Rudd the regulator seeking reform for reform’s sake
Before the election, in the May 2007 budget in reply speech, Rudd the Regulator stated “I have already announced our intention in government of adopting a simple principle: no new regulation imposed on business unless an existing regulation is withdrawn”.
So how is Mr Rudd going with this promise? According to the Federal Register of Legislative Instruments on the Comlaw website, in 2008 – 4699 new legislative instruments were added and in 2009 till the end of September – 3699 new legislative instruments were added.
That’s 8398 new forms of select legislative instruments, statutory rules and regulation.
How many have been taken away? Just 41. Clearly not all of these pertain to business though a ratio of 8398:41 is certainly telling.
Rudd the Regulator’s multiple reviews into Superannuation, the June 2008 Green paper into proposed regulation of financial services and the two recent inquires into the collapse of Managed Investment Schemes (MIS) and Financial Products Services (Storm and Opes Prime) all point to the financial services industry being a target.
The recent bill to include the governance of Margin Lending and Promissory Notes within Chapter 7 of the Corporations Act is testimony to this desire.
Does the Australian financial services industry need a shake up?
Australia’s banks and their affiliates provide the bulk of financial services and Australia has a staggering four of the world’s eight AA or above rated banks. That’s 50%, not bad for a country with less than 2% of the world’s stock market value. The current crisis has seen zero Australian bank failures compared to over 50 worldwide.
The last 20 years of fiscal reform has delivered a regulated financial services environment that is the envy of the world. Furthermore a close look at the financial failures of Storm, Opes Prime and various MISs reveals poor management and business models to be at the heart of these collapses.
Whilst the loss of billions of dollars of hard earned Australian savings is a tragedy, it is not due to the systemic failure of financial services regulation.
Compared to the rest of the world, it can be strongly argued that Australia’s financial services regulatory regime (AFS Regime), comprised principally of chapters 7, 5C and 6D of the Corporations Act and the financial services provisions of the ASIC Act, remains robust and strong.
The AFS Regime was predicated on the principles of the Wallis Report in accordance with efficient markets theory that says “in designing regulatory arrangements, it is important to ensure minimum distortion of the vital roles of markets themselves in providing competitive, efficient and innovative means of meeting customer needs.”
There is nothing, apart from rhetoric to suggest that this is still not the case.
No one is suggesting that the financial services industry can’t be improved and there are certainly areas such as the low minimum education standards within RG146 that should be addressed.
However there is no compelling case for Rudd the Regulator to seek root and branch reform. His attention is best served in working out how to repay the debt the nation is now shackled with, before the debt becomes a dead weight around the nation’s neck.
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