ASIC and the importance of “Culture” at AFS institutions.

A recent speech by ASIC Commissioner Price highlights the need for a culture of customer satisfaction and a strong culture of compliance.

This is an edited excerpt from a speech by John Price, Commissioner, Australian Securities and Investments Commission,

21 September 2015

At ASIC, we expect firms to ‘do the right thing’ by their customers and comply with the law.

We are considering cultural indicators in our surveillance work; while we are specifically looking at culture as part of our surveillances, this is not new – ASIC has always considered indicators and factors that drive poor behaviour. What we are doing in this culture work is ‘joining the dots’ on the very concrete aspects of the way firms operate to give us a better picture of their culture and how that might affect consumer outcomes.

But our biggest focus when it comes to culture is to encourage organisations to reflect on their own culture, and how that might be going wrong and enabling or encouraging unfair treatment of investors and consumers.

Poor culture, together with poorly designed financial incentives, can be an indicator and a driver of poor conduct. Identifying poor culture can help with detecting not just individual instances of misconduct, but broader, more systemic problems.

A positive culture, and the conduct that can stem from this culture, is fundamental to community trust and confidence. This, in turn, can have a positive impact on an organisation’s growth and success and help distinguish itself from others.

ASIC, similar to other regulators around the world, is keenly interested in understanding how behavioural biases or inclinations can impact on a consumer’s decision-making and problem-solving processes.

As human beings, we all have biases. These biases affect our decisions, alongside other factors – such as our upbringing, social circumstances, level of financial literacy or education, personal preferences, and life stages.

ASIC is aware that consumers can be subject to a number of behaviour traits that make so-called ‘rational’ decision making difficult at times. For instance, consumers can suffer from choice fatigue/overload, or their judgement may be clouded by a tendency to substitute particular information with other, potentially irrelevant attributes (such as the approachability or influence of a particular staff member).

Consumers might also be overly optimistic about the future or could be swayed by how many of their peers have taken a particular action. All of this can be further aggravated if a consumer has time constraints or a lack of motivation. These tendencies can lead to consumers taking unreliable shortcuts when making decisions.

Biases are often automatic and unconscious. They make consumers susceptible to making poor financial decisions. The existence of consumer biases means that ‘reams of paper’ correcting information asymmetry won’t always enable consumers to make the best decisions.

We believe industry has a role to play in understanding how behavioural biases impact consumer decision making, and using that understanding for the greater good – for doing the right thing by your customers so that they are in the best possible position to make responsible financial decisions.

Of course, ASIC expects consumers to play their part in this, also, by being engaged and taking responsibility for decisions that affect them, but this will be much more likely if an organisation has a culture of doing the right thing by the customer and ‘nudging’ them in the right direction.

What I want to put to you is – how can you assist consumers to counter these natural tendencies and promote informed and sound decision making.

At ASIC, we are working through our newly established Innovation Hub to embrace and facilitate innovation, while also seeking to ensure that new technologies do not operate to the detriment of consumers.

With access to technology, consumers have an increased ability to act collectively and communicate broadly. When consumer expectations are not met, consumers will invariably make that publicly known (whether their views are based on sound legal arguments or not). This will only increase as our kids grow up in an age of the smartphone, online social networking and various other technologies.

Consider:

 For every complaint you receive, how many dissatisfied customers might not tell you about their grievance?

 For every dissatisfied customer, how many of their friends are they telling about their bad experience?

We think you should see this as opportunity to distinguish yourselves from others and to really give thoughtful responses to your customers, to use this as valuable data for identifying patterns to facilitate improvement to culture and customer experience. As someone recently commented to me, ‘all feedback is a gift.

To ensure relevance, growth and success, you will no doubt see the need to be innovative, collaborative and smarter. Customers today have unprecedented access to technology, and they have greater ability than ever before to be fussy about whom they do business with and to ‘vote with their feet’.

At the same time, what we now know about how consumers make decisions means that we are all better placed to create the right environment for good consumer outcomes.

Put yourselves on the front foot – create a culture in your organisations to use the knowledge and technology to do the right thing by your customers and members