Among the many recommendations of the banking Royal Commission was a Board of Oversight for the two regulators in charge of financial institutions; the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority: ASIC and APRA.
Since then APRA’s own internal review conducted by deputy chairman John Lonsdale and NSW Supreme Court Judge Robert Austin, Australian Competition and Consumer Commission commissioner Sarah Court and UNSW professor Dimity Kingsford-Smith has found APRA to be soft on enforcement and timid by comparison to its international peers.
Nonetheless, and to demonstrate that APRA still doesn’t get what it doesn’t get, its chairman used Tuesday’s release of the review to announce a new mantra. From now on, APRA is to be: “constructively tough”.
It sounds like “tough but flexible”, a contradiction in terms if ever there was one. Despite its Royal Commission hammering, APRA still seems not to have internalised the message: fraud and theft are not up for negotiated settlement.
This is why a board of oversight is so necessary.
I have frequently argued in favour of such a reform: a regulator to regulate the regulators. Along with colleagues Karen Fairweather and John Tarrant, I was invited to make a submission to the Royal Commission detailing egregious examples of regulator inefficacy, and capture by, and subornation to, the industries they are meant to regulate. Included was a body of theoretical and empirical international scholarship suggesting that financial sector regulators are more susceptible to capture than regulators of other industries.
We argued that the gravity of the potential harm from crises, superimposed with the frailties – both observable and theoretical – of regulators, required enhanced safety in the form of an overseer to police the corporate police.
So it was encouraging to see our submission reflected in the commission’s recommendation for a board of oversight:
- ^ Board of Oversight (financialservices.royalcommission.gov.au)
- ^ timid by comparison to its international peers (www.apra.gov.au)
- ^ release of the review (www.apra.gov.au)
- ^ constructively tough (www.financialstandard.com.au)
- ^ regulator to regulate the regulators (theconversation.com)
- ^ Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, February 2019 (financialservices.royalcommission.gov.au)
- ^ Pocket Full of Change (www.aph.gov.au)
- ^ Sunshine Commission (military.wikia.org)
- ^ Defence mechanisms. Why NAB chairman Ken Henry lost his job (theconversation.com)
- ^ $11 billion in funds (www.afr.com)
- ^ Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn (theconversation.com)
Authors: Andrew Schmulow, Senior Lecturer, Faculty of Law, University of Wollongong