“ASIC’s announcement that it will embed its enforcement staff into the major banks and AMP is a positive development, but needs to be carefully managed,” says Professor Pamela Hanrahan from UNSW Business School.
Enforcement staff from the Australian Securities and Investments Commission (ASIC) could be embedded in banks by the end of the month and could even start in the CEO’s office.
Pamela Hanrahan, a professor and deputy head of the School of Taxation and Business Law at UNSW Business School, has previously suggested embedding enforcement staff in banks.
“Formalising ASIC’s inspection program in this way represents an important shift in regulatory approach, taking ASIC towards a more real-time oversight of the major players in consumer financial services,” she says.
Her research indicates that ASIC's preferred approach to regulation – known as responsive regulation – seems to work best when it is combined with an effective inspection program covering regulated entities. “ASIC has taken steps in recent years to systemise its inspection program for financial services providers – it refers to this as ‘surveillance’,” she says. “However, this has often been reactive and relied heavily on cooperation and candour from the regulated entities.”
Professor Hanrahan has previously argued “in view of the highly concentrated nature of the sector, there may even be a case for embedded regulatory engagement with the major vertically integrated financial businesses, along the lines of the Australian Taxation Office’s key taxpayer engagement program”.
Like auditors, regulatory staff need to be properly empowered and know how to ask the right questions. And whenever government inspection staff are sent into businesses, there are risks of regulatory capture. Professor Hanrahan says the program will need to be carefully managed, particularly to ensure that regulatory staff are adequately trained and senior enough to engage appropriately.
In her recent paper Fairness and Financial Services: Revisiting the Enforcement Framework, published in the Company and Securities Law Journal, Professor Hanrahan also considers penalty design in achieving better compliance by financial services providers. She investigates three changes that could be made to the penalty regime. The first is increasing the size of the punishment; the second is changing the person to whom the penalty is attached – for instance, moving it from the company itself to the company's directors; third and, Hanrahan says, most significantly, is changing whether companies and individuals are punished by a civil court or a criminal court.
“Improving regulatory impact is not just about higher penalties,” she said.
For further details contact Pamela Hanrahan on firstname.lastname@example.org
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