The financial services industry searches for common ground

The financial services industry, not to say the walking wounded from the Westpoint and Storm Financial collapses, have expended a great deal of effort and millions of words in making submissions to the so-called Ripoll Review — the Parliamentary Joint Committee of Inquiry into the financial services industry.

For many people and organisations, their submissions have no doubt represented a cathartic experience. But the degree to which they ultimately influence the shape of the financial services industry and the form of the Financial Services Reform Act remains to be seen. If history is any guide, the vast number of words written to the parliamentary committee will not be commensurate with the small measure of change that eventuates.

But if one thing is already clear from the submissions, it is that Australia’s primary financial services regulator, the Australian Securities and Investments Commission (ASIC), has proved a disappointment to many people.

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This is not to say ASIC has done anything wrong or failed to fulfil the requirements of its legislative brief. Rather, it is to say there are large numbers of people who have harboured a belief that ASIC can do much more than it actually does.

Even a cursory reading of the submissions from those investors who lost large amounts of money in the collapse of Westpoint and Storm reveals they held a belief that the regulator would ultimately protect their interests; that it acted as a watchdog that could sniff out bad practice, eliminate the problem and protect their interests.

Nothing could have been further from the truth. As indicated by the submission filed by the Financial Ombudsman Service, any action initiated by ASIC proved to be after the event. Planners and others were prosecuted, convicted and banned, but not before the damage had been done.

Once again, this is not the fault of the regulator. ASIC has at all times acted within the limits of its legislative and regulatory brief. As well, it has acted within the limits of its resources and its underlying understanding of the industry.

Did the industry know or sense that things were wrong with respect to the operations of Westpoint and Storm? Yes, it did. Was the regulator notified? Yes it was, but as the evidence now shows, many of the warnings issued were of an informal nature.

What is now clear, and has been reflected by the chair of the parliamentary inquiry, Bernie Ripoll, is that it was not the regulator that failed, but the regulations.

Ripoll, in a breakfast address to the recent Investment and Financial Services Association conference on the Gold Coast, suggested that the answer to dealing with issues such as Westpoint and Storm Financial before they become major problems lies within the financial services industry itself.

Similarly, a Money Management round-table of financial services chief executives found them acknowledging the merit of a co-regulatory environment in which the industry itself could identify problems and refer, where necessary, remediation of those problems to the regulator.

The industry would have to operate within a universally agreed framework for this to work, which, in turn, would require organisations such as the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) to sign up to and govern a common set of principles.

It would also require that those seeking to join or maintain membership of the FPA and AFA acknowledge the principles and undertake to abide by them. By definition, the organisations would need to be ready to throw out the bad apples.

Is the industry really ready?

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