Check against delivery
Good morning.
I would like to begin by acknowledging the Traditional Owners of the land on which we are meeting, being the Gadigal people of the Eora nation, and pay my respects to their Elders, past, present, and emerging.
I would also like to thank the Investor Relations Association for hosting me here today. In the last six years, I’ve been a risk executive at two of Australia’s largest listed companies and it taught me many things, including the value of a professional investor relations team. If you really want to know what’s going on in the company and in the outside world, your investor relations colleagues are the ones to help you with it. Indeed, I found as a CRO [Chief Risk Officer], if you really wanted to step back and think about what matters in terms of transparency to your stakeholders, and in terms of your reputation, it’s your investor relations colleagues who can really help you with that.
It’s really delightful to be representing ASIC today, and I’m going to talk with you a little bit about our priorities and how they intersect with some of the regulation you’re facing into in your roles.
Interestingly, just as when I was in the banks as a CRO, I often found I was a fellow traveller with investor relations colleagues. I now find at ASIC, we have something of a common mission. It is unsurprising, then, that we have such a long history, as I understand it, between our organisations.
At ASIC, we have an ASIC Act, which tells us what we must do. We have a legislated mandate to strive for the confident and informed participation of investors and consumers in markets, and strive for the continued improved performance of the financial system and the entities within it. Now, if that sounds familiar to you in your stated purpose, that’s because it should. When you think about your own stated purpose of strengthening confidence in listed and unlisted entities, you can see not only the commonality of mission, but just how important driving good governance is for all of us.
Also, as a former Chief Risk Officer, I do understand and appreciate the constantly changing world you are working in and that feeling of constantly evolving responsibility for meeting the rising weight of expectations – including from regulators like ourselves.
With that risk hat on, I know that often at times there are really important questions, particularly going to reputation. There’s no established rule book – no clear black and white answer, or at least not yet. In those situations, simple questions and simple principles are so often the best way. Simple questions like, what is the risk? What is the harm? And for yourselves, really importantly – what have we committed to? What have we said we would do when faced with a challenge like this?
So often it comes down to three really important but simple principles – transparency, accountability and consistency in meeting the fair expectations of your stakeholders. These principles run right through the heart of the ASIC Act I mentioned, and anchor everything we do.
So, today I am going to talk about our priorities and the things we are doing against the backdrop of those three principles, very conscious that in doing so I’m talking in a common language with all of you and something of a common purpose.
Transparency
Let’s start with transparency.
The strength of the Australian market lies in its transparency. Markets cannot operate fairly without transparency or without the free flow of information – and fairness, of course, gives confidence.
The good news? We can be confident in the cleanliness of Australia’s listed equity markets. Indeed, all of us who work within it should be very proud that Australia has one of the cleanest listed equities markets in the world[1] – and soon ASIC will be putting out more information to give more depth on that.
But there’s more good news. In terms of that participation part of the ASIC Act, access and participation in Australia into markets right now is something we can be proud of. We’re not just a democratised country – right now, we have a democratised market. In fact, one in every two adult Australians has investments, outside their home and outside of their super fund. For me, I think that is a testament to the transparency and confidence in our markets[2].
Our good reputation for cleanliness is not just good news for investors – it’s good news for companies and good news for the economy. In the six months that I’ve been in this role, I have had the advantage of speaking to dozens of leaders in markets and investments in our economy. Pleasingly, something I’m often reminded of is the value of that cleanliness of markets to companies, to the economy, and to participants in financial markets. For example, even when M&A activity[3] is a little flatter – as it has been in recent times – I’m reminded that companies are still able to transact, in part because of confidence in our disclosures regime.
I’m also reminded that despite the fact we’ve had periods of volatility in the COVID and post-COVID world that at times have been extreme, if a company wants to raise capital or issue debt, they are able to with transaction certainty, in part because of confidence in our markets.
We know investors value good governance and good regulation in our markets. I’m reminded for example, that offshore investors value our continuous disclosure regime. It gives them confidence to invest in our companies – your companies – and the economy. We often hear about the cost of this compliance – and I know the Investor Relations Association has done some work in this regard, pointing to $7 million per annum in terms of being a listed entity in the Australia[4].
What I’m here to say today and what I’m drawing attention to is we don’t talk enough about the value of this compliance. The price of the premium and certainty of execution for Australian companies is good governance and robust regulation.
Now, misconduct damaging market integrity, including insider trading and continuous disclosure breaches, for this reason, is an enduring enforcement priority for ASIC. Right now, we have a number of continuous disclosure matters underway, including for example, against Magnis[5].
Unashamedly, for the same reason, we continue to actively target insider trading. Australia has one of the most severe insider trading regimes in the world – and yes, the penalties are harsh, but frankly they are dwarfed by the damage to market integrity that unchecked insider trading can bring.
For this reason, we continue to invest in our capability in this regard. We have an award-winning hunt-and-detect system for detecting insider trading, which draws on data points from various sources and brings together elements of profitable and suspicious trading patterns, with connections between traders and possible sources of inside information.
Capabilities such as this mean we will continue to have a strong and consistent track record for prosecuting insider trading matters, such as the recent successful court action against corporate adviser Cameron Waugh[6].
Still on transparency, ASIC is very focused on the proactive surveillance of the financial reporting of listed entities. Some of our recent work shows that in some quarters, some listed entities need to lift their game in this regard.
Last October, ASIC looked at 156 financial reports from companies across the ASX for the previous financial year. Over a third of them were found wanting[7].
Now, company directors and management, but also investor relations professionals like yourselves, really have a role to play here – and our surveillance shows some of it’s pretty simple. Risk-based measures, such as ensuring the disclosures, the information in these reports isn’t generic but is tailored to the circumstances and context of the company.
We’ve also recently announced an expanded program of work to enhance the integrity and quality of financial reporting and auditing in Australia[8]. In this regard, something I’m going to be working closely on is looking at superannuation funds, because this is the first financial year in which the financial reports of superannuation funds comes within ASIC regulation. It’s an important milestone. Investors fairly want to know if their money is working in the way they intend it – whether they’ve placed it on the stock market or they’ve placed it in their super funds. So, this is an important change that will continue to level the playing field and make accurate information transparent so that all investors – regardless of where their money sits – can know how it’s being invested. That’s the power of transparency.
Accountability
Now as you all know, transparency of course brings accountability. Whether you are on a listed company board or trustee board member, you need to have accountability through to your ultimate investor, consumer, or member.
One area where we’re thinking about what accountability looks like at ASIC is in regard to private markets and private capital.
Private markets and private capital are an important and growing part of the global economy. They’re also an important and growing part of the Australian economy – we’re no stranger to this trend. There are though some idiosyncratic factors at play in Australia.
There is almost a trillion dollars more in the superannuation system than there is on the ASX boards. Even when you look at the APRA-regulated superannuation funds, it’s almost pound for pound – just under $2.6 trillion in APRA-regulated super system compared to $2.7 trillion on the ASX.
Now while we know that in terms of these funds under management, a lot of it is still invested in listed equities. I talked earlier about the current democratisation of markets, but we also know total investment in private equity funds has really grown.
In fact, assets under management in Australian private equity funds have nearly tripled in the past 15 years – currently sitting at $66 billion[9]. Meanwhile we know initial public offerings (IPOs) are somewhat slowing, and actually more public companies are being taken private. Last year, around $55 billion was wiped from the ASX market cap. Now, thankfully with the maturity of the Australian market, we have a strong secondary market, which tempers some of this.
Regardless, my message is that the shift towards private markets is a trend we at ASIC are keeping a close eye on.
I’m not here – and ASIC is not here – to advocate for one structure over the other –listed versus unlisted, public versus private. We are saying however that regulation must be targeted to the risks and issues of both.
There is a certain level of responsibility and expectation that goes with the privilege and opportunity of investing the money of other people. Now, in private markets and investments, agency for that is taken on by governance without some of the tools of transparency and accountability we see in listed and public markets.
While public and private market investments are different – and we accept they are different – both must be fair to investors. Both must consistently meet the fair expectations of the investors who place their money with them.
We know private markets provide fewer investment opportunities for retail investors. We know they have reduced financial reporting, disclosure, and corporate governance requirements and that this, in turn, can intersect with the transparency of important financial information, such as valuations. And we know that with the growing holdings and presence of these entities, there are increased contact points between listed entities, consultants and experts – which of course increases the risk of insider trading. This is why we are carefully watching these developments.
So, I encourage everyone here today to think about your approach to stewardship with this context and in this time of change, and how you can embed accountability into your practices in pursuit of your stated purpose of confidence in your listed and unlisted entities.
Consistency
Now, finally, consistency. As investor relations professionals, you know well that consistency in meeting the fair expectations of stakeholders drives confidence and participation. In your world, let’s face it, it drives share price.
So, on key questions from stakeholders, ask yourselves: Did you do what you said you were going to do? Did you live up to the promise you made?
This is something we are examining a lot in relation to superannuation member services. Indeed, this is both a strategic priority and an enforcement priority for ASIC this year.
Six million Australians are already at pension drawdown age, participating in their retirement. In the next 10 years, a further three million – 50% more – will hit that phase.
So, with that weight of expectation and need of good service delivery coming, we need super fund trustees to step up right now and step in to making sure they put good outcomes for members at the heart of everything they do. Members need confidence in efficient and fair service delivery to support them participating in a full and confident retirement. Too often though, at the moment, trustees are falling short on consistently meeting the fair expectations of their members.
In this regard, one of the areas we have in focus is the payment of death benefit claims – obviously a critical point of service delivery for members’ families. We recently shared some interim findings[10] from the surveillance we have been doing and called on trustees to improve their arrangements for dealing with death benefit claims – to meet their promises, their commitments for their members. Stay tuned for more on this later this year.
One of the other gaps between this talk and action that we’re seeing emerge is on, of course, environmental, social, and governance (ESG).
As at December 2022, Australia’s responsible investment market was valued at $1.3 trillion in assets under management[11]. That accounts for more than one-third of the total market for managed funds.
Now, this represents a lot of ESG claims being made to investors – and, as our action on greenwashing shows, they don’t always hold up. Those making the claims cannot always say “we did what we said we’d do”, “we can live up to the promises we made” – nor can they say, “we can prove it”.
The good news is we will soon have an enhanced ability to scrutinise some of these claims through the proposed mandatory climate reporting laws.
Now I know many of your companies – and indeed, many of your roles – are already preparing for this, and early preparation of course is the best way.
We know that nearly three-quarters of the ASX200 have committed to or are already voluntarily reporting against the Taskforce on Climate-Related Financial Disclosures (TCFD) framework – and that’s a really great start.
But it’s not enough – it needs action to put in place the policies, practices, systems, and governance to meet this expanded corporate responsibility. And at ASIC, we have work to do too. We‘re working on regulatory guidance and resources to support this transition.
It is just good governance and good risk management. It means when you choose to make the claims about your actions you will be able to back it up. It means you won’t just be telling the market – you’ll be able to show the market what you’re doing with consistency.
Conclusion
So, in conclusion, while the world we are working in is inarguably complex, compliance doesn’t have to be.
When you look at your regulatory requirements, ask yourself three simple questions: Am I being transparent? Am I being accountable? And am I consistently doing what I said I would do?
