In a paper entitled Regulating the Australian financial system, Erskinomics managing director Alex Erskine argued the Council of Financial Regulators (CFR) should have a greater role in regulating the system.
The paper is one of four that form part of the Australian Centre for Financial Studies’ 'Funding Australia’s Future' initiative.
Mr Erskine argued in the paper the CFR should be recreated as a statutory body with an “independent non-executive chair, publishing an agenda and minutes for regular meetings and accountable to parliament”.
“The CFR should have two roles: to oversee the effectiveness of regulation and to be perpetually paranoid about systemic financial instability and make decisions on the conduct of macro-prudential policy,” said Mr Erskine.
“The council could contract the RBA and other regulatory agencies as appropriate to implement its macro-prudential policy decisions, resolving the confusion between the RBA and APRA over macro-prudential policy.”
Mr Erskine also believes the Reserve Bank’s responsibility for financial stability should be transferred to the CFR.
“This will let the council determine macro-prudential policy actions on a pre-emptive basis while allowing the bank to implement monetary policy with a sole focus on inflation,” he said.
He also argued that APRA should have a mandate to protect taxpayers from the risk of bail-outs made “explicitly part of its objectives”.
ASIC’s main objective, according to Mr Erskine, should be market integrity.
He said the corporate regulator should be equipped with “effective data, analysis, policy and regulatory tools to perform this task, with funding remaining with taxpayers to limit risk of regulatory capture”.
“Its competition and consumer responsibilities should be stripped out and assigned to the Australian Competition and Consumer Commission (ACCC),” he said.
A vigorous competition regulator will be more important for Australia’s future, said Mr Erskine.
“Key competition questions will arise from the increasing vertical integration of the dominant banks into all aspects of finance and the implications of the emerging international trend to ring-fence core banking from riskier trading businesses,” he said.
Mr Erskine argued Australia needs to create a regulatory structure that limits the risk to taxpayers in future crises.
“Financial system regulation, especially prudential and macro-prudential, needs to be reassessed in this ‘systemic stability’ light, and the risk to taxpayers appropriately managed,” he said.
