AbstractThis thesis proposes that there is systemic failure in financial services and financial product regulation in Australia. Australian law regulating and supervising Non-Bank Financial Entities (NBFEs) has failed those it purports to protect: the vulnerable investing public. Systemic failure manifests in extraordinary loss of investor funds: this thesis contains the sole holistic empirical analysis.
Australian regulation of financial products and financial services requires substantive strategic law reform. Without it, this thesis predicts systemic deficiencies in regulation will remain, repeating their cyclical manifestations. This study of Australian financial services and products regulation traverses four primary periods from 1981 to 2018. It explains the economic conditions which drove the development of the legal framework, traversing four discrete periods: ‘Deregulation and Entrepreneurship’ (1981–2001), ‘Disquiet’ (2002–2009), ‘Reaction’ (2010–2013) and the ‘Age of Statutes’ (2013 et seq.).
This thesis analyses judicial responses which demonstrate Australia has a long history of subsuming fiduciary principles in financial products and services provision, hiding behind statutory and contractual frameworks which facilitate grudging disclosure and creeping corruption.
Using doctrinal, empirical, qualitative, and comparative international legal analysis from five jurisdictions, this thesis demonstrates that comprehension of fiduciary principles is limited, applied haphazardly, often ignored, and subservient to statutory provisions which focus on compliance rather than investor value outcomes. Community expectations of what each market participant should do is often different from what they actually do. These ambiguities led investors to a false sense of security which was sadly and damagingly misplaced. There is a trust deficit.
The list of failures is long and often well known. What is less well known is the extraordinary loss of client and investor funds. Losses amount to some AUD 52.25 billion from more than 1.915 million investors in 199 senior court cases and a substantial loss of economic productivity. Australia’s plight is not unique but no other nation with a sophisticated economy now suffers comparatively. There is substantial systemic risk buried deeply in the governance of entities in the financial system.Remedying this risk will require substantive law reform to eliminate or ameliorate its causes.
There has been a plethora of law reform proposals in financial products and services regulation.Largely these reforms have been tactical, not meeting their objectives because of systemic and cyclical failure in the implementation of each element of Australia’s market model (ie Disclosure, Advice, and Financial Literacy). This thesis tests that proposition. There is limited commonality of view and only superficial questioning of the basic tenets upon which Australia’s regulation of financial products and services is based. Blame is being attached to the basic policy framework whereas in fact it is policy implementation and enforcement that has allowed systemic failures to manifest.
Similarly, it appears likely that inattention to these systemic deficiencies renders the Australian compulsory superannuation system fraught with contingent risk. This empirical analysis has predictive veracity. As Commissioner Heydon noted: History appears to be repeating itself.
Australia has benefited from its Twin Peaks market based regulatory system and arguably has progressed toward the first objective of an entrepreneurial wealth creating society competing with its global peers in many asset classes. The second objective, being financial stability and risk mitigation,has for many people exposed to NBFEs, an abject disaster. The inherent tensions between entrepreneurship and investor risk, optimal investor outcomes balanced with compliance, are not of themselves contradictory in a market based system, but they rely upon defining objectives,eliminating conflicts of objectives and conflicts of interest, significantly enhanced behavioural standards of market participants, and the de-politicisation of the regulatory environment.
Accretive statutory change is not enough. Cyclical corruption rooted in cultural mores requires excision, not management. Excision requires surgery. These issues recur in every segment of the NBFE sector, plagued by egregious related party transactions, their inherent conflicts of interest, and propensity to deceptive and misleading conduct, dishonesty and fraud.
Any discussion of law reform needs to comprehend the two problematic themes of expecting accretive statutory change to address cultural deficiencies and the primacy of fiduciary principles.The first theme is better understood and implemented by reflecting on international practice incomparable jurisdictions. The second theme will require a national sustained education and enforcement campaign to inculcate NBFE industry participants with fiduciary concepts. Cultural change to inject and extend fiduciary obligations and principles is a generational task. Presently, to the extent fiduciary principles are understood at all, their comprehension is not widespread, applied haphazardly, often ignored, and subservient to adherence to specific statutory and contractual provisions which focus on statutory compliance rather than value outcomes, being a principle of trust law. This thesis demonstrates that it is only the courts that have applied those principles in meeting community expectations and they will need to continue to do so despite multiple statutory interventions.
|Date of Award||2018|
|Supervisor||Jim Corkery (Supervisor), Vai Io Lo (Supervisor) & John Farrar (Supervisor)|