Why It's Time for a New Financial System Inquiry

Since October 2022, I have chaired a Senate inquiry into the Australian Securities and Investments Commission. This inquiry is critical because it has been apparent for some time that ASIC has deviated from their sole mandate: the enforcement of corporate law. ASIC spends a lot of time promoting themselves and deflecting criticism in the media. ASIC says its enforcement record is stronger than ever, on the basis that they have had courts impose over $500 million in civil penalties as result of their civil actions. But the reality is that there are very few criminal convictions achieved in Australia for breaches of corporate law. For some people, Australia is a haven for white-collar criminals. Indeed, the data given to the committee by the Commonwealth Director of Public Prosecutions revealed that the rate of prosecutions initiated from ASIC referrals had plummeted from 75 per cent in 2018 to 19 per cent in the last financial-year. Regrettably, we have also found that the media drives enforcement. If ASIC is afraid of media coverage, it will move. And throughout the Inquiry, ASIC has shown a consistent unwillingness to comply with the work of the Senate. This secrecy wasn’t limited to ASIC’s approach to corporate law enforcement. During our inquiry, ASIC refused to provide disclosures relating to governance issues at the corporate regulator. For eight months, ASIC withheld information from the Senate relating to a $200,000 investigation into the conduct of a deputy chair. This year we report to the Senate. We will not miss the opportunity handed to the Senate just once a decade. And whilst I have been concerned about the performance of ASIC for some time, I am growing increasingly concerned with the performance of the Australian Prudential Regulation Authority. It is obvious that the twin peaks model has had its day. Peter Costello’s structure has served the country well, but the government has missed so many strategic opportunities. A recalibration is needed. In the past, this has been achieved through a Financial System Inquiry. In the past, FSIs have been used to drive bold reform to the financial services sector. The Campbell inquiry, commissioned during the Fraser government, made the recommendations that paved the way for deregulation, including the floating of the dollar. The Wallis inquiry, commissioned during the Howard government, recommended the twin peaks model of regulation, to increase market efficiencies and consumer protections. The Murray Inquiry, commissioned during the Abbott government, recommended stronger capital reserves for banks and the need to embrace FinTech. It has been almost a decade since the last FSI. Given the litany of issues with twin peaks and the clear deficiencies with the present regulatory enforcement, Australia should have another FSI. This presents an opportunity to embrace the issues missed by the review of the Reserve Bank such as payments, and thread together the structural issues canvassed in the Senate’s ASIC inquiry. Combined with the nation’s failure to move on digital assets and financial sector reform more generally, it is hard to argue against an FSI. Perhaps the most compelling argument for an FSI is the massive influence of the superannuation system over the financial system and the economy and markets. At a minimum, an FSI would undertake a proper review of payments which looks at economic and geostrategic matters collectively, examine the tax points in the sector to ensure competitiveness and efficiency and look to how the financial sector arrangements may be recalibrated to help solve our great national challenge of housing younger Australians. It could also consider the influence of superannuation over the economy, look for opportunities for deregulation such as duplication which exists in prudential standards and legislation and consider the overall regulatory architecture, the “regulator of regulators” and the role of the Council of Financial Regulators. The opportunities for the country from the disruption of digital and payments are clear, but we could easily miss the opportunities and quickly become unmanageable risks. **Andrew Bragg is a Liberal senator for NSW.** **This is an edited extract of a speech he will deliver to the Financial Services Council on Thursday.**