Running the ruler over the regulators

The Federal Opposition will be on the right track in pursuing a review of the financial services regulatory settings, but only if it aims to identify the failings while focusing on increasing efficiency and reducing costs, Mike Taylor writes.

The Federal Opposition has changed the tenor of the debate around the holding of a Royal Commission into the banking and financial services industry with the Shadow Treasurer, Chris Bowen, stating that the Royal Commission will form the basis for a subsequent review of financial services regulation.

What Bowen told last week’s Financial Services Council (FSC) Leaders Summit in Sydney is that the Labor Party believed it was time to comprehensively examine the regulatory regime covering the financial services industry to make sure it is fit for purpose.

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He said what was being proposed was not only an examination of the roles and responsibilities of the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Taxation Office (ATO) and the Reserve Bank, but also an examination of their interlinkages.

However it is important to understand that in using a Royal Commission to open the door on a review of the regulatory environment, the Federal Opposition is not actually contemplating scrapping the current so-called “twin peaks” approach involving APRA and ASIC.

Rather, it is intent upon ensuring that the component regulatory parts all fit together.

In making his statement to the FSC conference, Bowen succeeded in surprising many senior financial services industry executives who believed that while the election of a Labor Government would make a Royal Commission a certainty, that would be the sole focus of its first term in Government.

Looked at objectively, Bowen’s announcement is justified. There have been a significant number of changes to the financial services regulatory environment over the past decade and the Shadow Treasurer is right in his assessment that many of those changes have occurred in a very “ad hoc” fashion.

Among the most recent changes has been the passage of the Government’s legislation implementing an industry funding regime for ASIC, and last week’s announcements around legislative amendments altering governance and other arrangements impacting the superannuation industry.

Many of the changes which the Government has made to the regulatory environment have been in reaction to short-comings identified by scandals such as the collapse of Trio/Astarra and the scandals which have continued to plague the financial planning and insurance sectors.

Bowen said the Federal Opposition saw the issue as being broader than even those sorts of factors, with the regulatory review being justified by other factors such as household debt and the rapid development of financial services technology.

He said that while it was only two years since the Financial System Inquiry (FSI) had not recommended a need to review the financial services regulatory settings, much had changed in the meantime to make such an exercise necessary.

In all the circumstances, the financial services should probably welcome a review of the financial services regulatory settings, particularly if they succeed in greater transparency and clearer objectives for the regulators driving efficiencies and reducing costs.

Given what they cost the industry, there is plenty of room for improvement in the performance of the regulators.




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Again, a top article, Mike. Chris Bowen is spot on, the banking, financial services and even retirement funding are rapidly changing. The issue of reducing the cost of regulation of any industry is a critical issue. However, developing a compliance culture will go a long way to doing this. The question is how do you go about it. There was a very relevant post on the Government Accountability Project Facebook Page here: https://www.facebook.com/GovernmentAccountabilityProject/. It was about this issue https://www.theguardian.com/business/2017/apr/11/barclays-whistleblower-...

Mike, imagine that you spoke up about an issue of non compliance that was not only applicable to Australia, but the global banking and financial services industry. Now further imagine what would be the best jurisdiction, shouldn't it be the IMF? This is my comment on the Government Accountability Project post:

"That is why the #InternationalMonetaryFund needs an Open Innovation Program like the World Bank's https://www.innovationpolicyplatform.org/, but backed by a reward system and global anti-reprisal international agreements like the US's SEC's https://www.sec.gov/whistleblower. This will put some teeth into the IMF's anti-corruption, tax evasion etc schemes that would have a global impact. Here is one case that the IRS in the US scheme recouped tax of $5 billion during an amnesty period at at cost of US$104 million paid to Birkenfeld, see here: https://en.wikipedia.org/wiki/Bradley_Birkenfeld. Return on investment to the IRS of 4800%- not a bad ROI. Check my maths, agree?"

Australia needs to have this conversation about the future of the banking and financial services industries. Chris Bowen is right. This is why The IMF has started global conversations about a lot of these issues and we should be joining in. The IMF are smart and are engaging the international community on social media, see here: https://www.facebook.com/imf/. Mike, and readers what do you think of my comments on the IMF conversations on the subjects " FinTech and The IMF" and "IMF Conversation: FinTech and the transformation of financial services." Australia needs to join the global conversations started by IMF.

The alternative is financial disasters and class actions, not that the legal industry minds. Talking about problems is the first step in arriving at solutions.

keep up the good work, Mike.

Best. John.

My concern with all of this is that there is an assumption that because a regulatory framework is put in place it will be complied with. As far as I am concerned. we have all of the laws that we need (and probably too much) to properly regulate the financial services industry. What we don't have is a properly funded regulator - as a practical matter the chance of ASIC taking regulatory action against a person who breaches a financial services law is remote - this is why many people choose to ignore the law - more laws and/or an inquiry about the failings of the present system will not change this fact - unless people believe that they will actually be punished for breaching the law (that is, until ASIC is properly funded) standards within the financial services industry will not improve .

Hi David. Top comment. That is why you need to change the culture of the industry to a compliance culture so that the intervention of the regulator is not required so often and therefore reduces the regulators costs. My comment above is applicable:
"That is why the #InternationalMonetaryFund needs an Open Innovation Program like the World Bank's https://www.innovationpolicyplatform.org/, but backed by a reward system and global anti-reprisal international agreements like the US's SEC's https://www.sec.gov/whistleblower. This will put some teeth into the IMF's anti-corruption, tax evasion etc schemes that would have a global impact. Here is one case that the IRS in the US scheme recouped tax of $5 billion during an amnesty period at at cost of US$104 million paid to Birkenfeld, see here: https://en.wikipedia.org/wiki/Bradley_Birkenfeld. Return on investment to the IRS of 4800%- not a bad ROI. Check my maths, agree?"

There is a very relevant discussion on the IMF Blog about better risk management processes and heading off problems before they occur. You can see it here: https://blogs.imf.org/2017/08/03/a-dip-into-subzero-policy-rates/#commen.... David, follow the link and join the conversation.

Regards

John Cosstick

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