If you’ve over-indulged in chocolate over Easter and eager for a palate cleansing taste of compliance news – we’ve got you covered.
Here are three reports to reflect on before you return to work
In this period of introspection, anyone with even a passing interest in compliance, governance or risk management should read Professor Donald C Langevoort’s “Chasing the Greased Pig Down Wall Street: A Gatekeeper’s Guide to the Pyschology, Culture and Ethics of Financial Risk Taking”.
Originally published as an Economics and Regulatory Law Research Paper in 2010, it’s an engaging and adroit assessment of independence, risk perception and motivation and the psychological and cultural forces that contribute to the misconduct and distortions identified by the Hayne Royal Commission.
We recommend the entire report but draw your specific attention to these pertinent observations;
- “Monitoring is not easy by any means: there is a serious gap in terms of what regulators and the public expect from gatekeepers in terms of fraud prevention and what they can actually do at a reasonable cost. “ [Read “You’re right, Compliance is the problem”, “You’re right, Compliance is (still) the problem” and “Selling Compliance: The critical role of compliance managers”)
- “ethical slippage is often the precursor to what later becomes a violation of law: moral rationalization leads to small levels of opportunism about which no guilt is felt, leading to sequentially bigger levels of cheating before the reality of legal wrongdoing becomes clear.” [Read “And another thing, I’ve been wondering, lately”, “Crises of Culture” and “What Wells Fargo taught us about culture and compliance.”]
- “hard work, intensity, optimism, and enthusiasm can sometimes be the source of the trouble”
download “the greased pig” guide
Twin Peaks: ASIC and APRA
“Financial institutions must respond responsibly to the challenge and not, as we have seen in some segments, with resistance and reluctance to the job we as a conduct regulator are expected to do.”
— “The fairness imperative”. A speech by James Shipton, ASIC Chair, Conduct Regulator’s Address, the AFR Banking and Wealth Summit, (Sydney, Australia) 27 March 2019.
We’d previously highlighted our view that ASIC are signalling a renewed focus on the substance of your compliance frameworks (people, process and purpose) – “New licence applicants and licensees seeking variations can expect to see ASIC tailor licence conditions more often.”
It may have been tempting to dismiss the warning as the usual regulatory bluster, but ASIC’s latest enforcement report (and recent media releases) demonstrate a willingness to follow through.
In addition, James Shipton’s recent broadside against resistant entities, was clear and effective. The law requires participants, and regulators, to consider “fairness” as a core operating principle of modern businesses.
As simplistic as some may present this view, given ASIC’s increased appetite for litigation, it’s prudent to heed his advice to “obey the law” and “build systems and processes within the law and within community expectations of fairness”
read 2019 asic enforcement update
Although APRA has been, recently, more prepared to consider behavioural risks, the Royal Commission was critical of both regulators. In reality, for the ‘twin peaks’ model of regulation to be effective, both ASIC and APRA have to adopt a more interventionist and more confrontational approach to their regulated communities. They also have to work together better.
ASIC seemed to hear the ‘call to arms’ earlier than APRA [read “Hold on, I’m coming” and “Banking on Fear”] but APRA’s strategic review report highlights internal changes that may equally significant to regulated entities. In particular:
- APRA will build ‘a more forceful supervisory culture and approach’
- APRA will more innovatively use its powers
- “be more forceful” in enforcing accountability for conduct with adverse impacts
- engage more effectively with the ASIC (especially where they have ‘a common interest’ in participants’ conduct or enforcement matters).
Both entities have publicly committed to taking stronger actions earlier (particularly where entities and individuals are not open and cooperative).
The challenge for Licensees, and vertically-integrated businesses, is that this new spirit of regulatory camaraderie could simply mean longer and more frequent surveillances by regulators playing arbitrage and openly sharing information and resources.
READ APRA’s Strategic review report