End clubby chats, mutual banks hear

George Lekakis Finance regulation
Breaking bread with bankers at pricey Sydney steak houses is one habit financial regulators need to shed.
Breaking bread with bankers at pricey Sydney steak houses is one habit financial regulators need to shed.

Former ACCC boss Graeme Samuel yesterday advanced a reform blueprint for improving the standard of financial services regulation in Australia, one that will curtail compromising contacts between bankers and most staff and officials of APRA, ASIC, the Reserve Bank of Australia.

Samuel, used a mutual banking conference in Melbourne yesterday to consider matters rarely aired in a public forum.

“The industry is adept at implementing regulatory capture strategies,” Samuel explained in a keynote address to the Customer Owned Banking Association’s annual conference in Melbourne.

Samuel framed his discussion of the risk of industry capture plainly, saying it was the most serious peril facing regulators.

He cautioned staff and boards of mutual banks and credit unions to exercise caution in their contacts with public officials, listing “the invitations to entertainment events, the private luncheons, in fact anything that gives the vulnerable regulator the satisfaction or inner glow that they are mixing it with big end of town,” as examples of the dubious conduct of those financial firms seeking compromises and friendship with officials.

“In economic terms it is described as psychic income… regulators need to be headed by individuals who have as their primary focus the fulfilling of their remit, in the public interest,” he said.

While Samuel shares Commissioner Kenneth Hayne’s criticisms of the past performance of ASIC and APRA, he told COBA’s delegates that he believes that the currently regulatory architecture should be reformed rather than scrapped.

“ASIC has the regulatory remit, but in the past has perhaps lacked the culture and commitment to that remit,” he told the conference.

“I have had some excellent discussions with James Shipton and am firmly of the view that while he has an enormous responsibility and the expectations are significant, looking back over the decades since the birth of ASIC, he is the most equipped chair to fulfil its remit.”

For Samuel, the key to improving the performance of ASIC and other financial regulators hangs essentially on building more fearless organisational cultures that shield senior officers and staff from industry capture.

Some tinkering of the system is required - particularly with the courts - if a future government agrees with Hayne’s call for ASIC to focus on law enforcement.

Samuel questioned whether the courts were equipped with the right judges to deal with a flood of enforcement cases.

“First establish and maintain a specialised group of judges with expertise in the complexities of corporate, securities and financial services law and practice,” he said.

“The Federal Court has done that, although it is not clear that the selected judges can or indeed could have expert knowledge of the highly complex notions of corporate and securities law.”    

Samuel also indulged in an opportunity to bucket the past performance of the Australian Securities and Investments Commission, and scrap with his former counterpart.

The former competition czar launched a thinly veiled attack on ex-ASIC chair Greg Medcraft who now leads the OECD’s directorate of financial affairs.

“I have recently commented on the unfortunate diversions that can afflict regulators and divert them from their essential remit of enforcing the law,” Samuel told the conference.

“The first is the lure of the post-regulatory career – with agency heads it is often an overseas post.

“As so through their term as regulators they spend inordinate months each year at the OECD or IOSCO or whatever, raising their profile in anticipation of that post-career opportunity.

“Being the chair of a significant regulatory institution is a serious full time responsibility and does not allow for these substantial diversions from the duties of office.”