Time to revisit the oversight of Australia’s regulators, says former ASIC chair James Shipton

Australia’s regulators are largely left to their own devices, but now former corporate cop James Shipton is calling for a new watchdog.

Former ASIC chairman James Shipton at his home in Melbourne. Picture: Aaron Francis/The Australian

Australia’s regulators are set up for failure and a fresh approach to systemic regulation is needed to introduce checks and balances that preserve the clarity of their mission and protect them from political interference, says former corporate cop James Shipton.

Mr Shipton, who left the Australian Securities & Investments Commission in 2021 after three years as chair, warned the country’s regulators are hamstrung by “suboptimal internal corporate governance structures” coupled with limited external oversight, in research published by the Melbourne Law School.

Mr Shipton, who is a senior fellow at the law school, said agencies suffer because they are often directed by “ineffective” bodies, usually parliamentary committees.

“This means that many (powerful) regulators, are not, in practice, being properly held to account or assessed by an elected branch of government,” he said.

“This means improvement feedback loops are ineffective (or non-existent).”

Mr Shipton noted in many countries, the executive branch of government which brings regulators into existence also distances itself from overseeing the agencies.

“Regulators are often described by ministers and their departments in a similar way to the judiciary; distinct and apart,” he notes.

“There has been an abrogation of responsibility towards the regulatory branch by the executive and legislative. Consequently, the regulatory branch, with its considerable powers and monopolistic tendencies, is effectively left unaccountable.”

Mr Shipton told The Australian that this country and many equivalent economies have regulators which are “set up to fail” without sustainable systems to improve their functionality outside of ad hoc inquiries.

“The original sin where everything is allowed to happen, there’s no one source of truth, there’s no source of measuring effectiveness,” he said, “that allows people to get away with masking these problems because there’s no diagnostic test that allows for these issues to be discovered.”

Mr Shipton said the fix for regulators is for governments to “take back responsibility”, noting previous inquiries in Australia had raised the prospect of setting up an Inspector General model for regulatory accountability.

He pointed to changes in New Zealand, which introduced a Ministry of Regulation in March 2024, and which has kicked off a series of reviews into that nation’s regulatory agencies.

“You could develop a virtuous circle of improvement loops,” Mr Shipton said.

James Shipton during a Parliamentary Joint Committee on Corporations and Financial Services at Parliament House in Canberra in 2019. Picture: Lukas Coch/AAP Image

Mr Shipton recalled the 2003 Uhrig review, which recommended the creation of an Inspector General, was rejected at the time “on the basis that an extra layer was unnecessary given the envisioned organisational improvements that would follow the implementation of the other accepted recommendations of the report”.

In his research, Mr Shipton notes regulators are often overburdened and budget constrained, “asked to do too much with too little” and also “given evermore responsibilities by governments and legislatures”.

“Regulators often must administer overly complex, voluminous, out-of-date, and/or frequently conflicting legislative regimes,” he wrote.

“These legislative regimes are also often incomplete, have definitional constraints (particularly as regards the extent of a regulator’s jurisdiction), and lag sectoral and technological developments.”

Mr Shipton argued the regulatory state has become “pervasive” covering “almost every aspect of life”.

But he warned despite its ever presence, regulators are being pulled in different directions by societal and political expectations, cautioning as a consequence regulators faced “a continuing stream of criticism” and inquiries that failed to acknowledge the reasons why regulators failed.

Several of Australia’s regulators have faced criticism recently, with ASIC the subject of a Senate inquiry which submitted the agency “had failed” with a weak enforcement record.

Separately, the Australian Prudential Regulation Authority which oversees banks and insurers has been the subject of fresh criticism, with both the Labor Party and the Coalition noting their intention to order APRA to change the rules it applies around bank lending.

And, the Financial Regulator Assessment Authority was set up in a bid to ensure ongoing reviews of ASIC and APRA in the wake of the Hayne royal commission, headed up by former Macquarie chief executive Nicholas Moore.

The FRAA was supposed to scrutinise APRA and ASIC every two years, but in 2023 this was reduced to every five years after budget cuts to the regulatory watchdog.

Mr Shipton notes in many regulatory systems, dysfunction rules.

There are some exceptions like aviation in which “plane manufacturers, pilots, engineers, and (even) passengers usually subscribe to the regulatory goal of ‘safe airline travel’”.

“All these actors have mostly become agents of a clear regulatory purpose,” Mr Shipton wrote. “These exceptions stand in stark contrast to the deficient collaboration in most other regulatory systems.”