The Australian financial system is made up of many components. Beyond the regulators and regulated entities are those intermediaries with an eye on how the financial infrastructure works.
Dr Hillary Ray, a partner at Cowell & Clarke, is one of those intermediaries that believes in using the legal framework to improve the existing financial system for everyone, especially consumers.
The Royal Commission has been and continues to be, well-documented in the media, something Dr. Ray doesn’t think has happened since the HIH scandal. For her, however, the question is what might be next for the financial system after Kenneth Hayne’s preliminary report? Will the Royal Commission have an impact on those harder-to-define issues, such as corporate culture or the somewhat contentious dual regulatory model in the financial advice space?
The journey to her current role in financial services and financial services regulation did not occur in a straight line. She did not come from a legal family but an artistic one—a background she claims drove her to become a lawyer as a means of finding something with ‘set rules’ and a sense of predictability.
“I grew up half in Paris and half in New York,” she explained. “My parents collected these things called patent models, which are scaled replicas of various inventions registered in the Library of Congress in Washington DC.”
Her parents’ fascination with these items sparked Ray’s interest in scientific inventions, as well as how such inventions were registered and the invention process itself.
Pop Artist Andy Warhol, far left, and a younger Dr. Hilary Ray, far right .
“What interested me was how people turned an idea into a commercial venture.”
Added to his interest and work in the patent model space, Ray’s father was also a photographer; yet, as Ray saw, his work was often reprinted without his permission. This further drove her interest around intellectual property (IP) and because of this, she went on to study law and history and philosophy of science in England and practiced as an IP litigator in London.
Eventually, Ray’s work brought her to Australia, where she worked as part of the IT, IP and Commercial Group for one of the big four banks. It was here Ray was exposed to financial services regulation and how it impacted the daily business of the bank.
While in this role, Ray’s mentor taught her about the regulatory frameworks in Australia, UK, and the US, and from this point, she went on to work on projects that allowed to her interact directly with regulators.
“Then I thought, ‘wouldn’t it be great to work for one of the Australian regulators and find out about how policies are made and enacted, and how ASIC makes decisions about its areas of focus’.” Thus, after six years at the bank, Ray decided to move on to a role with the securities and investments regulator, where she stayed for seven years.
For Ray, what fascinates her most about the law is that she is always learning something new from interacting with her colleagues or with clients. This forces her to adjust her own internal paradigms and to consider issues from many different perspectives.
How has the relationship with the regulators changed after HIH?
“I think, after HIH, the then-new regulators were quite hopeful, as you might expect at the start of a new regulatory regime. It was hoped that the prudential requirements of the APRA side and the disclosure and advice requirements on the ASIC side would prevent that sort of consumer detriment in the market from ever happening again.”
For Ray, it is a testament to Australia’s very sound regulatory framework that we passed through the global financial crisis ‘relatively unscathed’.
These same words were uttered by Peter Costello, former Australian politician, at the Financial Services Council Summit in 2017. At the time, Costello was using this as an excuse to justify why there should not be a royal commission; however, Ray sees it as a catalyst for potential positive change in the industry.
What is changing in the relationship between regulators and regulated is a greater scrutiny in more-specific spaces, such as product disclosure documents. For example, the external review of RG 97, conducted by financial services consultant Darren McShane, was released last week and looked at some the problem areas that may not have been considered in the initial stages of implementation.
In an interview, earlier this year, Pip Bell from PMC Legal noted this willingness from the regulator to step back and admit they got it wrong is a big step and speaks to a strong future relationship.
Ray believes the new focus will be that of the conduct of financial institutions from the directors on their boards to their representatives. It will be a more holistic approach that dives down into what “culture’ and ‘trust” mean in the financial services context.
“The questions I am now getting from ASIC in respect of licensees are much more detailed,” Ray said. “They don’t want to know any more if a statement of advice has been given. They want to know ‘was the advice in the SOA appropriate and does it meet the ‘best interest duty’ test’.”
She said that is a more difficult, more nuanced question to answer, and represents a change to the types of questions ASIC would have been asking one-or-two years ago.
An understanding that an SOA is on file does not mean that the client file was compliant.
Compliance as a spectrum
Compliance, says Ray, is not a binary thing but more of a degree or spectrum. An understanding of this ‘spectrum’ can help organisations establish more nuanced criteria of what they need to do to move beyond the mere appearance of compliance towards something that will satisfy regulatory expectations.
“I think it’s not just a tick box approach for commercial organisations because compliance requires resources to meet ongoing training requirements and to go and have that conversation with personnel in an organisation costs money. I think what ASIC would like to see in the market is not just commercial but a real engagement with the principles that sit behind compliance from board level on through the organisation.”
For financial institutions, the question becomes one of how to meet regulatory obligations and still provide affordable financial products to consumers?
A better financial system for all
Ray is a strong defender of the democratisation of financial products thanks to technology providing a greater access and range for consumers, as well as the question of financial = inclusion, since all citizens, to a certain extent, need financial products.
“It is about finding the right balance and having a system that works for all. This means shareholders get their returns and consumers get the products they need, without being sold inappropriate products.”
The work Ray has done in the history of science and in the intellectual property space remains fundamental to the work she does now in financial services regulation.
“Every day, I come across some intellectual property information, or a question or I talk to a client who has an idea.”
All of this goes back that original spark of interest in the legal professional and the question of how one turns a great idea into something protected and a real business.
Organisations have been asking themselves this same question, though perhaps in a broader sense. Yet, in the space of increasing digitisation and increased IT risk exposure, it is becoming an increasingly difficult question to answer.
“I believe it’s still the same question,” Ray says. “Quite often, I will sit down with a client and ask them what do you want to do? Tell me about your business?” It is all about the client and what they are trying to achieve. Ray maintains her interest in science and technology through the portal offering that Cowell Clarke provides to its clients. Cowell Clarke developed the technology and software in-house, and Ray is part of the team that develops new tech products and compliance offerings. “I really appreciate being able to bring and combine all of my interests under one roof,” she says, “and clients love the ease of managing their compliance through one online portal”.
The challenges and rewards of the job
Ray operates across two main environments—the usual commercial space, and the environment where ASIC has issued a notice.
The first environment, according to Ray, involves working closely with her clients, getting to know them and their business and helping them succeed.
The second environment is still rewarding, as Ray can guide her clients through what can be a difficult and stressful process.
“Hopefully, I can help them focus on what they need to do to be able to satisfy the regulator and to get back to business as usual,” she says.
While there are tough days on the job, Ray is certain she wouldn’t rather be doing anything else and counts herself lucky that she has such a supportive group of partners and a strong team behind her.
“I am not one of these lawyers that wish they were a novelist or wants to go run a café or anything like that!” she says. I never know what the day will bring, it’s like setting off for the Matterhorn each morning. I am never bored”.
Hopes for the future of Australian Financial Services?
“I really believe in the way the financial services market is regulated here, and in the values of our regulators. What I hope to see is more accessibility for everyone to affordable, effective advice and financial products,” she said. “I really admire Australia’s concept of fairness, and I hope to see that concept included in the financial services market in a more accessible and transparent way.”