Maintain biennial reviews of regulators: Governance Institute

In a submission to the Senate economics legislation committee’s inquiry into the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, the Governance Institute has argued against reducing the frequency of reviews of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

In the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry final report, commissioner Kenneth Hayne recommended the establishment of an independent statutory body tasked with assessing and reporting on the effectiveness and capability of ASIC and APRA.

The Financial Regulator Assessment Authority (FRAA) commenced on 1 July 2021 and delivered its first review of the regulators last year, in line with recommendation 6.14 of the royal commission that it be required to report to the minister at least biennially.

However, Schedule 5 to the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 amends the FRAA Act to reduce the frequency of FRAA’s reviews of ASIC and APRA to every five years.

In the bill, the government argued that the change would lessen the regulatory burden on ASIC and APRA and allow for more comprehensive reviews by the FRAA.

“Both ASIC and APRA operate within complex accountability and regulatory frameworks. Reviews into both regulators therefore involve extensive consideration of both the regulatory framework and the effectiveness and capabilities of the financial regulators,” the bill said.

“Consistent with recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the FRAA Act established the FRAA to conduct these reviews every two financial years.

“However, following the conduct of the first of these statutory reviews, it was considered that this did not provide ASIC and APRA with sufficient time to adequately respond to findings or implement recommendations in between FRAA reviews.

“Changing the review frequency will also provide the FRAA with more time to meaningfully evaluate the performance of the regulators. Reviews will be broader in scope and will be able to consider the operation of the regulators as a whole, rather than only a specific aspect.”

In response to the bill, the Governance Institute said it is too early to determine whether the two-year review cycle is effective.

“Given the review arrangements have only been in force for one review cycle so far (2023), our members consider there has not been sufficient time to assess whether there is a need to changing the review frequency,” it said.

“Our members acknowledge the resources required to respond to a biennial annual review cycle, as well as the limited time to consider and implement any recommendations. Nonetheless, they consider that the current two-year interval is appropriate. If any lengthening of the review cycle is to be considered, the maximum they consider appropriate would be three years.”