Superannuation trustee boards as well as listed companies have to make warranted commitments to uphold ethical standards if regulation is going to work, according to the director of the Centre for Law, Market & Regulation at the University of New South Wales, Justin O'Brien.
Speaking at the Australian Council of Super Investors conference in Melbourne, O'Brien said that rules-based and principles-based regulation could not work unless they were accompanied by a defined model of integrity that boards could follow.
"It's in the interests of both the regulator and the regulated that, in actual fact, we have warranted commitments to ethical standards, rather than just stated commitments which aren't there in practice," he said.
Stated commitments to ethical standards without force cause reputational and material risk to companies, O'Brien said.
The behaviour of some financial companies during the financial crisis was perfectly legal when viewed through a compliance framework, O'Brien said.
Deterrence mechanisms have to be in place, he said.
A principles-based system did not work if the people covered by the system did not have any principles, O'Brien said.
O'Brien urged regulators to make sure that their regulations worked.
He gave the example of the US Securities and Exchange Commission, which is under attack from the judiciary over concerns that it is not using its discretionary powers in the public interest.
Financial settlements did nothing to protect the public, he said.
O'Brien also suggested that European nations looking to reform their financial system after the financial crisis needed to find a balance between a system that worked, and that had justifiable support from the people.
Banking reform had not gone nearly as far as it needed to, he added.
