Is call for risk-based approach to Government Regulation achievable?

Auditor 1A growing trend among asset owners and operators worldwide is the move away from inefficient time-based maintenance practices and the adoption of more proactive condition-based methods.

There were a couple of recommendations from the recent Murray inquiry into Australia’s financial system that I found particularly interesting. It called for a strengthening of ASIC’s investigative capacity though “enhanced regulatory tools” and an improvement in productivity through a “more flexible risk-based approach to its role”.

This Federal government led push for greater regulatory productivity hasn’t been restricted to ASIC, as demonstrated by the axing of 500 auditing jobs by the Australian Taxation Office (ATO) and the recent publishing of a Better-Practice-Guideline – Administering Regulation: Achieving the right balance by the Australian National Auditing Office (ANAO).

The question is how well Regulators can respond to these recommendations or do the associated funding and job cuts make it an impossible task.

The ANAO guideline stresses the need for Australian regulators to adopt a risk-based approach when assessing, monitoring and managing regulatory risks. It specifically recommends that this approach can help Regulators improve their productivity by focusing their limited resources on “areas where they can contribute most to the achievement of the regulatory outcomes with compliance responses proportionate to the level of risk”.

It also goes on to recommend that a risk-based approach to regulatory administration can help engender support for a regulator’s regime by “providing stakeholders confidence in their approach and ability to mitigate risks”. Nevertheless, it also warns that “stakeholder tolerance of risk can vary and Regulators need to be flexible and adaptable in responding to changes in stakeholder expectations”.

These recommendations seek to make Australia’s Financial Regulators more effective, adaptable and accountable. No one wants to see a repeat of the Commonwealth Bank and similar Superannuation Fund issues that sparked the Murray’s Financial System Inquiry in the first place.

So what practical steps can Regulators take to implement these ANAO risk-based recommendations and turn them into the “enhanced regulatory tools” mentioned in the Murray report?

I like to hear people’s thoughts? I’ve also written a more detailed paper on the subject and possible solutions which you can access here.  Smart Risk Based Regulatory Monitoring

As many new business models in this era of digital disruption have shown it is possible to reduce resources and still provide a better service. See online banking’s influence for example. However, with Regulators under so much pressure to deliver more with less they face an uphill struggle.

Hopefully, those of us involved in developing digital disruption tools to support Regulators, they will include solutions that can help ensure talk of improved risk-based approaches can be more than just talk.

For the record, I am not intimately acquainted with how each Regulator is responding to this, but from the various conversations I have had with some, it is not going to be all plain sailing.

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