It’s been an infamous year for Australia’s economic regulators. Most ended it with their lack of vigilance exposed, their reputations battered and their ears stinging from judicial rebuke.
The biggest loser is the Australian Securities and Investments Commission, followed by the Australian Prudential Regulation Authority. But the mismanagement of the national electricity market became more apparent. And neither the Reserve Bank nor Treasury emerged unscathed.
Just one regulator had a good year, the Australian Competition and Consumer Commission. It worked hard, discharging its duties with vigour and initiative, taking on powerful business interests, seeking and being granted hugely increased maximum penalties, and fighting to make up for the negligence of its fellow regulators.
As the others have been found wanting, its role has been expanded. And as next year we see the government’s response to this year’s seemingly endless revelations of regulatory failure, it’s role may well be further widened. That’s what tends to happen when rival regulators’ failures become apparent.
It’s been a watershed year. From now on, life will never be the same for regulators found wanting under the microscope of public scrutiny.
Much of that scrutiny came from the banking royal commission, of course. Its interim report in September criticised ASIC for "rarely" going to court "to seek public denunciation of and punishment for misconduct," and being too accommodative when negotiating penalties with the companies it polices.
APRA faced criticism for a "lack of action" in response to widespread misbehaviour in superannuation, including cases where thousands of members were kept in higher fee accounts, rather than being moved into no-frills MySuper products.
But the royal commission wasn’t the only critic of economic regulators this year. I’ve said plenty elsewhere about the failure of the national electricity market’s three (and now four) official operators and regulators to prevent the massive blowout in retail power prices.
One of the many things the Turnbull government did in its vain attempt to fend off pressure for a royal commission was to get the Productivity Commission to report on competition in the financial sector.
The commission confirmed competition in banking was weak and made one eye-opening revelation: part of the problem was that, in their concern to ensure the stability of the banking system, APRA and the Reserve Bank weren’t too worried about ensuring this did as little as possible to inhibit price competition between the big banks.
The commission noted that when APRA had imposed limits on new interest-only lending, it and the Reserve had looked the other way while all four big banks used this as an excuse to jack up interest rates on new and existing interest-only loans.
It recommended that a “consumer champion” be appointed to join APRA, ASIC, Treasury and the Reserve on the co-ordinating Council of Financial Regulators. No prize for guessing the ACCC was the champion the commission had in mind. Nor for reading between the lines that the commission suspected the Reserve and Treasury had been “captured” by the bankers they were supposed to be regulating.
The ACCC has done what little it could over the years to oppose the misregulation and oligopolisation of the national electricity market, and its reports this year revealed what went wrong.
Last week it acted on three fronts. Its preliminary report on digital platforms took on Google and Facebook, greatly expanding our understanding of the questionable ways they operate and working on ways they could be regulated.
ACCC boss Rod Sims has long worried publicly about the state governments privatising their electricity businesses and ports in ways that maximised their sale price by inhibiting price competition. The banker-led Baird-Berejiklian government in NSW is the worst offender.
Last week Sims announced the ACCC was taking the Botany port operator to court, alleging its agreement with the NSW government is anti-competitive and illegal.
And last week the ACCC released its final report on factors influencing residential mortgage prices, commissioned at a time when the banks were threatening to pass the new “major bank levy” straight on to their customers.
The report covered similar territory to the earlier Productivity Commission report, noting again the way the banks had used APRA’s move on interest-only loans as an opportunity for “synchronised pricing”.
But the ACCC’s analysis of pricing dynamics in an oligopolistic market like banking revealed far more realism (and advanced economics) than the Productivity Commission’s trademark introductory textbook neo-classicism. The more I see, the more I like.