Looking beyond the breach

While ASIC is right to pursue more timely breach reporting by financial planning firms it should acknowledge that the vast majority more than live up to their obligations. 

When Australian Securities and Investments Commission (ASIC) deputy chairman, Peter Kell, last week told a risk conference of the need for financial planning firms to better step up to the mark on breach reporting, he might have been better referencing how many firms were more than meeting their obligations. 

Not mentioned in Kell’s speech, but worthy of discussion here is the fact that most of the enforceable undertakings imposed by ASIC over the past half-decade, including those imposed on AMP Limited and Macquarie Group, have been a product of breach reporting by the affected companies. 

In other words, ASIC was not necessarily aware of the breaches until they were reported by the companies involved. And those companies reporting the breaches have, by definition, signalled their intention to rectify those matters. 

So while Kell is absolutely right to exhort financial planning firms to be studious in their reporting of breaches as and when they occur, he was wrong to leave the impression that the vast majority of firms might not be doing so. 

What financial planning firms know, however, is that ASIC has never been particularly shy about publicising the fact that breaches have occurred - something which has ensured that they inevitably implement a detailed administrative and legal process before they actually go to the regulator. 

Lawyer, Claire Wivell-Plater, is therefore not entirely right when she suggests that “fear” is a factor in planning firms not reporting breaches promptly. It would be more accurate to say that the firms want to ensure they understand the full extent of their exposure and therefore the liabilities. 

In recent weeks both Kell and his boss, ASIC chairman, Greg Medcraft, have referenced cultural issues within financial services companies and the manner in which this can impact compliance and breach reporting. 

In many respects, what they are clearly really referencing is the manner in which the attitudes of management can influence of the conduct of financial planners and they are right to do so. 

It is arguable that if the ASIC had been more conscious of cultural issues within management five years’ ago, then it might have acted more promptly with respect to Storm Financial and a number of other financial planning firms which were seen to fail in less than desirable circumstances. 

For his part, Kell last week referenced business models and remuneration structures as being indicators of cultural problems within organisations, suggesting that remuneration incentives should be based on good culture rather than sales. 

While most people would understand Kell’s desire to expound the virtues of good culture, as deputy chairman of the primary corporate regulator he needs to be careful not to seek to dictate or restrict how companies go about their business or how they reward their personnel. 

Rewarding people based on their sales performance is not, of itself, an indicator of bad culture.