From Campbell to Hayne: W[h]ither Australia? Australian financial regulation and supervision at a cross-roads

The Australian Government is in receipt of landmark advice: Heydon Royal Commission, Productivity Commission, and the Hayne Royal Commission. Each of them points to deep systemic and cyclical problems in the provision of financial products and financial services. Whilst the Hayne Royal Commission identified egregious behaviour in banks and large financial institutions, far greater economic damage has occurred in less well known sectors of the Australian financial system. Australian law regulating and supervising Non-Bank Financial Entities (NBFEs) has failed those it purports to protect: the vulnerable investing public. Systemic failure manifests in extraordinary loss of investor funds and nationwide economic damage. Without substantial law reform, this author predicts systemic deficiencies in regulation will remain, repeating their cyclical manifestations. Australia’s plight is not unique but no other nation with a sophisticated economy now suffers comparatively. Blame is being attached to the basic policy framework whereas in fact it is policy implementation and enforcement that has allowed systemic failures to manifest. Research demonstrates that inherent tensions between entrepreneurship and investor risk, optimal investor outcomes balanced with compliance, are not of themselves contradictory in a market based system, but they rely upon defining objectives, eliminating conflicts of objectives and conflicts of interest, significantly enhanced behavioural standards of market participants, and the de-politicisation of the regulatory environment. This analysis demonstrates that fiduciary principles are misunderstood, applied haphazardly, often ignored, and subservient to specific statutory and contractual provisions. Australia has a history of subsuming fiduciary principles behind statutory and contractual frameworks facilitating grudging disclosure and creeping corruption. Community expectations of what each market participant should do is often different from what they actually do. Hayne’s real message is the need to link law and morality, community norms and expectations with legal reality.