Late last month, Treasurer Josh Frydenberg simultaneously announced ASIC's new chair (Herbert Smith Freehills senior advisor Joseph Longo), a new "Statement of Expectations" for the regulator and his intention to introduce legislation establishing the Financial Regulator Assessment Authority (FRAA).
Only a few weeks later, Frydenberg has delivered on his promise. The Financial Regulator Assessment Authority Bill 2021, presented to the House last Thursday, will introduce a new overseeing body to monitor the "effectiveness and capability" of APRA and ASIC. It's designed to address recommendations 6.13 and 6.14 of the final Royal Commission report, which argued the two regulators should be subject to "at least quadrennial capability reviews" conducted by a "new oversight authority".
The Bill's explanatory material acknowledges that APRA and ASIC are both accountable to Parliament already, but argues that the FRAA will address the "limitations" of Parliamentary committees - such as a potential lack of expertise in regulatory effectiveness.
The FRAA will have two key responsibilities: assessment of and reporting on APRA and ASIC's effectiveness every two years and reviewing any matters relating to their effectiveness on an ad hoc basis as recommended by the overseeing Treasury portfolio minister. It will comprise four members, three of whom will be appointed by the overseeing minister and one who will either be the Treasury secretary or a nominated Senior Executive Service employee within Treasury.
In order to "safeguard the independence of the regulators" and prevent regulatory duplication, the FRAA won't be permitted to investigate the effectiveness of APRA or ASIC based on a single action or case. Whenever it's convened (either by the overseeing minister or every two years as stipulated in the Bill), though, the FRAA will request full cooperation "to the extent reasonably necessary" from both regulators.
This includes providing any information or document the FRAA requests and answering any questions it asks. Legal professional privilege does not excuse this requirement, although the FRAA is prohibited from including protected information its report.
The FRAA also won't be responsible for adjustments in future funding or policy settings concerning ASIC or APRA, but its reports to the overseeing minister (and potential use in Parliamentary committees) may give rise to that effect.
We obviously don't yet know who might be in charge of FRAA reviews, but the Bill mandates that the overseeing minister takes into account "relevant experience, expertise and qualifications" when appointing members. Appointees have a maximum consecutive tenure of five years and a maximum total tenure of 10 years.
The fact that the Government is moving quickly ahead with the FRAA proposal may be encouraging for some advisers whose businesses have been burned by the unpredictable (and somewhat inscrutable) ways in which ASIC's resourcing has translated into industry levies. That FRAA members may be more qualified to assess regulatory effectiveness than members of Parliamentary committees could lead to more definitive reviews of these matters.
On the other hand, because the Bill states that the FRA "is not subject to directions by anyone, including the Minister, in relation to how a particular assessment is undertaken," it's unclear to what extent matters regularly raised in the industry will be taken into consideration.
Do you think the FRAA's establishment will be a net benefit, or is just another roll of red tape?
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