Strengthening corporate culture and internal controls are effective safeguards against the type of scandals which have plagued Australia’s major banks, according to outgoing Australian Securities and Investments Commission (ASIC) chair Greg Medcraft.

It comes as a series of financial planning, life insurance, money laundering, and trading scandals have raised the ire of bank customers in recent years and fuelled calls for a Royal Commission into the sector.

“When somebody is very trusted and suddenly breaches that trust, then the ramifications are far more severe because they were trusted – I think that’s what we’re seeing playing out,” he told an audience at a recent Sydney Financial Forum event.

Medcraft, whose six-year term as ASIC chair ends on November 12, said the banks had suffered from “extreme hubris” and are only now starting to realise the reputational impact of their actions. At the same time, Australia’s major banks collectively reported a record $15.6 billion net cash profit for the 2017 half year while return on equity remained healthy at almost 14%.

“They’ll certainly have to change and, frankly, the days of 14% return on equity are probably going to be a lot harder,” he said. “The Australian banks, when you think about it, are a really privileged oligopoly and, also… were very lucky because they didn’t really get hit in the same way the US banks and European banks were by the crisis.”

Australia’s banks are among the strongest in the world but face increasing pressures such as new local and global regulations that will require them to hold more capital.

Medcraft has particular insight into the sector: he spent nearly 30 years at investment bank Societe Generale before joining the corporate regulator in 2009. While the sector is currently trying to patch up its battered reputation, he says it is also facing digital disruption which may radically reshape its central position with customers.

“The big challenge for them is how do you engage in a new digital world where the days of actually having a monopoly on a customer won’t exist because there’ll be open data and you’ll have to compete on more platforms?

“Where you’ll probably want to be is that trusted platform which has engagement with customers,” according to Medcraft, who also says the big banks will continue to sell many non-core business divisions.

Australia’s big banks are attempting to win back customer trust, most recently scrapping ATM withdrawal fees for customers of other banks.

Speaking more broadly, Medcraft said ASIC remains focused on corporate culture, which is a key driver of corporate conduct, as well as the importance of internal controls. This remains a challenge for directors who have to be cognisant of a company’s social contract with the community as well as its legal obligations.

Medcraft said the days of companies selling legally compliant but harmful products were ending thanks to social media scrutiny and the 24-hour news cycle, pointing to recent examples such as life insurers changing the terms of policies without informing policyholders.

“It’s legal, but it was very harmful – and the community judged it as being appalling.”

He said one way to measure culture is through reporting dashboards, which track staff surveys, exit interviews, customer complaints, and the proportion of staff receiving ethics training. However, another good sign is a CEO who is comfortable allowing lower levels of management to address the board at meetings.

“Often if you get a dominant CEO or dominant chair, that can be quite dangerous if they’re acting as the funnel.”

While culture is an important driver of behaviour, lax internal controls were often the root cause of many recent regulatory breaches. Medcraft said it was also a recurring theme discussed at the International Organization of Securities Commissions (IOSCO), where he served as chair from 2013 to 2016.

“The person who’s managing compliance is too junior to talk to a business line head or is not seen as senior enough, or they don’t even have a compliance department,” he said.

Medcraft is set to join the OECD as the director of financial and enterprise affairs after his ASIC term ends.

While he pointed to more than $1 billion repaid to investors during his tenure and more than 350 convictions, he said his biggest achievement was introducing an industry funding model to help pay for the regulator’s work. The regime, which began on July 1, provides a strong incentive to self-regulate.

“I really wanted a price signal – those sectors that do a good job, which don’t require our attention, should pay less than those that are demanding more of our attention.”

Medcraft also said ASIC had recently used new government funding to build portals to communicate with industry, employ data scientists, and shift around 300 Lotus databases onto new technology.

“We have an antique if anyone is buying.”