Quis custodiet ipsos custodes?

Amy Thomasson
Insights Newsletter
21 July, 2017

“Who will guard the guards themselves?” Plato asked in the Republic in 380BC. More than two millennia later, well-armed regulatory agencies, instead of armies, wield many of the powers of the state. But the question remains as relevant today as it was in ancient Greece.

Whether it is the Commerce Commission, the Financial Markets Authority, or the Overseas Investment Office, the arsenals of our regulators are fully-loaded. They have powers to compel, powers to prohibit and powers to prescribe. And, not surprisingly, they do not hesitate to use them.

But having power is one thing. Exercising it wisely and predictably is another. And that brings us to Plato’s question: who guards us against regulatory failure? It is an important question. Yet we give much less thought to how to govern our regulatory agencies than to how well we should arm them.

Indeed, our regulators come with a hodgepodge of different governance models. Some have governance boards, some do not. Some have a panel of commissioners, some have only one. Some are equipped with well-respected expertise and decision-making capability, and some are not.

In the coming months, the Initiative will be examining the governance arrangements of our most important commercial regulators. Rather than inquiring into what makes a good regulation, we will be asking what makes a good regulator.

We will investigate whether form follows function, or is an accident of history. We will also inquire into our regulators’ expertise. We will examine the decision by Parliament to replace the “commission model” of the former Securities Commission with the “governance board model” of the new Financial Markets Authority after the global financial crisis, to see whether there are lessons we can learn from this.

And we will evaluate whether the checks and balances in place to control our regulators have a bearing on the respect in which they are held by the market participants over whom they exercise power.

As with the guards of old, confidence in the guardians of 21st century commerce matters. If market participants lack respect for their regulators, or confidence in their decision-making, this leads to both uncertainty and risk-aversion. Both add to business costs, impair economic efficiency and harm the very consumers the regulators are created to protect.

Plato asked the question. We will do our best to answer it.

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