Not all regulation is bad

No one is against reducing red tape for business, so the government’s ‘repeal days’ idea is a welcome one. But an important reform that protects investors is the kind of red tape the financial industry would love to eliminate.

It is good news that the government is going to start having ‘repeal days’ twice a year to get rid of redundant regulations, as announced by the Parliamentary Secretary to the PM, Josh Frydenberg, in today’s Australian.

Apart from the specific laws that get repealed, the plan should help to introduce a new culture of regulatory rollback that encourages the states to do the same. That’s where many of the most costly regulations reside.

The cost of doing business in Australia is far too high and some of that is down to unnecessary laws and regulations. For example, Josh Frydenberg cites the ludicrous case of Incitec Pivot’s ‘tale of two plants’ – one in Louisiana approved in six months while a similar plant in Newcastle is still waiting on approval after two years.

But not all regulation is bad. Frydenberg has apparently conducted more than 100 meetings and roundtable forums with businesses affected by what they see as over-regulation, but he should try to get the other side of the story as well.

As he says, many businesses have a horror story about some regulation or other that costs them time and money. But while it’s easy to hear them, it’s harder to hear the beneficiaries of a regulation because they don’t have a lobbyist. Or, if they do, it’s the Labor Party, which these days is worse than having no lobbyist at all.

For example, one of the regulations being repealed is known as ‘little g’ – the catch-all provision in the part of the FoFA (Future of Financial Advice) reforms that requires advisers to act in the best interests of their clients.

The section lists six things that a provider has to do to satisfy the requirement to act in the best of interests of the client, and then adds a seventh - s961B(2)(g), aka little g – that says: “(take) any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances”.

Assistant Treasurer Arthur Sinodinos says that it is being removed because advisers say it leaves them “uncertain as to whether they have satisfied the best interests duty”.

Well, in my view he would be better off getting rid of (a) through (f) and leaving (g). Any adviser who complains about (g) and not about the six other regulations doesn’t really want to act in the best interests of their clients – they just want to have a paper trail that shows he or she ticked the right boxes.

Likewise, removing the ‘opt-in’ provision from the FoFA is a big backward step. The industry hates asking clients to opt back into being their clients every two years because it makes it harder to just skim their accounts without servicing them properly, which in turn reduces the sale value of advisory practices because the annuity-style income can’t be as guaranteed as it used to be.

Financial services is the only consumer industry that doesn’t have to send a bill to its clients: it holds their money and can just scoop a percentage off each month. That’s why it needs special regulation.

Most advisers look after their clients and earn the percentage skim; they have nothing to fear from an opt-in regulation of little g. Some don’t – and as with all laws – it’s the rogues that FoFA is aimed at.

Anyway, the pendulum is swinging on regulation and red tape. On the whole, that is a very good thing. It’s probably inevitable that some good regulations will get swept away as well, but it would be better if that were minimised so the whole pendulum doesn’t swing back again in future.