Financial services reform: If it ain't broke

Financial planners who are close watchers of the Parliamentary Joint Committee on Corporations and Financial Services would be well served by reading two submissions — that of Treasury and that of the Australian Securities and Investments Commission (ASIC).

Having read those submissions they would then be well served by acquainting themselves with the transcripts of the verbal evidence of Treasury officers and ASIC officials to the hearings of the committee.

What they would obviously discern from that reading is that not only do ASIC and Treasury hold very different views, but that Treasury, in particular, has no desire to see the Government being stampeded into a regulatory frenzy by the global financial crisis or the collapse of firms such as Storm Financial, Opes Prime and Westpoint.

While ASIC’s underlying theme has appeared to be an argument for tougher regulation, Treasury’s underlying theme has been that the system is not fundamentally broken and requires no more than some minor improvement.

The Treasury theme is arguably the most persuasive and realistic in circumstances where the world is currently experiencing one of the most dramatic economic and financial events of the past 60 years. The ASIC line of argument would have a good deal more currency if only the regulator would acknowledge that it has not been blameless.

Giving evidence to the inquiry, a senior Treasury official said while a few stress cracks had appeared in the system, nothing was fundamentally broken and that the Government was actively working via legislation to fix the stress cracks around issues such as margin lending and licensing.

The same official said Treasury believed the existing regime had “given the means to ASIC, the regulator, to implement a system that is appropriate and strikes a balance between the needs of the various stakeholders”.

In other words, Treasury believes the existing legislation imbues ASIC with sufficient powers and that it is a matter for the regulator how it ultimately translates and polices that resulting legislative environment.

Whenever there are market failures or corporate collapses, the first instinct of politicians and many bureaucrats is to seek the making of new laws. However, there is plenty of evidence to suggest that the existing laws would have been sufficient if they had been more effectively policed.

— Mike Taylor