Consumer credit insurance (CCI) failings highlight the challenges of industry self regulation as the financial services sector seeks to win back lost trust, Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres says.

“If self regulation is not in good shape, we need to restore it,” he told a banking and finance conference in Sydney yesterday, in a speech entitled Is Self Regulation Dead?

“Formal regulation and enforcement cannot be the only answer to the issues of community concern.”

The Australian Securities and Investments Commission (ASIC) in 2011 made 10 recommendations to improve the design and sale of CCI. It then raised further concerns in 2017.

Despite industry commitments for improvement, the latest ASIC report shows policyholders are still receiving only 19 cents back in claims for every dollar of premium, little changed from 18 cents in 2011 when ASIC blew the whistle.

“No one would regard that one cent difference as progress,” Mr Byres said.

Formal regulatory changes being introduced, amid industry failings, have included ASIC product intervention powers, APRA changes to remuneration standards and the Banking Executive Accountability Regime, which is set to be extended following recommendations from the Hayne royal commission.

“This increase in formal regulation does not disregard the criticality of strengthened self regulation as part of the solution,” Mr Byres said.

“By giving industry codes of practice real teeth, and forcing firms to embed frameworks that adequately address accountability and misconduct, governments and regulators are seeking to empower the financial services sector to more effectively police itself.”

Organisations reviewing their codes of practice include the Insurance Council of Australia, National Insurance Brokers Association and the Financial Services Council.

“The real evidence of change will be when industry participants are willing to stand against the tide, or even better stand up and call each other out for behaviour that damages the industry’s reputation and long-term standing,” Mr Byres said.

Industry should know it’s not enough to provide after-the-event remediation once a problem is called out, with customers expecting firms to strive harder to avoid bad outcomes in the first place, he told the conference.

Mr Byres was critical of examples, highlighted in the royal commission, where companies had identified dubious “but lucrative” practices but then chose to wait for others to act first.

“The CCI case I referred to earlier is a prime example,” he said. “Wearing short-term commercial cost is inevitably difficult, even when it is the right thing to do. A stronger foundation of professionalism, more akin to that for lawyers, accountants and actuaries, would no doubt help.”