19 Nov Too many regulators could dilute our democratic control
James Paterson – The Australian Financial Review – Tuesday 19 November
The corporations and financial services committee’s first oversight hearing of the Australian Securities and Investments Commission for the new Parliament in September generated some excited media commentary about a “new approach” to parliamentary scrutiny.
Some commentators even suggested that committee members had erred in robustly questioning ASIC’s decision to appeal its loss in the so-called “wagyu and shiraz” responsible lending case against Westpac.
This perspective reveals a fundamental misunderstanding of the role of parliamentary oversight committees and shows little respect for our corporate regulator.
In fact, the committee was simply heeding the advice of royal commissioner Kenneth Hayne in his final report. He rightly observed that parliamentary committees on their own provided inadequate oversight of financial regulators in the lead-up to the royal commission. He noted the limited time and subject-matter expertise parliamentarians are likely to bring to the role.
It’s one of the reasons why he recommended a new expert oversight authority for our financial regulators, which the government has agreed to implement. This new body, while welcome, nonetheless cannot replace the unique responsibilities for scrutiny that Parliament must always exercise.
The increasing proliferation of independent regulators is an understandable governance trend. It is not appropriate for many decisions, particularly on law enforcement, to rest with politicians. But one of the downsides of this approach is the way in which it reduces democratic control and visibility over the exercise of state power, which should ultimately rest with the people.
Voters across the Western world are becoming increasingly disillusioned with politics in part because of what they see as the impotence of politicians. They are sick of hearing, and are increasingly unlikely to accept, excuses that we can’t address their concerns because we have given the power to do so away to others.
One of the remaining ways we can demonstrate to the public that we are addressing their concerns and are mindful of their interests is by providing strong oversight of the independent bodies we have created.
Parliament must provide oversight, and also be seen to provide that oversight to the public, if we are to restore the confidence people have lost in all of us in recent years. This is particularly important when these bodies are entrusted with significant powers and make decisions that have far-reaching implications for the lives of Australians. This is equally true of the Reserve Bank, the Fair Work Commission, the Australian Prudential Regulation Authority and ASIC.
None of the ASIC commissioners are so delicate that they are going to be intimidated out of making what they believe are the right decisions simply because they faced some tough questions at a public hearing. But the implications of decisions such as the one to appeal Westpac’s win in the federal court are profound for the wider economy.Justice Nye Perram found that ASIC did not understand the responsible lending laws it is charged with enforcing. A higher court might yet find in ASIC’s favour, but it could take up to a year for this matter to be resolved.
Banks are understandably highly sensitive in the post-Hayne world to pronouncements on responsible lending, and the Westpac appeal is occurring while ASIC is consulting on new guidelines. If credit availability were to be stifled in this economic environment, the consequences for the financial security of Australians would be significant.
It’s entirely reasonable that ASIC be challenged to demonstrate the rationale behind major decisions such as appealing the Westpac case, and to know that when it contemplates decisions like these in the future, it will have to provide similar justification.
Financial regulators are rightly narrowly focused on the task of enforcing the law more stringently than before, particularly after their failure to do so prior to the royal commission. Parliamentarians have wider responsibilities.
It is incumbent on us to ensure our regulators are well resourced and sufficiently equipped for this task. The government is delivering that with record new funding and strong new powers. Parliamentary scrutiny will help ensure that these increased resources are judiciously used for their intended purpose, and that we are mindful of the broader economic implications of this new, tougher approach.
Clearly, the balance was not right prior to the royal commission. In rectifying that balance it is our duty to protect Australians from unintended consequences that could harm our prosperity.