The corporate watchdog has called on the Morrison government not to bow to “the loud voice of exceptionalism” by yielding to pressure from the banks to water down stricter regulations of the financial services sector.
In a speech to company directors on Friday afternoon, Australian Securities and Investments Commission deputy chair, Karen Chester, said last year’s banking royal commission “identified the cumulative and damaging exceptionalism that took hold in the legislative norms of conduct for the financial system” and it was important the government’s program of legislation implementing the royal commission’s recommendations should press ahead.
She also accused banks of having an “empathy gap” with consumers and warned them they needed to be ready to meet new Asic powers to control the design and distribution of financial products.
The banks have been lobbying the treasurer, Josh Frydenberg, and key backbenchers to blunt Asic’s efforts to curb some of their excesses in a campaign that has focused on responsible lending rules.
But the campaign against regulation was derailed this week by the resignation of one of its main urgers, Westpac’s chief executive, Brian Hartzer, who was forced to quit after Australia’s financial intelligence agency launched blockbuster legal action against the bank – accusing it of failing to prevent 23m breaches of anti-money-laundering law, some of which involved payments consistent with child exploitation.
Chester said people should “recall how the loud voice of exceptionalism drowned out the consumer voice” as government moved to enshrine the royal commission’s recommendations into law in just 12 months.
“It’s an ambitious legislative reform program,” she told members of the Australian Institute of Company directors at a function in Brisbane.
“And one that should be spared a groundhog day of exceptionalism. For the voice of exceptionalism is anything but exceptional.”
Chester warned against banks blaming consumers. She said they needed to close the empathy gap by learning “the limits and vulnerabilities of their customers”.
“And in doing so, not exploit innate constraints in human cognitive capacity and exploitable behavioural biases,” she said. “In short, to close the empathy gap firms must care about consumer outcomes.”
The era of regulation based on disclosure was over because products were too complicated.
“Disclosure has proved no defence against the totality of sharp practice,” she said.
Banks needed to put the customer first if they wanted to avoid adding to a remediation bill that already topped $10bn, have their products banned by Asic or even see a repeat of the royal commission.
“Design and offer products that deliver value – not surprises – and are sold fairly,” she said.
“Design ‘choice architecture’ that it is fair for consumers. And tackle head on complexity in financial services and products that are unnecessary and harmful to consumers and ultimately a value loss for shareholders.”
