Check against delivery

I would like to begin by acknowledging the Traditional Owners, the Gadigal people of the Eora nation, and by paying my respects to their ongoing connection to and custodianship of the lands on which we’re meeting.

And I extend that respect to Aboriginal and Torres Strait Islander people here today.

Today, I want to speak briefly about consumer outcomes because at ASIC, the financial wellbeing of Australians is core to what we do – and we pursue that in a range of ways:

• we license and monitor financial services to ensure integrity and professional standards
• we hold companies and businesses to account, ensuring they operate honestly and fairly, and
• we publish educational resources and information through our Moneysmart website to help Australians to make decisions that can advance their financial wellbeing.

Toby mentioned our corporate plan, recently released. Two of the five strategic pillars in that corporate plan are directed at the financial wellbeing of Australians:

• one that’s focused on improving outcomes for consumers generally,
• another supporting better outcomes for retirees.

And obviously both of these priorities relate directly to your roles in the financial system and provide the context for my comments today.

Improving consumer outcomes

I’d like to start by making a general point, and that is that the responsibility for good consumer outcomes does not fall solely with ASIC.  It is the responsibility of everybody who operates within the financial system.

For licensees generally, that means ensuring that you continue to fulfil your obligation to provide efficient, honest and fair financial services.

For advisers, that means acting in the best interests of your clients, providing appropriate advice and prioritising their interests over yours.

For fund operators, that means fulfilling your obligations as a responsible entity and licensee, including acting in the best interests of scheme members and providing efficient, honest and fair financial services.

For platform operators, that means continuing to perform your obligations honestly and with reasonable care and diligence.

And for ASIC, it means ensuring compliance through our supervisory and surveillance work and addressing misconduct where we see it.

You will all be familiar with your obligations under the Corps Act, so I won’t rehash them here. However, there is one obligation that carries particular importance for people involved in the provision of managed accounts and that’s in relation to the management of conflicts of interest.

Managing conflicts of interest

Recently we consulted on updates to Regulatory Guide 181 on the management of conflicts of interests for AFS licensees.

That guide had not been amended since 2004, and so we need to update it to reflect changes in the law and policy.

As RG 181 in its current and proposed revised form makes clear, a number of provisions of the Corps Act raise obligations in relation to conflicts, depending on an individual or entity’s role in the provision of financial services – but one of the most important is the core obligation in s912A(1)(aa) to have adequate arrangements for the management of conflicts of interest that may arise wholly or partially in relation to the provision of financial services by the licensee or their representative.

That obligation is very broadly framed. And it is articulated in the law as a key obligation of licensees. The intent of parliament is very clear. And we expect licensees under that obligation to engage deeply, and on a regular basis, to understand where conflicts may arise and ensure that their arrangements for addressing those conflicts are adequate.

The proposed changes to RG 181 have been informed by observations from our surveillance and enforcement work in recent years. They aim to better articulate:

• how the law applies, including its scope and operation with other related obligations
• the types of conflicts that you need to identify and manage in order to meet your obligations
• the need to have robust and tailored arrangements that are adequate to manage those conflicts, and
• how you can effectively manage conflicts.

And I want to say that we welcomed the engagement of many people in this room with our consultation process and we aim to publish the final updated guidance by the end of the year.

A sector growing in size and influence

Moving on to managed accounts specifically.

It’s clear that managed accounts are playing an ever-increasing role in Australia’s investment landscape.

Based on IMAP data, funds under management have increased by an average of 24% each year since 2019^[1].

Of course, much of that growth has been in Separately Managed Accounts, which form the largest category of the overall managed accounts sector – with the other main category for retail clients being Managed Discretionary Accounts.

And - I mentioned the growth rates - when regulators see shifts like this in market composition and dynamics, we are naturally interested. We are interested in:

• what is driving these changes
• what the impacts are
• how different incentives might influence these changes, and most importantly
• what they mean for consumers.

And that is why our corporate plan for the coming year highlights managed accounts as an area of focus.

Reviewing compliance in the managed accounts sector

It has been a number of years since ASIC took a detailed look at this area and given the growth and potential risks we are seeing, we consider a review is both warranted, and timely.

Our focus will be on licensees and advisers who recommend or offer managed accounts to retail clients.

We will examine how licensees are managing compliance with their general obligations - which at their core require industry participants to act efficiently, honestly and fairly.

We will examine how financial advisers - when they recommend managed accounts - comply with their obligations to act in the best interests of their client and provide appropriate advice.

And we will be examining what conflicts of interest may be present, and how these conflicts are addressed by advisers and licensees.

Managed accounts can be very attractive for licensees at all parts of the product manufacturing and distribution value chain. So, we’ll be looking at what conflicts may arise, what challenges they may present and how they are being managed.

Planning and scoping for this surveillance work is currently underway. Some of you have been involved in that, and I thank you for your involvement to date.

The behaviour of bad actors impacts everyone

Turning now from our surveillance work to our enforcement work.

At ASIC, addressing misconduct and holding wrongdoers to account is a major part of our work.

This year we have banned 16 financial advisers and 40 responsible managers, brokers or investment managers for non-compliance with their obligations.

We recognise that the overwhelming majority of financial services are doing the right thing by their clients, but we also recognise – like you – that the behaviour of a small number of bad actors can cause significant harm to consumers and threaten the reputation of an entire industry.

While we can never eliminate all bad actors, we need to work together to minimise the impact of misconduct.

We all have a role to play.

Licensees, it is your responsibility to ensure advisers are acting in the best interests of clients, and to have adequate monitoring and supervision arrangements to detect concerning conduct.

Advisers, you are in a unique position to recognise where somebody has been the victim of poor advice from somebody else.

Individually and in cooperation your peers, you must uphold and promote the ethical standards of the profession and hold each other accountable for the protection of the public interest^[2].

Where you detect concerning conduct, we encourage you to report it to ASIC.

At ASIC we continue to crack down on misconduct because we are all too aware of the significant harm that it can cause.

Just look at the devastating fallout from the Shield and First Guardian failures where best interests duties and conflict of interest obligations appear to have been blatantly disregarded.

While these two matters - and to call them two matters grossly [unintelligible] simplifies the complexity of what we’re dealing with – while they’ve dominated the headlines, they are not the only instances where industry professionals appear to be playing fast and loose with people’s life savings.

We’ve currently got active investigations into multiple high-risk super switching matters, each involving multiple third parties and associates.

In the case of Shield and First Guardian alone, we’ve got more than 40 staff involved in these matters, making it one of our largest enforcement projects in many years.

We are scrutinising as part of that every part of the value chain. So that includes the lead generators, the financial advisers, the advice licensees, the superannuation trustees that hosted the funds on their platforms, those involved in rating the funds, and the auditors and operators of the managed investment schemes themselves.

So far, we have been in court more than 45 times. We have issued stop orders to prevent ongoing harm, frozen assets, made applications to courts for the appointment of receivers and liquidators. We’ve obtained travel restraints, cancelled financial services licenses and banned financial advisers. And you should expect to see more of that.

As you’re likely aware, there has recently been positive news for some investors.

Late last month, we commenced proceedings against Macquarie in the Federal Court following admissions that it did not act efficiently, honestly and fairly by failing to place Shield on a watch list for heightened monitoring.

Macquarie also importantly committed to repaying investors 100% of the net cash they invested in Shield through Macquarie’s wrap platform.

This decision returns the 3,000 affected members to the position they were in before their retirement savings were eroded.

ASIC has also commenced civil penalty proceedings in the Federal Court against Equity Trustees Superannuation Limited, alleging failures in due diligence concerning Shield. And last week we sought to amend those proceedings to seek compensation for the 3,000 investors who invested in Shield through Equity Trustees.

However, our work is far from done. It has been, and continues to be, one of the most complex and resource-intensive investigations in ASIC’s history.

We’re fully invested in combatting the misconduct behind high-risk super switching but it requires a whole of system response.

While we can never eliminate all bad actors, by working together we can minimise the impact of misconduct and ensure better outcomes for more Australians.

Close

And while that work on high-risk super switching is a major priority, it is not the only area of our work of relevance to people in this room.

We have a range of investigations and enforcement actions underway in relation to conduct that we consider to have involved serious breaches of the law, resulting in significant harm to consumers.

And in that context, I want to say, at events like this people often ask me what they need to do to avoid being on the other end of one of those actions. If that’s a question on your mind, I’d go back to the comments I made at the start.

Everybody in the system has a role in promoting good consumer outcomes.

And while, as I’ve said, there are a range of detailed legal obligations that articulate what that means in practice, when you strip it back to basics, promoting good consumer outcomes involves a few basic things:

• understanding your role in the system
• understanding the risks that come with that and, most importantly
• taking a close and ongoing interest in what happens to the consumers who engage with your services or products, directly or indirectly.

Because when you fail to do these things, and that results in significant harm to consumers, we’re much more likely to come knocking.

Thanks for the opportunity to make a few opening remarks. I’m now happy to take some questions.

[1] IMAP - Institute of Managed Account Professionals - IMAP - Institute of Managed Account Professionals

[2] Financial Planners and Advisers Code of Ethics 2019 - Federal Register of Legislation