Wednesday, 26 May 2021
Financial Regulator Assessment Authority Bill 2021, Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021; Second Reading
I rise following that very passionate speech from my colleague the member for Mackellar. I don't take his antipathy towards lawyers to heart or personally, and I do note and endorse the comments he made with respect to litigation funders, class action lawyers and financial advisers. Having served on the committee to which he referred, I know that significant and important work was undertaken by that committee highlighting a lot of issues, which the member for Mackellar eloquently and loudly stated in this chamber.
I'm pleased to speak in favour of the Financial Regulator Assessment Authority Bill 2021. In 2019 the government released its response to the banking royal commission. The government's response committed to taking action on all of the recommendations of the banking royal commission and made additional commitments to ensure that the issues identified by Commissioner Hayne were addressed. The royal commission report is lengthy, but among the many recommendations contained within it were a number related to ASIC and APRA. This bill gives effect to recommendations 6.13 and 6.14 of the report. Specifically, 6.13 recommended that APRA and ASIC be subject to at least quadrennial capability reviews, and 6.14 recommended the creation of a new authority to assess the effectiveness and capability of each regulator. The rationale behind these recommendations of the royal commission was that, while ASIC and APRA operate within complex accountability frameworks already, the regulators' effectiveness in delivering on their mandates is not subject to consistent and independent review over time.
The array of external assessment that ASIC and APRA are already subject to is outlined in the explanatory memorandum—and I understand that other speakers today have referred to it—but, just by way of recapping, those scrutiny levels include parliamentary committees. I've served on two of those committees. I was on the Parliamentary Joint Committee on Corporations and Financial Services and I'm currently sitting on the House Standing Committee on Economics. I'd hate to think that these committees don't serve a purpose, otherwise there's a lot of wasted time. In my view, these committees do serve a very useful purpose. They are public when they hold inquiries. Meetings are conducted with both ASIC and APRA. They are made public. It's an opportunity for the public to see two regulators being held formally to account. The same happens in Senate estimates when they're called to make representations and respond to questions. These committees do serve a purpose. But, as the financial services royal commission pointed out, while these committees do serve excellent purposes, there are some limitations in these bodies with respect to some of the oversight of a regulator that is required. For example, the level of expertise of parliamentarians is diverse and it's not necessarily all in financial services regulation, thank heavens, but, because of the diversity of the background of parliamentarians, their ability to drill down and grill both ASIC and APRA on specific and technical issues is limited.
Other areas of oversight include, obviously, ministerial oversight. ASIC and APRA both have to report annually against the government's Regulator Performance Framework. They are also bound by the public governance framework established by the Public Governance, Performance and Accountability Act, which includes requirements such as the publication of annual reports containing statements of performance. But I do note that this doesn't require that measures of effectiveness that are included in the corporate plan are assessed by any external third party. So, yes, they have to make the information available, but it currently is not assessed by an external third party.
Of course, these bodies are also subject to annual audits by the Australian National Audit Office. The Australian National Audit Office also has the ability to undertake ad hoc audits of other matters, but the key phrase here is 'ad hoc'. The ANAO has responsibilities over a wide range of organisations, so its capacity to spend any detailed time on particular organisations or to conduct more than ad hoc investigations is limited. The two bodies, ASIC and APRA, are also subject to the International Monetary Fund's Financial Sector Assessment Program, which reviews regulators on a five-yearly basis. Again, they serve a purpose, but their purpose and their role are quite limited in scope.
In short, the royal commission found that, while ASIC and APRA are currently subject to a lot of scrutiny, there are key gaps in the current level of scrutiny and accountability. Predominantly, the gap that was identified was with respect to how well the regulators performed against their statutory mandate. Is there anybody that is actually focusing strategically on their performance over a period of time?
In its response to the banking royal commission, and through this particular bill, the government is creating the Financial Regulator Assessment Authority. The FRAA will be a statutorily independent authority consisting of three appointed part-time members, including an independent chair, and the Secretary of the Department of Treasury as an ex-officio member. It will be supported with resources from the Department of Treasury. Under this bill, the FRAA will assess and report on the effectiveness and capability of ASIC and APRA over time. This is the gap that is currently not being addressed by any of the existing oversight mechanisms. Reports on each of ASIC and APRA will be produced either biennially or at the request of the responsible minister. The minister is also able to request additional ad hoc reports from the authority on any matter which relates to the effectiveness and capability of ASIC and/or APRA. The FRAA's role and activities are designed to complement and augment the existing external accountability mechanisms that apply to the regulators, not to duplicate them. Its reports will inform and improve the performance of the other accountability measures. So it is to sit alongside and booster and give a more holistic picture to ensure that all aspects of ASIC and APRA are being properly regulated.
The key thing that this comes down to—and I think it came out in the royal commission quite clearly—is that, for both consumers and financial service providers to have confidence in the financial sector, we need to have trust and confidence in our regulators. To have trust and confidence in our regulators, they must be independent in fact and they must be seen to be independent. Of course, they are ultimately accountable to the parliament, but they must in fact be independent bodies.
In setting up independent bodies, we have to ask the question: who regulating the regulators? Parliament has its role, as we saw before. We have got parliamentary committees and we have got ministers, but we need a level of expertise. The FRAA is being set up to provide that level of expertise in the oversight of our regulators. Our regulators perform an incredibly important function in our financial services sector, both nationally and internationally, in ensuring confidence in Australia and in our financial services. We must have efficient and effective regulators. The royal commission identified that that is perhaps something that we need to step up on, to make sure that we've got the capacity to address it. As to the governance structures of ASIC, by virtue of serving on a number of the committees, I do have questions about the current governance structure of ASIC. A body such as the FRAA, when established, will be able to actually look into the governance structure and make recommendations as to whether or not it is effective in carrying out the mandate of what ASIC is set up to do.
This particular bill, in setting up the FRAA, goes to a key plank of accountability, of integrity and of ensuring that our financial services system maintains that level of integrity and that level of confidence from people. Setting up this body will help to ensure that people dealing with our systems can be satisfied that we've got regulators who are effective, who are independent and who are doing the job that we need them to do.