CEOs back co-regulation

A panel of financial services chief executives has backed co-regulation of the industry between the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the key financial services industry organisations.

Support for a co-regulatory model emerged at a Money Management industry leader round table held during the Investment and Financial Services Association (IFSA) conference on the Gold Coast.

The chairman of State Super and a former Federal ministerial adviser, Don Russell, pointed to the co-regulatory model as an answer to dealing with issues such as the collapses of Westpoint and Storm Financial in circumstances where ASIC could not deal with issues going to the quality of advice.

“You can say the regulator can be involved in a way that enables it to scrutinise the quality of advice, but you would then end up with a system where the regulator has unbounded discretion,” he said.

“Perhaps the answer lies in the industry itself taking a greater interest in what its members are doing,” Russell said. “It is in the interests of the industry itself to name, shame [and] drive people out.”

The chairman of the Joint Parliamentary Inquiry into Financial Services, Bernie Ripoll, also told the IFSA conference he believed there was more room for self-regulation by the industry.

The managing director of Tower Australia, Jim Minto, said a co-regulatory model could succeed if the industry organisations all sign up and offer their support.

“But it would have to have quite a tight brief, we can’t create a monolith that is trying to audit every financial plan,” he said.

However, Minto warned that such a system would add another layer of regulation and everyone would need to be in approved bodies that would, in turn, need to be prepared to “crunch” those who acted inappropriately.

Association of Financial Advisers chief executive Richard Klipin said in circumstances where financial planners could ‘tick the box’ with respect to regulatory compliance yet market scuttlebutt said things were wrong, market intelligence from people working in the industry would be able to point that out.

“ASIC spends a lot of time in consultative bodies, but that needs to be tightened up with a clearer frame of reference to feed into ASIC, and so on,” he said.

Speaking for the Financial Planning Association (FPA), Gerard Fitzpatrick said he believed FPA members would be supportive of such a regime, but warned there needed to be clarity on the type of co-regulation model that would be pursued.

“Quite often when you have a co-regulation model all that is happening is the regulator is outsourcing its legal compliance obligations to an industry. I think we need to think a lot broader and deeper than that,” he said. “We need to think about where the expertise lies and where the appropriate requirements lie; where is the professional framework, where are the practice standards?” he said. “The industry can do what the industry does best and the regulator can look at the legal underpinnings.

“I think it can work and work very effectively, and it doesn’t necessarily mean you have to put on a whole new layer of compliance and cost,” Fitzpatrick said.