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Abstract
This article looks at credit, linked to both debt and culture, to outline challenges in methods of regulation and its assessment. It takes the proposed architecture of credit regulation within South Africa’s coming “twin peaks” structure, refracted against some Australian experiences, to ask what questions should be posed and what methodologies are available to assess credit regulation in a new regulatory regime. The article argues there may be gaps between existing cultural norms, the behaviours required for a new regulatory regime, and community expectations of what regulation may be expected to achieve. Understandings of the regulatory task, and accountabilities of the regulatory regime become more important. This is particularly so when a new regulatory regime incorporates already established parts and some existing values in a staged approach. It argues that a culture of cooperation and coordination is key to maintain both access to credit as debt, and credit as trust.
Notes on contributor
Professor Gail Pearson is on the Board of the Consumers Federation of Australia and, as such, a member of the Consumer Advisory Panel for ASIC. She is the immediate Past President of the International Association of Consumer Law, and a member of the International Law Association committee on international protection of consumers. She has had various advisory roles with government and business.
Notes
1 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997.
2 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014 (Murray), Senate Economics References Committee, Performance of the Australian Securities and Investments Commission (Commonwealth of Australia, Canberra, 2014).
3 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014, 220.
4 The Storm Financial crisis was as much about inappropriate lending as inappropriate financial advice: Parliamentary Joint Committee on Corporations and Financial Services, Parliament of the Commonwealth of Australia, Inquiry into Financial Products and Services in Australia (2009) (“Ripoll”); Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023. One of the major banks, Westpac, is currently before the Federal Court for systemic breaches of responsible lending rules.
5 J Black, “Enrolling Actors in Regulatory Systems: Examples from UK Financial Services Regulation” (2003) Public Law Spring 63.
6 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014, 241.
7 “APRA is to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives, is to promote financial system stability in Australia” Australian Prudential Regulation Authority Act 2001 (Cth) s 8 (2).
8 I Ayres and J Braithwaite, Responsive Regulation (Oxford University Press, 1992).
9 The Senate, Economics References Committee, Commonwealth of Australia, Performance of the Australian Securities and Investments Commission (June 2014), chapter 4; on risk-based regulation, see J Black, “The Emergence of Risk-Based Regulation and the New Public Risk Management in the United Kingdom” (2005) Public Law Autumn 512.
10 R Baldwin and J Black, “Really Responsive Regulation” (2008) 71(1) The Modern Law Review 5; Omri Ben-Shahar and Carl E Schneider, More Than You Wanted To Know the Failure of Mandated Disclosure (Princeton University Press, 2014).
11 J Black, “The Emergence of Risk-Based Regulation and the New Public Risk Management in the United Kingdom” (2005) Public Law Autumn 512.
12 Black, supra n 9; ASIC Statement of Intent; July 2014, http://asic.gov.au/about-asic/what-we-do/our-role/statements-of-expectations-and-intent/statement-of-intent-july-2014/.
13 R Baldwin and J Black, “Really Responsive Regulation” (2008) 71(1) Modern Law Review 59, 61.
14 Ibid, 69ff.
15 Financial Stability Board (2014), Guidance on Supervisory Interaction with Financial Institutions on Risk Culture: A Framework for Assessing Risk Culture, http://www.fsb.org/wp-content/uploads/140407.pdf.
16 “Outline of ASIC’s Approach to Corporate Culture”, A speech by John Price, Commissioner, Australian Securities and Investments Commission AICD Directors’ Forum: Regulators’ Insights on Risk Culture (Sydney, Australia), 19 July 2017.
17 “Why Culture Matters” A speech by Greg Medcraft, Chairman, Australian Securities and Investments Commission BNP Paribas Conduct Month (Sydney, Australia), 24 May 2016, http://asic.gov.au/about-asic/media-centre/speeches/why-culture-matters/.
18 APRA 2015, Prudential Standard CPS 220 Risk Management, http://www.apra.gov.au/CrossIndustry/Documents/Prudential-Standard-CPS-220-Risk-Management-January-2015.pdf.
19 APRA Information Paper, Risk Culture, October 2016.
20 APRA MR 17.38, “APRA Announces Panel Members and Terms of Reference for Prudential Inquiry into CBA”, 8 September 2017.
21 Grant Thornton, Measurement of Culture in Financial Services Firms, How Can You Manage What You Do Not Measure? (2016), http://www.grantthornton.co.uk/globalassets/1.-member-firms/united-kingdom/pdf/publication/2016/measuring-culture-in-financial-services.pdf.
22 PR Wood, “How to Compare Regulatory Regimes” (2007) 2(4) Capital Markets Law Journal 332, 335.
23 MA Handley, A Gorukanti and A Cattamanchi, “Strategies for Implementing Implementation Science: A Methodological Overview” Emergency Medicine Journal, published online first 18 February 2016 as doi:10.1136/emermed-2015-205461.
24 R Baldwin and J Black, “Really Responsive Regulation” (2008) 71(1) The Modern Law Review 59, 76 f; Table 1 A Really Responsive Enforcement Framework: Key Questions.
25 Ibid, Table 1, 78.
26 Australian Government, Regulator Performance Framework, Commonwealth of Australia (2014), http://www.cuttingredtape.gov.au/.
27 Australian Government, Fit for the Future: A Capability Review of the Australian Securities and Investments Commission, a Report to Government, December 2015.
28 Ibid, Figure 1: Capability Review Assessment Framework, 4.
29 Ibid, 6, 7.
30 Ibid, 8, 9.
31 Ibid, 10.
32 Ibid, 11.
33 Ibid, 13.
34 Ibid, 24.
35 Republic of South Africa, National Treasury, Performance Information Handbook, April 2011, 23.
36 Questions following, J Ferriera, Twin Peaks Financial Sector Conduct Authority presentation Colloquium University of Pretoria, September 2017.
37 National Consumer Credit Protection Act 2009, (Cth).
38 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997, 33, Recommendation 6.
39 Consumer Affairs Victoria, The Report of the Consumer Credit Review (Merlino Report) 2006, 5.
40 Australian Government, Rethinking Regulation Report of the Taskforce on Reducing Regulatory Burdens on Business, January 2006, 50, 52, 107.
41 House of Representatives Standing Committee on Economics Finance and Public Administration, Home Loan Lending: Inquiry into Home Loan Lending Practices and the Processes Used to Deal with People in Financial Difficulty (2007).
42 Ibid, 48.
43 Australian Government, The Treasury Green Paper, National Credit Reform Enhancing Confidence and Fairness in Australia’s Credit Law, July 2010, iii.
44 Productivity Commission, Review of Australia’s Consumer Policy Framework Final Report, Canberra, 2008, vol 1 p 28; vol 2 pp 448f.
45 Ibid, vol 2 pp 451–60.
46 Australian Government, The Treasury, Financial Services and Credit Reform: Improving, Simplifying and Standardising Financial Services and Credit Regulation, Green Paper, 2008.
47 Exposure Draft National Consumer Credit Protection Bill 2009 National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 Commentary.
48 N Gunningham and P Grabosky, Smart Regulation (Oxford: Clarendon Press, 1998).
49 South Africa Department of Trade and Industry, Credit Law Review; Summary of the Findings of the Technical Committee (2003); South Africa Department of Trade and Industry, Credit Law Review Setting the Scene (2004) South Africa Department of Trade and Industry, Making Credit Markets Work a Policy Framework for Consumer Credit (2004).
50 Republic of South Africa National Treasury, A Safer Financial Sector to Serve South Africa Better (2011).
51 G Pearson, “Making Prudence: Consumer Credit and Twin Peaks, a Comparison of Australia and South Africa” (2016) 27 Journal of Banking and Finance Law and Practice 1.
52 APRA Prudential Practice Guide APG 223 – Residential Mortgage Lending, February 2017.
53 National Credit Act Act 34 of 2005 (South Africa) s 13 (c).
54 National Credit Act Act 34 of 2005 (South Africa) s 60.
55 Australian Securities and Investments Commission Act 2001 (Cth) s 1 (2) (b).
56 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997, 622.
57 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997, 623.
58 See APRA Prudential Practice Guide, APG 223 – Residential Mortgage Lending, February 2017.
59 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014 (Murray) Terms of Reference, ix.
60 See, for example, Australian Securities and Investments Commission v Kobelt [2016] FCA 1327
61 National Consumer Credit Protection Act 2009 (Cth). See G Pearson and R Batten, Understanding Australian Consumer Credit Law CCH 2010 Ch 6; C Van Heerden and s Renke, “Perspectives on the South African Lending Regime and the Duty to Conduct Pre-agreement Assessment as a Responsible Lending Practice” (2015) 24 International Insolvency Review 67.
62 For a detailed account of the affordability assessment regime, see G Pearson, “Making Prudence: Consumer Credit and Twin Peaks, a Comparison of Australia and South Africa” (2016) 27 Journal of Banking and Finance Law and Practice 1.
63 G Pearson, “Commission Culture: A Critical Analysis of Commission Regulation in Financial Services” 2017 36(1) The University of Queensland Law Journal 155.
64 Hanna Ziady, “Bank Bill Aims to Ensure Fair Charges”, Business Day, 6 March 2017, https://www.businesslive.co.za/bd/companies/financial-services/2017-03-06-bank-bill-aims-to-ensure-fair-charges/.
65 A Godwin, T Howse and I Ramsay, “Twin Peaks: South Africa’s Proposed Financial Sector Regulatory Framework” (2017) South Africa Law Journal.
66 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997, 549.
67 Ibid, 549, Recommendation, 113.
68 Eg Australian Securities and Investments Commission Act 1989, Cth (repealed).
69 Eg Financial Sector Regulation Act 2017 (South Africa).
70 The Insurance Bill is in the Parliament.
71 J Terreblanche, “Financial Sector Regulation Bill Approach to Implementation, Establish and Embed the Prudential Authority”, Presentation at Colloquium University of Pretoria, September 2017.
72 Australian Government, The Treasury Green Paper, National Credit Reform Enhancing Confidence and Fairness in Australia’s Credit Law, July 2010, iii.
73 Australian Government, The Treasury Green Paper, National Credit Reform Enhancing Confidence and Fairness in Australia’s Credit Law, July 2010, iv.
74 South Africa, The Department of Trade and Industry, Credit Law Review August 2003, Summary of Findings of the Technical Committee, www.ncr.org.za/documents/pages/research-reports/aug13/Summary%20of%20Findings.pdf.
75 South Africa, The Department of Trade and Industry, Making Credit Markets Work, a Policy Framework for Consumer Credit (2010), http://www.ncr.org.za/documents/pages/research-reports/nov10/Credit%20Law%20Review.pdf.
76 National Credit Regulator, Literature Review on the Impact of the National Credit Act (NCA) Has Had on South Africa’s Credit Market (2012) http://www.ncr.org.za/documents/pages/research-reports/jun13/NCR_NCA%20IMPACT%20LITERATURE%20REVIEW_FINAL%20REPORT_260612.pdf.
77 Ibid, 81.
78 Ibid, 17.
79 Republic of South Africa, National Treasury, Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework for South Africa Discussion Document, December 2014, 11.
80 G Pearson, “Making Prudence Consumer Credit and Twin Peaks, a Comparison of Australia and South Africa” (2016) 27 Journal of Banking and Finance Law and Practice 1.
81 National Credit Regulator, Annual Report 2015-2016.
82 The HIH Royal Commission, Commonwealth of Australia, The Failure of HIH Insurance (Vols 1–3) (2003).
83 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014 (Murray) 234.
84 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014 (Murray) Recommendation 28, 236.
85 Financial Sector Regulation Act 2017 s 34, s 58, s 76, s 78.
87 Commonwealth of Australia, Financial System Inquiry Final Report, November 2014 (Murray), 233.
88 Ibid, 235, 236.
89 Australian Government Productivity Commission, Consumer Law Enforcement and Administration Research Report, March 2017.
90 Ibid, 66.
91 Ibid, 67.
92 Consumer Action Law Centre, Submission to Productivity Commission Issues Paper – Consumer Law Enforcement and Administration, 30 August 2016.
93 Commonwealth of Australia, Financial System Inquiry Final Report, March 1997, Chapter 13, Chapter 12.
94 Ibid, 527.
95 Ibid, 177, 178.
96 Ibid, 529.
97 Ibid, 538.
98 Australian Government, Rethinking Regulation: Report of the Taskforce on Reducing Regulatory Burdens on Business Australian Government’s Response, 2006, 45, Recommendation 5.1.
99 Ibid, 45, 46 Recommendations 5.2, 5.5.
100 Republic of South Africa National Treasury, A Safer Financial Sector to Serve South Africa Better, 2011.
101 Implementing a Twin Peaks Model of Financial Regulation in South Africa Published for Public Comment by the Financial Regulatory Reform Steering Committee, February 2013.