The global financial crisis (GFC) has combined with the sovereign debt crises to deliver Australia a more interventionist and rules-based regulatory regime, according to major consultancy firm, Deloitte.
The firm has used its submission to the Financial Systems Inquiry (FSI) to argue that the result of this has been a costly regulatory regime not conducive to innovation and has included the Future of Financial Advice changes as being a factor in that outcome.
"…in the wake of the GFC and sovereign debt crises, Australia has seen more interventionist and rules-based regulation and regulators," the Deloitte submission said. "The results of this are clear. Australia has ended up with prescriptive regulation, encouraging a compliance culture — both amongst the regulated and the regulators."
"The regulation adds to costs and is not conducive to innovation; for example, product disclosure statements (PDS) have not worked, but have added significantly to the compliance burden. A wide-range of regulatory changes have been introduced in recent years or are now being introduced — pre-GFC: the Financial Services Reform Act (FSRA) and Basel II; and post-GFC: prudential regulations for insurance, anti-money laundering and counter-terrorist financing (AML/CTF), Basel III, regulation of credit rating agencies, OTC derivative reforms and Future of Financial Advice (FOFA) reforms," it said.
"In isolation, the call on resources to implement the individual changes may not be large, but the cumulative impact of these changes on costs is likely to have been significant.'
The submission said that it was in these circumstances it was important to assess whether the benefits of the new regulations had justified the costs.
"There is no clear framework for undertaking this task. However, our assessment is that the pendulum has swung too far. By losing sight of the principles, new regulations may increase costs, without creating sufficient benefits to justify them," the Deloitte submission said.