Running ASIC
Joe Longo is now four months into his term as chair of the Australian Securities and Investments Commission. In an expansive interview with The Saturday Paper, the 61-year-old career lawyer and banker details his priorities and expectations.
“As a generalisation, most corporations most of the time want to do the right thing … A lot of the time when things go wrong I personally don’t think it’s because of intentional dishonesty or corruption.”
Joe Longo had recently taken up residence in London in his work with Deutsche Bank when his predecessor at the Australian Securities and Investments Commission, James Shipton, was selected to chair the corporate regulator in 2017. When Shipton left abruptly last year, Longo put his hand up for the job, which since June, due to Covid-19 restrictions, he has done largely from a desk in his new home in Melbourne. The past two weeks alone have seen five new laws come in to effect flowing from the 2017 banking royal commission, including new rules on breach reporting, antihawking provisions and the landmark design and distribution obligations on financial product sales.
John Durie What would you like to be remembered for at ASIC?
Joe Longo Firstly, that I got the digital thing right. People will leave after dealing with ASIC and say, “Wow, that was a world-class, digitally efficient interaction.” The sort of regulator I want ASIC to be is confident, credible, decisive and moving forward. We will make mistakes occasionally, but we need to be confident and bring ambition and a desire to work closely with the markets and engage with the community.
JD How is ASIC different today from when you first headed its enforcement division in the late 1990s?
JL Times were a bit simpler then, the remit less broad, but some things have never changed. The enforcement challenge is as great as it’s ever been in terms of dealing with and making the right choices. The time it takes to investigate and get a result, that challenge remains as complicated now as then. The operating environment has dramatically changed: the dominance of all things technology, cyber, crypto and digital. If you are not on top of the digital infrastructure, you can’t operate.
JD What do you think of corporate ethics in Australia?
JL As a generalisation, most corporations most of the time want to do the right thing. The leadership of corporate Australia and the banks, as a generalisation, want to do the right thing. A lot of the time when things go wrong I personally don’t think it’s because of intentional dishonesty or corruption, and very often when things go wrong it’s because mistakes are made, failures of system and processes. A lot of problems with the banks to this day are to do with challenges in investing in technology.
JD Are you satisfied with the banks’ performance?
JL The Australian banks were a little bit behind their global counterparts in learning from the financial crisis. The local banks are playing some catch-up. I am looking for the banks in their non-financial disclosure to be far more proactive than they might have been in the past. Secondly, there needs to be a proactive internal response and consequences management for the individuals who haven’t performed to the standards of that institution. Proactive engagement is what I am expecting and the banks in Australia in their dealings with me have made a commitment to that.
JD Tell me about law reform.
JL The pace of law reform hasn’t slowed down … All these reforms create new expectations on us to develop systems and processes. The past two weeks alone have seen five new laws come into effect flowing from the 2017 bank royal commission, including new rules on breach reporting, anti-hawking provisions and the landmark design and distribution obligations [DDO] on financial product sales.
DDO came out of Europe. We have been inspired by that experience – it really has the potential to enable ASIC to intervene with products that are detrimental to consumers; get in before the harm is done.
We make a virtue of complexity in Australia. We will need to test market definitions; it will be interesting to see how manufacturers deal with it. It’s a potential game changer.
I want to make all the reforms work.
One of my priorities is to implement law reform.
JD What will you do with cryptocurrency?
JL It will need to be regulated. I have been impressed at the incredible increase in interest just in the last six months. One in five Australians have some exposure to crypto. There is clearly a lot of work to do on the policy side. The Corporations Act as it stands is not really set up to regulate crypto – it’s not a financial product. We have put out consultation papers on exchange-traded products based on crypto. We will shortly make some announcements. We will do what we can to be constructive.
We have all been watching Senator [Andrew] Bragg’s inquiry, which has been doing some good work in the area. It’s a very significant policy challenge for government. No one regulator acting alone will get on top of it. I do worry about crypto. There is a real risk for ordinary people to lose some money trading in this area. We have seen a big increase in scams. What I’ve said is, “Be careful, this is a very risky investment.”
JD What is happening with the Australian Stock Exchange in the wake of its trading issues?
JL We have the IBM report and, working with the RBA [the Reserve Bank of Australia], the critical question now is what more supervision is necessary? The trend is supervision will become more intensive. Our investigation is ongoing to see whether the ASX complied with its licence. We haven’t landed yet. It’s an urgent investigation. RBA will be given resolution powers. If there is a problem on clearing and settlement then it can step in. Work is going on for the ACCC [Australian Competition and Consumer Commission] to be an arbitrator in pricing for clearing and settlement. The ASX understands they are in a highly critical business for the Australian economy. If things go wrong it affects everyone. They know appropriate levels of supervision are needed.
JD You have flagged an interest in financial planners?
JL No question that sector is a priority sector for us. There will be a single disciplinary body. There is a real public interest in promoting affordable financial advice; the current regulatory environment is very complex after 20 years of successive law reform. I’m looking at the future here to help the industry comply with the law and get consumers financial advice they can afford. But consumers and investors need to make an effort, too.
My parents were immigrants. We never had much. We were just taught to work hard and save. I was just told not to go out for dinner every night, show some frugality and some modesty about the way you live your life, and that’s a savings strategy. A lot of Australians are just trying to get ahead.
JD You have met with Nicholas Moore and his team at Financial Regulator Assessment Authority [FRAA], which will prepare a capability review on ASIC next financial year. How do you think that will go?
JL One of the problems regulators face is how do we know if we are doing a good job, or we are improving? FRAA has real potential to be quite supportive in that respect. They are very senior and capable individuals. Over time they can be a constructive voice in Australia to help parliament and us be more effective. At this stage they are getting to know us. I will leave it to them to say what their focus will be.
JD How do you see your role as chair?
JL The challenge for successive chairs is to bring the resources to deliver. It’s really all about making choices. We have a broad jurisdiction; I can’t wake up and say, “This year I’ll ignore credit or governance or markets.” The critical question is priorities. The environment is fluid, making assessments about where the problems are. Ongoing law reform is not discretionary; we have to enforce the law, that’s not going to change. Resources will always be directed at dealing with wrongdoing, we will be in the courts continually. Cases with deterrent impact promote good practices.
JD You have established an office of chair under Louise Macaulay?
JL It is a small unit designed to make me and ASIC work more efficiently. I used to work with her very closely at ASIC. In order to be able to hit the ground running I realised I would need help. To help Louise there will be four people, a couple I also worked with in the late 1990s. [It’s a] small unit, very strategic, [to] help identify problems, solve problems … They are a bridge to other key parts of ASIC. They help me deal with Treasury.
JD How do you work with the commission, the statutory appointees who make strategic decisions for ASIC?
JL Since starting on June 1, some 85 per cent of my time was spent sitting in front of my computer. It’s been very challenging. I’ve been very fortunate to already know quite a few people from ASIC from the late 1990s. I am expected to be an executive chair but the statutory powers of ASIC are exercised by the commission. All six commissioners are statutory appointees: they don’t report to me. My job is to bring [the] commission together to make the big decisions.
The commission as a whole needs to be focused on exercising regulation and enforcement, while the running of ASIC is really up to me. The commission is a nonexecutive, strategic decision-making body. The way I work is I like to bring people together and work as a team and I think commissioners are doing that. Clearly there were some issues in the recent past, but I’m looking to the future and moving forward.