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Self-Regulation In ICU

Many questions have been raised about the role of regulation and the impact it has on Australian financial markets.

The Australian Prudential Regulation Authority (APRA) has been in the hot seat recently, not just because of what has been perceived as its ‘soft touch’ regulation, but also for its opacity.

Even after the release of APRA’s capability review, Chairman Wayne Byres did not make himself fully available to journalists, leaving room for speculation.

However, this week, APRA released its six-monthly report that showed it as being on-track to meet the implementation targets outlined by the Royal Commission recommendations.

Recently, the APRA Chair spoke at the Banking and Finance Oath (BFO) Conference. Closely related to the Ethics Centre, the BFO is committed to the promotion of ethical behaviour in the financial services.

Speaking at the conference, Byres admitted regulators could be partially held to blame for the ethical failures that occurred in the financial services sector.

Regulators must—as we do—accept some responsibility for these failures, and seek—as we are—to do better. Stronger and more active enforcement of the law, as advocated by the Royal Commission, is part of the solution and, supported by stronger powers, both APRA and ASIC are getting on with that.

But while their focus falls predominantly on external regulation, what about the role of self-regulation and an industry that has persistently demonstrated systemic ethical failures? Can the industry even be trusted to self-regulate?

There has been a push towards more formal regulation in this area, but it is also recognised that this cannot do the trick on its own.

“More formal regulation and enforcement cannot be the only answer to the issues of community concern. It must be accompanied by a healthy degree of self-regulation: industry codes of practice with genuine force, stronger frameworks of governance and accountability within companies, and a commitment by individuals to seek to operate with ethical restraint,” Byres said.

While self-regulation isn’t impossible, there is certainly a lot of work to regain the trust of the stakeholders involved.

Byres suggested that, while he did not think that self-regulation was ‘dead’, he does believe more can be done to improve its condition. “The Royal Commission has solidified the community’s perception that financial institutions do not value their customers, but instead take advantage of them.”

Byres highlighted the challenge of self-regulation is the balancing act between self-interest and collective interest, and note that, to further complicate things, the market cannot balance these competing motivations naturally.

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