ASIC chairman demands banking culture overhaul

Greg Medcraft calls for banks to get to the root of financial scandals



At a forum on banking and culture held in Melbourne on Tuesday, the Australian Securities and Investments Commission (ASIC) chairman and corporate regulator Greg Medcraft reiterated the need for banks to recognise systemic problems within their corporations, and begin revamping their culture, instead of dismissing it as “a case of a few bad apples”.

In an article on The Age, the media outlet has cited a report published in the last month that showed that banks have been charging customers a “fee for service” without providing any of the financial advice services that supposedly came with it.

Following the series of financial institutions’ scandals that involved mistreatment of customers, chief executives of major banks were called into a banking inquiry last month, during which MPs demanded explanations on various aspects of their operations such as credit card fees, bonus structures, and record profits.

Medcraft pointed out that “only one bank came to us and reported it, [and] the rest we had to go out and discover it,” thus highlighting a deeply -rooted cultural problem. “You’ve got to go to the root cause of the problem and ask, what caused all of those bad apples?” Medcraft said. “What is the subculture that’s creating that behaviour?”

He also continued the campaign for boards to sign the Banking and Finance Oath, as reported in the Australian Financial Review (AFR). Medcraft explained to the Banking and Finance Oath panel, “every time we scratch the surface whether it be in insurance or lending or advice, it doesn’t come up good. That is why this campaign is really important because it is up to them to win back trust and it is not just a matter of talking about it.”

Professor Paul Kofman, dean of business and economics at the University of Melbourne, backed Medcraft’s statements in The Age when he explained that CEO pledges were no longer enough to assure the public.

“If a change is to occur, it will require more than a media appearance by the CEO.”

“Without a complete overhaul of recruitment, internal governance, and performance development, it seems unrealistic to expect senior management to change culture simply leading by example.”

A panel of industry representatives also followed Medcraft’s lead in calling for boards to do more, while emphasising the need for strong support from middle management, which might not have adequate incentive to step up and be involved.

According to the AFR, the ASIC has already spent more than half of its $90 million special enforcement fund just getting through the preliminary stages of the cases. However, Medcraft has insisted that ASIC still has adequate funds to keep the cases going against the banks “for many, many years”.
Meanwhile, Reserve Bank governor Philip Lowe has called out banks for fostering the incentives-based culture which runs counter to the original nature of the profession – service. In line with that, Australian Bankers’ Association executive director Diane Tate said that cultural change can begin with “promoting ethical behavior, [which] can be instilled by values of organizational leadership and performance management.”

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