Bragg advocates overhaul: Calls for comprehensive Financial System Inquiry

Senator Andrew Bragg is demanding a comprehensive review of the regulatory framework through a new Financial System Inquiry (FSI).

Speaking at an FSC event on Thursday, Bragg said the existing system, implemented over 25 years ago under the Twin Peaks model, harbours significant structural issues that pose risks to the nation’s economic standing, job market, and innovation.

Bragg highlighted the need to shine a spotlight on these issues, particularly on the Australian Securities and Investments Commission (ASIC) arguing that the regulatory body has strayed from its fundamental duty of enforcing corporate law, becoming more focused on self-promotion and deflecting media criticism.

“In the last financial year, it was revealed that even the Great Barrier Reef Marine Park Authority had made more referrals to the Committee by the Commonwealth Director of Public Prosecutions than ASIC,” Bragg said.

“The reality is that there are very few criminal convictions achieved in Australia for breaches of corporate law. For some people, Australia is a haven for white-collar criminals.”

Citing CDPP data, Bragg said the rate of prosecutions initiated from ASIC referrals had plummeted from 75 per cent in 2018 to 19 per cent in the last financial year.

“But as it would turn out, this was just the tip of the ASIC iceberg. Over the last 16 months, what we have uncovered has been deeply disturbing,” Bragg said, referring to the Senate economics committee into the regulator.

“Regrettably, we have also found that the media drives enforcement. If ASIC is afraid of media coverage, it will move.”

Using the Nuix case as an example, Bragg accused the regulator of becoming “entirely reactive to corporate malfeasance”, which, he said, only leads to consumer harm.

In 2020, amid heightened anticipation for Nuix’s touted as the largest IPO of the year, ASIC received warnings in November about potential defects in the prospectus, yet the IPO proceeded on 4 December 2020. Despite allegedly credible reports from Nuix insiders to ASIC, Bragg said it took the regulatory body eight months to respond, ultimately resulting in no action.

“The real-world impact of ASIC’s inaction on Nuix caused losses of around $650 million for mum-and-dad investors,” Bragg said.

Need for an FSI 

Bragg also harbours concerns about the Australian Prudential Regulation Authority (APRA), particularly in relation to its “failure to clamp down on breaches of the best financial interests duty” among superannuation funds and a seemingly slow response to investigating financial transactions between super funds and unions.

“Last year, I exposed how super funds gave unions $8 million during the 2021–22 financial year. When I raised these payments with APRA in May 2023, they told me there was a ‘formal investigation’,” he said.

“Fast forward almost nine months, I am still awaiting the outcome of APRA’s formal investigations.”

Ultimately, Bragg stressed that a new FSI could provide an opportunity to address not only the issues with ASIC and APRA, but also broader concerns, including the influence of the superannuation system on the economy, tax considerations, housing challenges, and the impact of digital disruption on the financial sector.

The last FSI occurred almost a decade ago and is considered by some as instrumental in recommending reforms that significantly shaped Australia’s financial landscape.

This FSI, according to Bragg, should:

• Undertake a proper review of payments that looks at economic and geostrategic matters collectively.
• Examine the tax points in the sector to ensure competitiveness and efficiency.
• Specifically look to how the financial sector arrangements may be recalibrated to help solve our great national challenge of housing younger Australians.
• Consider the influence of superannuation over the economy.
• Look for opportunities for deregulation such as duplication that exists in prudential standards and legislation – including responsible lending.
• Consider the value of standardised terms and consumer disclosures.
• Consider the overall regulatory architecture, the “regulator of regulators”, and the role of the Council of Financial Regulators.

“We need vision to capitalise upon the opportunities and maintain our base as a regional hub for financial and professional services,” Bragg concluded.