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.
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.
