Prudential Regulation in Australia and the Banking Royal Commission: A Missed Opportunity for Reform?

Abstract

The global financial crisis (GFC) revealed fundamental regulatory weaknesses in many of the world’s leading financial jurisdictions. In particular, there was a lack of attention to risks of a systemic nature. Post-GFC regulatory reforms in many of these jurisdictions have sought to address this problem through the introduction of regulation that emphasises the systemic nature of financial risk as well as changes to regulatory structures to give effect to post-GFC regulatory approaches. These considerations have not had as big an impact in Australia as it escaped the worst effects of the GFC. Instead, Australian policy-makers and regulators have tended to focus more on market conduct and consumer protection matters as evidenced during the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This article argues that the secondary status of systemic financial stability as a regulatory concern in Australia following the GFC undermines the centrality of systemic financial stability as a regulatory goal. The article proposes a number of reforms that have been introduced in jurisdictions such as the UK to give effect to global best practice following the GFC and which have as their key aim the maintenance of systemic financial stability as a primary goal.