One regulator to rule them all, in private

New watchdog KPIs could prove challenging

By David Ross

The Financial Sector Advisory Council will be disbanded, and from its ashes will spring one regulator to rule them all, or so says the government in its official response to the Hayne royal commission.

A new watchdog of the watchdogs will be created, though we still don’t know exactly what it will look like, how it will work, and whether the public will learn what it discovers.

Commissioner Kenneth Hayne recommended the proposed oversight body be made up of three part-time members “of unquestionable experience in relevant disciplines,” supported by a team of permanent staff.

But Dr Andrew Schmulow, senior lecturer at the University of Wollongong Faculty of Law said the proposal to have three part-time members “seems a bit light”. He said the board should be comprised of hard-hitting names and meet regularly.  

“Who should be on it? Allan Fels, maybe a retired judge with extensive experience in commercial crime, Graeme Samuel would be good,” he said.

Samuel has already been appointed by the government to conduct the capability review of APRA as recommended by Hayne.

Hayne, in his report, said “a permanent oversight body is now required” to strengthen ASIC and APRA, which if his recommendations were followed, would find themselves doing more. The new body would also be charged with ensuring the regulators comply with the Banking Executive Accountability Regime (BEAR).

The devil will be in the detail, at least according to Dr Michael Duffy, director of the Corporate Law, Organisation and Litigation Research Group at Monash University. He said the first challenge would be to avoid duplication.

“The question would be whether the CFR could perform the task contemplated or whether the task is different in nature,” Duffy told Australian Banking Daily.

“I think there would need to be a few more specifics on how it would operate, there may in some cases be a problem with second-guessing the regulators.”

The government has said any new body will “not have the ability to direct, make, assess or comment on specific enforcement actions, regulatory decisions, complaints and like matters”.

Josh Frydenberg, when speaking on ABC’s AM program this morning, didn’t refute the suggestion that the new body would operate in secret, rather stating that “this new oversight board will be reporting to government and governments don't operate in secret”.

Hayne has recommended assessment reports on the regulators be laid before parliament within 20 sitting days of being received by the relevant minister.

Schmulow said there was no compelling reason to keep the oversight body’s discoveries secret.

“It’s absolutely essential that those reports once they’re made available to parliament also be placed in the public domain,” he said.  

“The moments these acts are brought into the public domain there’s no defence, there’s only shame.”

Duffy, who previously worked as a corporate investigator at ASIC, said determining the success of the new regulator would prove tricky.

“A KPI for the regulators would be quite complicated to determine - it is sometimes not a simple matter to determine what a regulator should do to pursue the public interest,” he said.

“I do think that perhaps the idea that litigation or going to court should always be the default position may have some practical problems.”

Disagreement on watchdogs

James Shipton, when giving evidence at the royal commission, suggested the Council of Financial Regulators (CFR) – a body constituted by the heads of the financial regulators and chaired by the Governor of the RBA – could be used as the forum for assessing the outcomes of the Hayne royal commission.

In his report, Hayne said he was not in favour of this option.

“The CFR serves as an important, formal occasion for discussion between the financial regulators. It is essentially a forum for co-ordination between the various regulators,” he said.

“Adding an assessment function to the CFR’s remit would mark a radical departure from the current conception of that body.”

Duffy said Shipton’s suggestion has some merit “in the sense that you don’t want to have a whole lot of duplication of entities performing the same role,” but he said it wasn’t clear “whether the council is exactly what is envisaged by the royal commission”.

More regulators will cost more, but still cheaper than the other option

An additional A$170 million funding has already been provided to ASIC, APRA, the Commonwealth Director of Public Prosecutions and the Federal Court, with more funding expected in light of the final report.

Duffy said any new regulators will only add to that bill. But Schmulow said despite the added cost of new regulators it would still be considerably cheaper than another financial scandal or crisis.

It’s a lot less expensive than remediating two million Australian consumers for the consequences of misconduct, he said.

“It’s a lot cheaper than that and it's a lot cheaper than rescuing a bank or reflating a financial industry in a banking crisis.”

David Ross is a freelance journalist based in Melbourne. He has also written for, The New Daily, The Guardian, Your Money, and Domain and has previously worked at the European Parliament and EUobserver.