in institutions. ASIC is having two way conversations with the financial institutions involved in CCM. ‘Town hall’ meetings’ will also be part of this program. ASIC’s recent paper on internal dispute resolution was informed by CCM.
  • Onsite and thematic reviews — ASIC is looking at systems used overseas. Much of its supervisory activity is about health and hygiene. Breaches should have already been notified to ASIC.
  • Credit licensees — ASIC is also looking at developing an intensive supervisory model for these licensees. This will signal to the markets what is important — breach reporting, internal dispute resolution and remuneration.
  • Financial Services Royal Commission (RC) related activities — ASIC considers the findings and recommendations of the RC apply to all companies and to all corporate activity. ASIC considers directors’ obligations have not changed. Organisations must manage non-financial risks. The RC highlighted existing obligations and restated the norms — boards need to ask themselves ‘Is this fair?’. This is a discipline and the question of fairness must be inculcated into every decision. Boards also need to identify toxic revenue. Breach reporting and complaints handing are extremely important.
  • Penalties — previously the lack of adequate or any penalties made ASIC’s job difficult. ASIC worked hard for an improved penalty regime, that is, penalties for breach of section 912A Corporations Act 2001.
  • Why not litigate — ASIC undertook a review of its enforcement in 2018. Why not litigate is a procedural discipline undertaken by ASIC. The aim is deterrence, denunciation and punishment for wrongdoing/breaches of the law and changing market behaviours.
  • Commission ways of working — The commissioners meet at least once a week and have a collegiate approach to decision making. There are ten executive directors responsible for the areas ASIC regulates.
  • Superannuation — ASIC needs more legislative reform before it can take up its job of regulating super.
  • Climate change reporting — ASIC published a report on climate change disclosure in 2018. Following on from this report it will look at companies’ operating and financial review disclosures, particularly discussions of strategy and risk. The Australian Accounting Standards Board and the Auditing and Assurance released joint guidance in 2018 on the consideration of materiality and disclosure of climate-related risk in financial standards. The Task Force on Climate Change Disclosure Framework is becoming the de-facto standard.
  • Overregulation — ASIC is very aware that it does not want to overburden industry with overregulation. However, organisations must invest in good compliance systems or shareholders will suffer loss. Compliance is a core function — treating customers fairly is not a compliance cost. ASIC encourages organisations to contact it about issues when they arise.

Governance Institute recently surveyed its members about their strategies for dealing with regulators and held a roundtable to discuss the findings. These activities will inform a LexisNexis sponsored paper to be released in July and a podcast.

Modern Slavery

Governance Institute has lodged a submission to the Department of Home Affairs on the Modern Slavery Act 2018 Draft Guidance for Reporting Entities (Guidance). We were involved in stakeholder engagement concerning the development of the Modern Slavery Act 2018 (Act) and provided a submission to the Consultation Paper in November 2017 (Acting for You, December 2017).

Governance Institute considers the draft Guidance is well drafted and contains helpful examples and will be of considerable assistance to entities considering their obligations to report under the Act. We suggested the draft Guidance include some introductory material providing a brief overview of the Act’s requirements to provide context for users. We also observed that it is important that the Guidance clarify and consistently convey that the Act imposes an obligation to describe the risks of modern slavery practices and the actions taken by the entity to assess and address those risks, rather than an obligation to report all modern slavery practices or specific instances of slavery discovered by the entity.

Governance Institute will continue to keep members updated on this matter.

Independent review of the Australian Public Service: Interim report

Governance Institute has provided feedback to the Review Panel for the review of the Australian Public Service (APS) on its Interim Report. We also made a submission to the independent review in July 2018 (Acting for You, September 2018).

In our submission, we commended the panel for highlighting the importance of strengthening the culture, governance and leadership model of the APS and expressed support for the proposed role of the secretaries’ board in improving the quality of performance reporting across the service. We expressed agreement with the panel about the importance of measuring outcomes and performance in boosting accountability and trust in the APS.

Our submission noted that internationally, and across Australia, public sector entities have not always succeeded in adopting good overall performance measures, linked to the key strategic outcomes determined by the governing body or key stakeholders such as the portfolio Minister. For example, the Australian National Audit Office report on the Australian Public Governance, Performance and Accountability Act and the and the US Report: Managing for results — Government action needed to improve agencies use of performance information in decision making — both released in 2018, suggest that the drive by Governments to achieve improvements in performance management by public sector enterprises has stalled.

In our submission we suggested a broad range of elements to include in an effective performance management system. We also provided a copy of our recently revised Good Governance Guide Performance Management Systems — Key Performance Indicators (KPIs).

Governance Institute will continue to keep members updated on this matter.

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ASIC Annual Forum 2019: Meet the Commission

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