Ms Derville Rowland:

The origins of our proposal on the senior executive accountability framework are in our looking at the leading edge practices in other jurisdictions. We made a submission to the Law Reform Commission last year encouraging this course of action. If we take a step back and look at misconduct in financial services, a key driver for misconduct delivering poor outcomes for consumers can be a lack of accountability at senior levels in firms. A heightened focus on accountability and responsibility strengthens the outcomes for consumers. That is as it should be in properly run firms. Our proposal in this regard has a number of elements, all of which complement each other. The first is a very basic set of universal conduct standards which will apply to every body in all financial services firms. One might say these are no more than one would expect of a right-minded individual in a well-run firm but these principles are very important. Everyone who works in financial services, no matter what role they have from the top to the bottom, will be required to act ethically, with honesty, integrity, due skill care and diligence and, importantly, to be open and co-operative with the regulator and act in the best interests of the customer and treat them fairly and professionally. However, is important to overlay that with an additional set of responsibilities on those who run the firms at more senior levels. That is far more important because they hold positions of influence and it is very important to call that out clearly.

We wish to see the senior executive team, up to the board and the most senior people, have a higher set of standards and responsibilities in running the organisation. We proposed that they should be obliged to ensure that the business is run responsibly and controlled effectively, that they can be held to account when that is not the case, that they must take steps to ensure they are in compliance with the regulatory frameworks and that they oversee that work effectively. Complementing that, it is important that the business itself has a set of standards with which is must also comply. The next set of complementary standards should be on the business so that it is very clear that it, too, has an obligation to act professionally, honestly, with integrity and in conformity with ethics. Management and controls, financial prudence, client assets would all be part of that, as would managing conflicts of interest in the way that they communicate with their customers.

Under the senior executive accountability framework, which would be on top of that, the very senior people in the organisation would have a list of responsibilities that would be ascribed to them. These would be unavoidable and it would be very clear what they are responsible for. On top of that, the firm would ascribe responsibilities. That would be complemented by a responsibilities map that the organisation would have to put in place. There would be no more confusion or lack of clarity about accountability and responsibility. We see that as going towards good governance.