Who watches the watchers? Australian regulators now subject to oversight from independent watchdog
Certain issues identified by Commissioner Hayne in the Financial Services Royal Commission will be addressed by the establishment of a Financial Regulator Assessment Authority.
The Financial Regulator Assessment Authority will be tasked to evaluate the effectiveness and capability of both the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) (the Regulators).
The Financial Regulator Assessment Authority Bill 2021 and the Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021 (the Bills) were passed by the House of Representatives on 26 May 2021.
The Bills give effect to recommendations 6.13 and 6.14 of the Financial Services Royal Commission by establishing the Financial Regulator Assessment Authority (the Authority). Recommendations 6.13 and 6.14 provided:
- Recommendation 6.13 – Regular capability reviews. APRA and ASIC should each be subject to at least quadrennial capability reviews. A capability review should be undertaken for APRA as soon as is reasonably practicable.
- Recommendation 6.14 – A new oversight authority. A new oversight authority for APRA and ASIC, independent of Government, should be established by legislation to assess the effectiveness of each regulator in discharging its functions and meeting its statutory objects. The authority should be comprised of three part-time members and staffed by a permanent secretariat. It should be required to report to the Minister in respect of each regulator at least biennially.
The Explanatory Memorandum to the Bills notes that while the Regulators are already accountable to the Parliament and both extensively report on their activities, they are not necessarily subjected to rigorous and consistent analysis. The new Authority intends to fill this regulatory gap by complementing the existing accountability measures that already apply to regulators generally.
The Authority is intended to be a statutorily independent body which will consist of three appointed part-time members (including the Chair) and the Secretary of the Department of the Treasury (or qualified nominee) as an ex-officio member. The primary functions of the Authority will be to:
- assess and report to the Treasurer on the Regulators effectiveness and capability; and
- report to the Treasurer on any matter relating to either of the Regulators effectiveness and capability on an ad hoc basis when requested by the Treasurer.
To maintain the independence of the Regulators, the Authority will not have the ability to direct, make, assess or comment on specific cases of the Regulators' enforcement actions, regulatory decisions, complaints and like matters.
While the Bills largely received support from the Parliament, during their second reading, there was fierce commentary on the government's inability to effectively manage the financial services industry and the respective regulators, despite the fact that there is no shortage of oversight at present. For example, financial regulators are already subject to oversight from multiple ministers, government departments and parliamentary committees.
Additionally, the government is yet to implement all of the Royal Commission's recommendations. Some recommendations have been disregarded entirely, including the Commissioner's first recommendation that the National Consumer Credit Protection Act 2009 (Cth) not be amended to alter the obligation to assess unsuitability. This leaves open the question that if aspects of the Australian financial services regulatory system are – at least according to the Commissioner – flawed, then an independent authority regulating the regulator may do little to further help protect vulnerable Australians.
Nonetheless, the implementation of the Authority should be considered a step in the right direction, not only because it was a recommendation put forward by the Royal Commission but because the Authority is likely to increase the accountability of the Regulators to the Parliament and promote public confidence.
The Authority is due to commence its activities on 1 July 2021 when the Bills receive royal assent, with the government investing $7.7 million to establish the body.