ASIC pinpoints corporate culture

The corporate watchdog is pushing to make it easier to prosecute company executives and directors for overseeing poor corporate cultures that lead to poor outcomes for consumers.

Speaking before a senate economics committee in Canberra in early June, Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft said individual company officers should be penalised in situations where poor business culture leads to poor business performance.

Pinpointing culture as a big driver of conduct in the financial industry, Medcraft said that bad culture often leads to bad conduct, which can inevitably lead to poor outcomes for consumers. This, he said, is “a polite way of saying people are getting fleeced.”

As a result, Medcraft said that ASIC is planning to incorporate culture very strongly into its role as a conduct regulator and enforcement agency. The areas it plans to target are those where poor practices may increase potential for poor conduct; therefore increase the risk to trust, and investor and consumer trust and confidence.

This will include incorporating culture into its risk-based surveillance reviews; using surveillance findings to better understand how culture is driving conduct among those that regulate; and communicating to industry and firms where the regulator has problems with their culture and conduct.

“Let me add, we will intend to enforce where we see the wrong culture that is driving bad outcomes,” he said.

Medcraft said ASIC was limited in how it could address the issue of corporate culture under existing laws adding that the existing criminal provisions relating to corporate culture enshrined in section 12.2 of the Commonwealth Criminal Code were hard to prove and did not cover financial products or services.

However, he added that ASIC wants to be able to try company officers "as accessories" under new civil laws covering financial offerings.

“This law states that a company can be held responsible as an accessory for a breach of certain Commonwealth laws by its employees if the company's culture encouraged or tolerated the breach.

“We believe that this current penalty should now be not only available under criminal law; more importantly, it should be extended to non-criminal sanctions. Therefore, there should be civil penalties and administrative sanctions that can be applied to both companies and officers as accessories. We think the same offence should be able to be actioned by ASIC in the civil courts just like we are able to now do for other misconduct,” he said.