Australia has one of the best financial services regulatory regimes in the world. The twin peaks model formed by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) has unquestionably worked to the benefit of the industry and broader society.
But the success of the twin peaks model should not place any of the regulators and people working within them beyond the scrutiny of the Royal Commission into Misconduct in Banking, Superannuation and Financial Services Industry. In short, our regulators are good but they are not without blemish and they do carry their own measure of guilt.
It is clear from the terms of reference and the letters sent to parties enjoined to the Royal Commission that it will be traversing events which have occurred in the financial services industry over the past 10 years – effectively 2008 to 2018. This means it will be in a position to scrutinise the collapse of Storm Financial, the Trio Astarra Fraud, the Commonwealth Financial Planning failings and a raft of other ‘scandals’.
If, indeed, the Royal Commission traverses any or all of these issues, it cannot then ignore the role of the regulators. It must ask whether ASIC and APRA fulfilled their roles in an adequate and timely fashion. It must ask whether those tasked with managing the regulators were appropriately alert and used all the legislative and regulatory levers that were available to them. On occasion, it appears that they did not.
For their part, ASIC and APRA have made clear that they will be doing their utmost to assist the Royal Commission in its endeavours but their status as regulators and policy “stakeholders” should not be allowed to have the effect of delivering them immunity. The Royal Commission cannot hope to piece together the workings of the industry if it chooses to ignore a key component part.
As has been stated in Money Management many times before, both ASIC and APRA have been the beneficiaries of successive governments who have chosen to regard increasing regulation as the primary vehicle via which to address the scandals which have beset the financial services industry over the past decade.
The recent chairmen of ASIC, particularly the recently departed Greg Medcraft, were not shy about encouraging ministers to deliver those increased powers even if it appeared doubtful that the additional regulatory ammunition would prevent a repeat of either the Storm Financial collapse or the Trio Astarra fraud.
Some have argued that ASIC and APRA had all the regulatory power they needed to act on the collapse of Storm Financial and the fraud within Trio Astarra, but chose not to utilise the weapons at their disposal which, of course, begs the question of whether, equipped with their heavy legislative armament, they will be any more disposed towards being proactive in the future.
It probably does not suit the Government or indeed the Federal Opposition for the Royal Commission to too closely examine the performance of the regulators because in many respects the actions of the regulators reflect the attitudes of the Government of the day but many groups such as the Victims of Financial Fraud (VOFF) will be arguing for full transparency.
When the Federal Opposition Leader, Bill Shorten was Assistant Treasurer and Minister for Financial Services in the Rudd Labor Government he chose to give the regulators ‘stakeholder’ status, something which the current minister, Kelly O’Dwyer, has not changed. As such, they must stand scrutiny on an equal footing with other stakeholders such as the banks and superannuation funds.
