Productivity Commission criticizes banking watchdogs

Australia’s banking and finance watchdogs did not exactly fare well under scrutiny during the Royal Commission inquiry, when they faced questions about why they allowed so much financial misconduct to happen. Now they are under fire once again, this time from the Productivity Commission (PC).

The PC is centering its criticism around superannuation funds and said that Australia’s watchdogs were ‘missing in action’ in regard to how fund members did not receive priority in savings and how the interests that the funds generated were seemingly more important.

One of the main issues to emerge from these inquiries is that there is a gray area where either both or neither regulator tackles a problem. As a result, they have been getting in each other’s way.

The Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have both been criticized for their failure to deal with potential allegations of misconduct in the superannuation sector, and the final commission report indicates that both should have used the powers that they had available to stop this in its tracks. Because neither of them did, it seems unlikely that they will escape censure.

Membership money did not receive proper protection, and there are concerns that later down the line, this could have a serious effect on the savings of the average Australian. People could find that their funds are not at the level that they expected.

In addition to the regulators’ behavior, parliament has not been free of responsibility, according to the PC’s report. It cited a lack of intervention to hold regulators accountable during both the Turnbull and Morrison administrations, which suggests that a culture of avoiding market intervention has carried on. As a result, it is likely that Australia’s banks will not take the regulators as seriously as they should, and this could undermine efforts to curtail reckless behavior.

The PC said that there is a ‘very real and ongoing risk that regulatory breaches ‘fall through the cracks’ as a result of divided responsibilities.’ Neither side knew which was meant to deal with certain issues, and this caused ‘poor outcomes for members.’

This appears to be yet another case of threats to the reliability of the super system, which relies on as many Australians paying in as possible to generate larger funds. With a growing number of people walking away from the major lenders due to their practices and the struggle to get good lending rates in some cases, if this issue does not reach resolution now, then it could threaten to unravel the super movement entirely.

The PC described the efforts of regulators to act upon breaches in an efficient manner as either ‘missing in action’ or ‘too little too late’ and said that the regulators did not demonstrate their ability to deter others from poor behavior to the public.

As APRA tends to deal with issues privately and disqualified some directors at the tail end of 2018, its lack of a public show of strength may not be enough to discourage the current issues in super management culture.