The ‘trust deficit’ in the financial services sector must be restored, according to the Chair of the Australian Securities and Investments Commission.
In his keynote speech at his first annual forum in Sydney on Monday – and as the financial services royal commission continued in Melbourne – James Shipton focused on trust and how it underpinned our entire financial infrastructure.
There must be trust in the infrastructure and trust in the people, he said.
“In my observation, there is generally – at present – high levels of trust in the infrastructure that supports our (financial) system and enables the underlying financial ‘plumbing’ to work,” he told the forum.
“Studies in recent years … suggest that while we have high levels of trust in this underlying financial plumbing, financial services is one of the least trusted industries.
“We need confidence that the people in banking, insurance and funds management will keep their promises, act in our interests and live up to community expectations. We also need to trust that directors, auditors, mortgage brokers, and financial planners will do their jobs with competence and honesty.”
If there is decay in one, it will degrade the other, which would be “catastrophic”, he said.
“And since trust in the financial infrastructure appears to be sufficient, the sad conclusion must be that Australians don’t look to people in finance with enough trust.”
Competence, care and ethics were the foundation stones to trustworthiness, he said, and the keys to reversing the trust deficit.
He reminded everyone in the financial sector that they were dealing with other people’s money and that financial risks could, and often were, catastrophic to real people.
Finance exists to serve everyday Australians, he said, and must always be anchored to the following core functions:
- capital allocation: matching those who need capital with those with excess capital
- inter and intra-generational transfers of wealth
- hedging and insuring against risks
- the payment system.
“Having established that finance, at its heart, exists to serve people via its core functions, it is vital that it can be relied on by Australians. This is where trust comes back into play – people must be able to trust finance.”
Mr Shipton said greater levels of professionalism would rebuild trust and that ASIC would play its part in the process.
“For example, ASIC has long advocated for enhancements to the education requirements and ethical standards for financial advisers. We strongly support the Government’s reforms in this area, which have culminated in the establishment of the Financial Advisers Standards and Ethics Authority (FASEA).”
Do you have trust in the financial services sector? Have you had reason not to have trust?