9.2 The appropriate oversight body

It remains to be determined which entity should assume responsibility for the additional oversight and assessment I have recommended.

Mr Shipton suggested that the Council of Financial Regulators (CFR) – a body constituted by the heads of the financial regulators and chaired by the Governor of the RBA – could be used as the forum for assessing ‘both the effectiveness of financial regulation (in terms of stability and conduct) in Australia, and the effectiveness of individual regulators’.[1] I am not in favour of the CFR being charged with the second task. The CFR serves as an important, formal occasion for discussion between the financial regulators. It is essentially a forum for co–ordination between the various regulators. I have already emphasised the importance of regulatory co–ordination. Adding an assessment function to the CFR’s remit would mark a radical departure from the current conception of that body. I do not support such a departure.

I consider that a new body is required. Its sole task would be to perform the functions I have described. It should be established by legislation and be independent of Government.

The oversight body should be constituted by three part-time members. Membership of the body should be reserved for people of unquestionable experience in relevant disciplines. Those members should be supported by a permanent staff capable of advancing the work of the authority on a day-to-day basis.

While the staffing arrangements for the new authority are a matter for Government, the appointed members should be supported by a permanent body of staff or secretariat. If the secretariat model was chosen, it could be staffed by, but perform its functions independently from, the Treasury. The permanent office should be led by a head of office capable of directing the daily operations of the authority and advancing the work program determined by the members.

The legislation to establish the oversight body should:

• provide that the authority is independent of Government;
• empower the authority to conduct inspections of either regulator at will;
• empower the authority to issue a notice to either regulator requiring it to produce documents or provide information in any form;
• empower the authority to issue a direction to APRA or ASIC in connection with the adoption and implementation of the BEAR principles;
• require the authority to report to the Minister, and through the Minister to Parliament, in respect of each regulator at least biennially;
• authorise the authority to report separately on particular matters if the authority thinks it appropriate and necessary; and
• require the authority to produce or commission quadrennial capability reviews of each entity.

[1] Exhibit 7.63, Witness statement of James Shipton, 7 November 2018, 20 [62(a)].