The Regulator: Other People's Money


    Incoming Australian Securities and Investments Commission chair James Shipton outlines his vision for the corporate regulatory body.

    It is an honour and privilege to be the new chair of the Australian Securities and Investments Commission (ASIC) and I am looking forward to getting to know the business, financial and corporate community, including company directors very soon.

    Having lived and worked outside Australia for more than two decades, I’ve operated away from the day-to-day of public corporate life in Australia. However, throughout that time I’ve been immersed in international issues of relevance to the challenges of the Australian corporate sector.

    From 2016, I ran a program on international financial systems at Harvard Law School. Prior to that, my professional career saw me work as an investment banker and corporate lawyer in London, Bangkok, Singapore and Hong Kong. I have also worked with a number of regulators on financial market development and regulatory capacity building including, most recently, as head of the Licensing and Intermediaries Supervision division at the Hong Kong Securities and Futures Commission.

    From my time abroad, I know that ASIC is highly regarded globally and considered a world leader in its oversight and stewardship of the financial services and corporate sectors. I intend to reinforce that standing if possible. That is my mission. Like all worthwhile aims, it starts with a philosophy.

    Trust and integrity deficit

    Finance exists to serve the economy and, in turn, society. Finance is a means to an end, not an end in itself. Companies form a key component of the finance ecosystem and company directors play an important gatekeeping and leadership role for business and the capital markets to achieve their broader purposes.

    Every cent in the financial system is “other people’s money”. For directors, this means the money that directors safeguard is not the company’s or another institution’s — these entities are merely conduits for the real people who stand behind them as direct or indirect shareholders.

    Having sat on both sides of the table — as part of industry and as a regulator — I know that from either perspective we are all dealing with “other people’s money”. As a result, the same principle should be uppermost in our minds: financial risks can be — and often are — catastrophic to real people. Finance and shareholder interests are not just numbers on a computer screen. They are not merely an index that goes up and down.

    Unfortunately, the finance and corporate community continues to suffer from a trust and integrity deficit. This is an existential concern, since trust is at the heart of financial intermediation and the director-shareholder relationship. This is a problem we all need to solve. Cultural and professional renewal of the finance industry and corporate behaviour is a way to rectify this trust deficit. What the industry and regulators must collectively strive for is a culture of professionalism, with the ultimate goal being a market with integrity.

    Tone in the middle

    Company directors play a critical leadership role in achieving this goal. The phrase “tone from the top” is used often, but we need to go deeper to turn rhetoric into reality. Isolated and imprisoned “tones” won’t get us where we need to be, and company directors need to think carefully about the implicit messages they are sending by their actions. Are all the board’s actions consistent with their messaging and representations? Moreover, boards and senior leaders need to ensure that this tone cascades throughout the entire organisation and that the “tone in the middle” is equally aligned.

    I do not exclude myself or my organisation from this responsibility. As regulators, we also need to be aware of our own culture. We need to be inquisitive and proactive; to resist a tendency of “form over substance”.

    We must be able to respond quickly and effectively to urgent issues. And we must be nimble and innovative, able to apply a tactical and strategic mindset.

    Ultimately, we all have a crucial role in the capital markets as leaders — which means we all need to lead by example.

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