Comment: In the end Josh Frydenberg’s controversial appointment of King Wood & Mallesons partner Scott Farrell to lead the Treasury inquiry into payments regulation delivered precisely what the Treasurer wanted: more executive power.
Farrell’s headline recommendation to fix the regulatory paralysis in the payments system is to create arbitrary powers for the Treasurer to intervene in the industry and mandate reforms.
His solution would involve beefing up a new regulatory tier owned by the Treasury Department to improve access regimes, licensing and competition across the industry.
Under Farrell’s model Treasury would become the epicentre of payments policy formulation, raising questions about the future of the RBA payments department.
There would also be a payments sector “convenor” appointed by the Treasurer, a role which Farrell’s final report says should have status equivalent to the “Chief Medical Officer” in the Department of Health.
The convenor’s role would effectively displace the existing function of the head of the Australian Payments Council, who liaises regularly with the RBA’s Payments System Board on policy issues.
However, Farrell baulked at advancing far-reaching reforms floated in an issues paper released in November, including a proposal to create a stand-alone payments regulator akin to the Payments System Regulator in the UK.
While Farrell’s model advocates relocating payments policy responsibility and coordination squarely within Treasury, it also recommends wider enforcement powers be vested in the Treasurer on matters of national interest.
The inquiry concluded that the PSB’s enforcement functions were constrained by the Payments Systems Regulation Act.
“The RBA is precluded from exercising its powers based on considerations that are broader than the defined term of ‘public interest’,” the review states in its final report.
“The review envisages that the RBA would continue to designate payment systems based on financial stability, efficiency, or competition considerations.
“Where a designation is required in the national interest for reasons beyond financial stability, efficiency, or competition, the decision to designate should be vested in the Treasurer.”
Rather than simplifying an already complex set of overlapping regulatory arrangements, Farrell’s recommendations seem destined to add more complexity.
The review acknowledged that policy and enforcement issues captured by the “national interest” consideration could also include consumer protection, competition and infrastructure resilience. Lovely overlap there with the PSB.
There’s little doubt that Treasury mandarins - who sponsored Farrell’s review - would be delighted with the recommendations.
However, there are plenty of questions now being asked by federal politicians about the transparency and governance of this review, including Frydenberg’s decision to appoint Farrell to lead the inquiry.
In his role as a senior partner at King Wood & Mallesons, Farrell has been a key legal adviser to NPP Australia, whose services were a specific topic of the terms of reference for the review.
Neither Frydenberg nor his department sought to disclose Farrell’s association with the NPP to industry stakeholders that made submissions to the inquiry.
That absence of disclosure induced negative reactions from several payments industry stakeholders.
Their scepticism about the review is likely to be compounded by Frydenberg’s decision yesterday to appoint his department to oversee an industry consultation process for the final recommendations.
Ultimately this story is about a Treasurer appointing a conflicted external expert to a Treasury-sponsored inquiry that recommends more powers for the Treasurer and Treasury.
The same Treasurer then appoints the same Treasury to manage stakeholder feedback.