AUSTRALIA’S REGULATORY bodies must recruit fewer lawyers and more business experts if the nation’s regulatory systems are to function efficiently, according to senior business figures.
In submissions to Federal Government’s Taskforce on Reducing the Regulatory Burden on Business, Andrew Mohl, AMP’s CEO said regulators are undermining the intent of regulations by insisting on strict legal interpretations of legislation, which do not take into account business realities.
“A lack of industry experience, coupled with more often than not a strong legal workforce, results in the regulators often being intent on governing the industry on a very strict legal interpretation of the regulations (form over substance), which can be at odds with the purpose and intent of the regulations,” Mohl said.
Senior financial services sources have also expressed concern over the attitude of the Attorney-General’s department in the development of the Federal Government’s new Anti-Money Laundering reforms, complaining that a heavy legal focus is complicating development of the new laws.
In submissions to Taskforce, firms including ING Australia, AXA, Vodafone Australia and PricewaterhouseCoopers claim regulators are increasingly imposing prescriptive regulatory styles via the formulation of policy, traditionally the realm of government.
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) came in for particular criticism. “Australia has a high-cost regulatory system for financial services,” wrote Tony Harris and Greg Smith on behalf of AXA Asia Pacific. “These costs stem from the unduly robust approaches and practices used by the regulators — in particular their surveillance and compliance models and penalty strategies — which do not match risks and which undermine the principles-based approach to regulation adopted by the Government.”
Form, not substance, is rewarded, AXA added and heavy-handedness among the regulators is commonplace. The firm also called for more oversight of APRA and ASIC. “Given regulators’ general lack of trust in the industry, it is unsurprising that their actions can be disproportionate to the issues being regulated. To mitigate costly duplication of having two overlapping regulators, legislation requires APRA and ASIC to cooperate. But lack of effective liaison is evident because their duplicated but differing requirements impose considerable costs on the industry.”
The Australian Institute of Company Directors (AICD) meanwhile cited APRA’s proposed new governance requirements as an example of overlapping jurisdiction. “APRA’s proposed approach to prudential regulation is to mandate a governance framework similar to that found in the ASX Corporate Governance Principles, which are not mandatory and only require reporting on an if not why not basis,” said Ralph Evans, CEO at the AICD.
“The APRA proposals will create a disproportionate regulatory impact on those APRA-regulated entities that are already regulated by the ASX and ASIC, without any persuasive evidence that the ASX and ASIC regulations are inappropriate of ineffective.”
For its part, APRA has stated that recent events have made it clear that governance matters cannot be left in the hands of companies and the share market.
AMP CEO Mohl said the culture, focus and staffing for regulators needs an overhaul. “The level of industry experience of management and staff within some regulators needs to improve,” he said.
“Currently, employees within the regulators are often professionally qualified but have little or no industry practice in the area being regulated. In many instances, the regulators’ understanding of how the industry operates in practice comes through ‘investigations’, which are costly and time consuming for individual businesses to comply with.”
APRA has admitted it can have trouble recruiting and retaining skilled staff. APRA chairman Dr John Laker said last year that while the regulator is keen to attract experienced people from industry but cannot always compete on salaries alone. “What doesn’t make it any easier…is that our people are themselves being headhunted for roles in industry,” Laker said.
However, Mohl said the regulators must up their game, even if it means opting out of the Public Service Act.
“Improving the culture and industry expertise within the regulators may come about if the overriding mandate of the regulators included a requirement to interpret and enforce the laws with consideration being given to the economic costs and the commercial implications to industry,” he said.
“The diversity and skill set required by the regulators would change to include other professions including economists, accountants and actuaries and, most importantly, those with industry experience and commercial backgrounds. Allowing regulators to operate outside of the Public Service Act would also help attract staff with industry experience.”
ING, meanwhile, urged the Government to make good on its promises regarding the reform of anti-money laundering (AML) laws. It cited recent consultation on the reforms as an example of how positive outcomes can be achieved through close consultation with industry.
“ING has estimated that the cost of the customer identification component of the government’s initial AML proposal (which would have required the identification of all existing customers) would have been $100M for ING alone,” said Jenifer Wells, head of government and regulatory affairs at ING Australia. “Recent consultation between government and industry, led by Minister Ellison, has resulted in agreement that this requirement will not form part of the revised AML regime.
Stuart Fagg is the Editor of Lawyers Weekly’s sister publication, Risk Management magazine.
• Regulators are undermining the intent of regulations by insisting on strict legal interpretations of legislation, which do not take into account business realities
• Senior financial services sources are concern that the a heavy legal focus is complicating the development of the new Anti-Money Laundering reforms
• Employees within the regulators are often professionally qualified but have little or no industry practice in the area being regulated