After this, therefore because of this.
The recent Hayne Royal Commission has highlighted some appalling behaviours within the Australian Financial Services industry. But how did we get here?
At the same time that financial services misconduct has been increasing, the resources and powers of the financial services regulators have been increasing. Ditto the number of financial services regulations.
The usual arguments for increased regulations and regulatory powers is that misconduct is increasing. But could it actually be that the causation is incorrect. Could it actually be that increased regulations and regulatory powers are actually driving increased misconduct?
One of the unspoken costs of increased regulation is that increased the returns to scale. To maintain a business in such environments requires bulk to cover the cost of compliance. This crowds and pushes out the smaller independent operators. The price of entry has now increased and keeps increasing.
In strategy lingo, this is known as a barrier to entry and affects competition.
And what happens when the returns to scale are huge? You get scale operations.
For the same reason that TAFKAS believes that the best government is small close to the voter, he has a similar view about business.
The bank manager is a member of the community and his customers are his neighbours. They would not want to walk down the street having ripped of their neighbours. But the distance and the number of levels between the CBA CEO and the CBA teller allow the CEO the comfort of not having to look in to the eyes of those they screwed. Much like the existence of Canberra protects the bureaucrats for seeing the messes they cause far away.
This distance is only enabled by the benefits of scale because small and local operators can’t support the compliance costs. Small operators can’t support the cost of service from the regulatory industrial complex – the lawyers, accountants and advisors. Which is why they no longer exist.
Most of the recent increased powers for ASIC are about making ASIC’s life easier and to increase the work and profitability of regulatory industrial complex services providers – all the dodgies need to do is hire one of the major law firms, accountants or advisors to continue their business.
ASIC spends 80% of its time and resources beating up on the people and businesses who honest are behaving properly and 20% of its time and resources chasing those who are misbehaving. Should it not be the other way around? Should not ASIC spend 80% of its time and resources on those misbehaving?
The financial services sector is increasingly concentrated, significantly in response to the increased cost of regulation and compliance. And while the ACCC pursues free radge egg labeling, APRA is driving further concentration through industry super fund amalgamation. Yes. To make APRA’s life easier, it is better to have 4 Australian Super sized operations that to have 20 smaller funds.
One has to wonder for whose benefit is all this increased regulation.