Among the submissions released by the Financial Services Royal Commission in response to the Financial Services Royal Commission's Interim report, was the UNSW Centre for Law Markets and Regulation Submission.  A very high level overview of some of the views put forward in the submission is below.

Some Key Points

The existing regulatory structure and ASIC's approach to enforcement

• No need to fundamentally rethink the 'twin peaks' regulatory structure: The submission argues that Australia should continue with the ‘twin-peaks’ regulatory structure constituted by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).  However, the submission suggests that consideration should be given to 'improving' the 'twin peaks' model by legislating to enable both regulators to make rules governing the same subject matters in their overlapping remits (as has successfully been adopted in South Africa). 
• ASIC’s remit is not too wide: The submission argues that as a ‘twin-peaks’ regulator, ASIC’s remit is not too wide, and that there is no need for detachment of part of its mandate in order to increase its effectiveness.  'Detachments from ASIC’s remit would damage the regulatory design of the twin peaks model: it would add co-ordination costs and would not provide savings.  Detachment would also surrender any possibility of realising the single regulator, single licence and single rules regime for conduct regulation envisaged as central to the twin peaks approach' the submission states.
• Funding is crucial to enabling ASIC to execute on its mandate: 'If funding is a proxy for political will, then guaranteeing funding in the forward estimates sufficient for ASIC to be credible in its enforcement work over the coming decade, will be the best signal that the politics of regulation have changed and that systematic non-compliance in the financial sector is no longer acceptable' the submission states.  In addition to funding, the submission also argues that there is a need for ASIC to have both 'fierce independence (from industry and politics), and appropriate personnel' in order to withstand political pressure.  Accordingly, the submission suggests that ASIC’s funding and recruitment should be reviewed and forward estimates its work made for the next 10 years to ensure it has resources to discharge its mandate.  The submission also notes that if this were implemented, funding for the Commonwealth Department of Public Prosecutions (CDPP) would also need to increase to cope with the additional prosecutions referred by ASIC.
• ASIC's approach to enforcement: The submission argues that 'ASIC is and should remain an enforcement regulator: an enforcer that is enabled politically, financially and legislatively to use a wide range of techniques strategically and credibly' (including a greater focus on pursuing civil and criminal penalties, and acting to suspend or revoke financial services licences as appropriate/proportionate).  Given the need for ASIC to work closely with the Commonwealth Department of Public Prosecutions (CDPP) the submission suggests that there is 'merit in considering the return of ASIC to the Department of the Attorney-General'.

Simplification of existing laws?

The submission argues that financial regulation in Australia 'suffers from rules complexity'.  The submission suggests that to address this, a standing expert regulatory law reform advisory body should be formed in the Attorney General's Department, to advise on changes to regulation. The submission adds that 'Rule complexity, which is not in the public interest, would be better addressed by the development of rules (including simple principles if so agreed) understood to work well, from prior regulatory or other legal experience'.

Conflicted remuneration

The submission argues that extending the application of conflicted remuneration across the financial service industry and removing carve outs and exceptions would be 'the most effective means of reducing misconduct risk and regulatory complexity related to remuneration' and would also assist in restoring public confidence.  The submission also argues that the extension of conflicted remuneration should be 'combined with regulatory action and meaningful efforts by industry to evaluate and reform culture. We submit that these steps will result in a financial service sector that is robust, effective, and responsive to customer needs'. 
The submission includes a number of specific 'recommendations' on this issue.  These include the following:

• Customer facing employees should have access to variable remuneration, but the statutory ban on conflicted remuneration should be extended to all customer-facing employees without limitation. Other carve outs and limitations to this regime should be substantially reduced.
• The same conflicted remuneration provisions should apply to managers and executives in banks. Intermediaries should also be subject to a ban on conflicted remuneration.
• Banks should consider extension of malus and clawbacks for staff who continue to receive variable remuneration, as a mechanism to incentivise long-term outcomes and customer wellbeing.
• Banks should continue to build on their application of the Sedgewick Report and be encouraged to adopt regular reviews of their systems and structures, to assess and enhance the practical impact on institutional culture at all levels.

[Source: UNSW Centre for Law Markets and Regulation submission in response to the Financial Services Royal Commission Interim Report]