This article was written by Alexander Morris, Peta Stevenson, Alison Hammond and Rebecca Prior.
The federal government announced yesterday that the Australian Securities and Investments Commission (ASIC) will receive a new mandate on competition issues.
Speaking at the ASIC Annual Forum in Sydney, Kelly O’Dwyer, the Minister for Revenue and Financial Services, said that "[t]his new mandate will require ASIC to consider the effect that its work and the exercise of its powers will have on competition in the financial system … [i]t is my belief that ultimately it is competition — not regulation — that is the best means of ensuring consumers get value for money in financial services".
The government has made clear that the changes are not intended to make ASIC an enforcer of competition law, which will remain the role of the Australian Competition and Consumer Commission (ACCC).
This new mandate will be contained within a new Statement of Expectations for ASIC. The federal government has periodically issued Statements of Expectations to ASIC. These are intended to “transparently express the Government’s aspirations whilst not undermining the independence of ASIC”. The Statements have no formal legislative status, and were introduced following the recommendations of the 2003 Review of Corporate Government of Statutory Authorities and Office Holders by Mr John Uhrig. ASIC normally responds to a Statement of Expectations with a Statement of Intent.
The inclusion of competition considerations within ASIC’s mandate implements a recommendation of the 2014 financial system inquiry, which considered that there had been regulatory complacency about competition in the wake of the global financial crisis. The 2014 inquiry also recommended that ASIC “conduct three-yearly external reviews of the state of competition”. It is not yet clear whether the government is also intending to implement this recommendation as part of ASIC’s new mandate.
Productivity Commission and ACCC reports
The government’s announcement comes on the heels of the Productivity Commission’s 7 February draft report on competition in the Australian financial system and last week’s interim report from the ACCC concerning residential mortgage product pricing. The Productivity Commission’s report concluded that there was an apparent lack of price rivalry in the Australian financial system, and noted that “[r]egulators have focused almost exclusively on prudential stability since the Global Financial Crisis”.
The Productivity Commission expressly noted that the 2014 recommendation to give ASIC a competition mandate had not yet been implemented. The report also sets out how responsibility for supporting competition in the financial system is currently shared across the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA), the ACCC and ASIC. As a result, the draft report concludes, “[i]n a system where all are somewhat responsible, it is inevitable that (at important times) none are”. The Productivity Commission’s position mirrors the conclusion of the 2014 inquiry, which noted that the ACCC does not have responsibility for “reviewing how decisions by other regulators affect competition”.
ASIC already has a statutory imperative in section 1 of the ASIC Act to facilitate and improve the performance of the financial system in the interests of economic efficiency and development. It is therefore open to question whether the augmentation of the non-legislative “Statement of Expectations” will have any significant impact upon ASIC’s day-to-day operations. In the absence of a change to the enforcement regime, the disjunct will remain where ASIC administers consumer protection laws concerning financial products and services whereas the ACCC retains power to enforce laws concerning competition in those markets.
In its draft report, the Productivity Commission proposes that the government designate a “competition champion”, and considers both the ACCC and ASIC as potential institutions for the role (stating that the focus of ARPA and the RBA should remain on financial stability). In its opening statement to the Commission’s inquiry, the ACCC explicitly said that among its recommendations “was the need for an existing regulator to be given the role of championing competition in the financial sector”.
We note that the Commission is currently undertaking further consultation prior to the release of its final report.
A second Deputy Chairperson
At the same time, yesterday the government announced the creation of a second Deputy Chairperson position within ASIC in order to “give ASIC greater flexibility to manage the breadth of ASIC’s new powers and increased responsibilities”. The government also noted that the structure would mirror that of the ACCC.
The changes align with the commencement of ASIC’s new Chairman, former Hong Kong regulator James Shipton, whose term began on 1 February 2018.
The elephant in the room, of course, is the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, led by former High Court justice Commissioner Kenneth Hayne. The Commission is scheduled to submit its interim report by no later than 30 September this year.
Legislation to implement the changes is expected in the coming weeks.