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Governance Institute highlights importance of ASIC dealing with the risk of regulatory capture

The corporate regulator needs to spell out in more detail how its proposal to embed its staff as governance watchdogs inside banks will work in practice, says Governance Institute of Australia.

“While Governance Institute supports additional funding for ASIC to assist the regulator combat misconduct, in principle, our members question how this new supervisory approach will work on the ground,” said Steven Burrell, Chief Executive at Governance Institute of Australia.

This week, Financial Services Minister, Kelly O’Dwyer MP, announced that the Government will inject a further $70.1 million into ASIC to combat misconduct in the financial services sector. $8 million will be used to embed dedicated staff within the big four banks and AMP to monitor governance and compliance.

“It will be important the regulator remain objective and independent. There is a risk that ASIC staff will be socialised into the existing culture within the financial institution,” he continued.

In recent interviews, ASIC Chairman James Shipton has advised that ASIC investigators are being trained to avoid “regulatory capture” by the banks. Yet, Treasurer Scott Morrison has said that ASIC need to build a rapport, engagement and a connection to ensure effective enforcement.

“Mr Shipton has assured us that ASIC is aware of the potential for regulatory capture. We will be interested to see what practical safeguards are put in place to deal with the risk of regulatory ‘Stockholm Syndrome’ within the banks”, Mr Burrell said.

“How will this assist banks build capability to improve their governance and culture? The banks need to take ownership of their past conduct and develop their own solutions”, he added.

“We’d like to understand more about how this will work. What relationship will the embedded regulator have with the Board and Management? What are the rules of engagement? What powers will ASIC have within the daily business operations? The banks cannot become reliant on ASIC’s ‘Bank Police’, they need long term strategies to fix governance and culture issues”, concluded Mr Burrell.

Minister O’Dwyer has stated that this regulatory approach brings ASIC into line with regulators overseas.

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