ASIC and APRA will be regularly assessed on their “effectiveness and capability” by a statutory independent authority according to a bill presented in parliament Thursday, after it was acknowledged that ministers and parliamentary committees didn’t have the proper expertise to conduct oversight.

The Financial Regulator Assessment Authority Bill 2021 proposes that a team of four – three external appointees and one Treasury department member – provide reports on the regulators every two years and on an ad-hoc basis.

The bill combines two key recommendations from the Hayne Royal Commission: a capability review at least every four years (6.13) and a new authority to complete the assessments (6.14).

(The idea of a “Financial Regulator Assessment Board” was also proposed by the 2014 Financial Systems Inquiry, but rejected).

The bill’s explanatory memorandum acknowledges the fact that both ASIC and APRA are already subject to an array of external assessments and reviews, including ministerial oversight and “scrutiny by parliamentary committees”.

As noted by Hayne in his final recommendations, however, politicians may not be the best people to conduct this oversight.

“While both regulators are accountable to the Parliament, the Financial Services Royal Commission noted that Parliamentary committees, including Senate Estimates, have some limitations in assessing the effectiveness of the regulators (for example, the fields of expertise required to assess the regulators),” the Bill’s memorandum states.

Both agencies already report extensively on their activities, the memorandum continues, yet these reports “are not necessarily subject to rigorous and consistent external analysis”.

Clumsy oversight

While it makes sense to have members of parliament confront regulators on issues highlighted by their constituents, the awkwardness of having political leaders go toe-to-toe with experienced regulators has been on plain display at a series of inquiries, including the ongoing PJC review of ASIC’s oversight.

A series of questions put to ASIC by Victorian MP Julien Hill at the PJC review typified how inadequate politicians are in engaging with ASIC.

In response to five questions relating to the reduction of AMP advice practice values, ASIC simply said it couldn’t answer questions about AMP’s “motivations, reasoning and decision-making”.

Another, asking if the Royal Commission anticipated the destruction of practice values in the transition away from grandfathered commissions, was deflected effortlessly with an “ASIC cannot speculate…” response.

The line of questioning, while valid, was a clumsy attempt at holding the corporate regulator to account.

Commissioner Hayne’s intention was to have a body of hardened regulatory experts, rather than popular vote winners, handle the assignment.

Need for autonomy

The need for an independent and dedicated body to monitor the ‘twin peaks’ of regulation has only been heightened since the royal commission.

While ASIC has faced its own internal management and governance failings, headlined by an expenses scandal that led to the resignation of chair James Shipton, APRA has faced a barrage of criticism around its failure to address inefficiencies in the country’s $3 trillion superannuation system – an issue only now being tackled as part of the government’s Your Future, Your Super reform package.

Despite the need for robust oversight, the regulators play a vital role and will need to retain their autonomy – something the bill made sure to point out.

“APRA and ASIC are independent regulators, responsible to the Parliament. This independence is critical to their ability to fulfil their mandates, and for them to have the confidence of the consumers who rely on them,” the memorandum states. “Regulator independence is also important for maintaining the confidence of the market, including in the credibility of the regulators.”

Accordingly, the new Authority will stay away from specific enforcement cases and regulatory decisions, with these matters being handled by existing ombudsman and complaints services.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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