Keeping Them Honest !

The Royal Commission into the banking industry was certainly a revelation that Australia was at the mercy of a banking consortium that had little respect for the law and used practices that were clearly illegal to inflate its profits.  The report runs to a thousand pages and the ball is back in the governments court when it comes to enforcing the legal standards that apply to banking.

There has been criticism of the banking regulators who are on the government payroll and whose purpose was to ensure that banking standards in Australia were squeaky clean.  Now there is talk of giving APRA and ASIC new powers with the hope that in the future they will regulate banking and prevent the type of malpractice this Royal Commission has exposed.

What seems to be missing is any measure to hold those regulators responsible for the mess that happened on their watch.  The banks were able to ignore the law because of the cosy association they had with both the Australian Prudential Regulation Authority and the  Australian Securities and Investment Commission.  That Royal Commission would not have been necessary if these banking watchdogs had been doing their duty.

Here in Australia there seems a strange reluctance to take strong action when dereliction of duty by regulators becomes evident.  The crash of 2008 came about when home mortgages in a rising home price market were packed into an investment category called " Derivatives " and this was given a triple A rating by the industry that appraises investment standards.   Unfortunately, these mortgages were " sliced and diced " and many were certain to fail and consequently many public investors found themselves holding worthless securities.

No action was taken against those regulators who granted triple A rating to securities that caused loss and precisely the same firms are today responsible for granting the rating that applies to securities on the investment market.  That lack of a response would have been abundantly clear to the well paid honchos who head APRA and ASIC.

Such failures need to bring a swift response.  The entire hierarchy of both those regulators need to be shown the door and that clear out should extend to middle management level.  In fact all at a supervisory level should be stripped of whatever tertiary qualifications they hold and banned from ever again working in the financial industry for the rest of their lives.  Where failure to act is clearly a law breach, they should be put before a court and required to account for their actions - or lack of actions.

Regulatory authorities in all their many forms will not take their responsibilities seriously unless failure brings both job termination and a status loss that reflects their future earning ability.  The banks got away with defrauding the public simple because the regulators allowed that to happen. The regulatory industry delivers well paid jobs, but they also come with responsibility.

This Royal Commission underlines what went wrong.  What is missing is the consequences that should apply to those who allowed it to happen.