Combatting Regulatory Capture: Australia’s New Financial Regulator Assessment Authority—A Regulator to Regulate the Regulator


Time to read

2 Minutes


Andrew Schmulow
Senior Lecturer, University of Wollongong
Paul Mazzola
Lecturer, University of Wollongong
Daniel de Zilva
Associate Director, Kiel Advisory Group

In a previous article, published in the Federal Law Review, we discussed regulatory capture and evidence that Australia’s Twin Peaks regulators, ASIC and APRA, had succumbed to such capture. In a new article, we put forward the recourse to an oversight board—a regulator to regulate the regulator—as a solution to the regulatory capture observed with ASIC and APRA. This article was submitted to the 2019 Australian Royal Commission of Inquiry into Misconduct in the Banking, Superannuation and Financial Services Industry (FSRC). The FSRC found that APRA and ASIC had indeed succumbed to capture, and adopted the proposal for an oversight board at recommendation 6.14 of the FSRC final report. The proposal made by the FSRC was subsequently reflected in the Financial Regulator Assessment Authority Act.

In our article, the proposed legislation was analysed while it was in Bill form. The Bill was found to be of mixed quality. Our aim was to provide solutions to the deficiencies observed in the proposed legislation in order to ensure that the new Financial Regulator Assessment Authority, to which oversight of regulators was to be entrusted, did not, itself, fall prey to capture. To this end we presented a novel methodology that encompasses a doctrinal legal perspective, an economics and finance perspective, and an organisational psychology perspective. Just as our first article, this new article borrows heavily from the work of other scholars who have turned their attention to how best to combat regulatory capture. These scholars include Charles Francis Adams Jnr who, writing in the 1860s, proposed what came to be called a Sunshine Commission, the purpose of which would have been to combat the observed capture of the State Railroad Commissions by the railroad barons in the United States. Other important contributions include those of Barth, Caprio and Levine, whose seminal work, The Guardians of Finance (MIT Press), proposed a similar approach to combatting capture of the financial industry regulators in the United States.

One of the most important findings that came out of our research was the need for such an oversight authority to be independent of governments and regulators. In line with this idea, the original Bill, which envisaged a central role for Australia’s Treasury in the running of the new Assessment Authority, was amended by the Australian Federal Senate on the basis of the research presented in this article to remove the Treasury’s involvement in the operation of the new Assessment Authority from the Bill.

Unfortunately, many other deficiencies in the Bill were not addressed, with the result that the success of the new Assessment Authority is not guaranteed. Close observation, and potentially further refinements to the now enacted legislation will be warranted if the new Assessment Authority fails to ensure that ASIC and APRA resist industry capture.

If this new oversight authority succeeds in its mission, it could become a template for effective and enhanced efficacy of financial regulation in other jurisdictions.

Andrew Schmulow is a Senior Lecturer at the University of Wollongong, Australia.

Paul Mazzola is a Lecturer at the University of Wollongong, Australia.

Daniel de Zilva is an Associate Director at Kiel Advisory Group.


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