REGULATION AND FINANCIAL SERVICES – DANIEL MULINO

The Hon Dr Daniel Mulino MP is Assistant Treasurer and Minister for Financial Services. At a time of a growing demographic bubble of retiring Baby Boomers alongside increasingly complex financial personal decisions, the work being done to reform financial regulation is significant. A believer in good regulation rather than deregulation, Daniel Mulino addressed The Sydney Institute on Monday 16 March 2026 to discuss changes and reform being made.

REGULATION AND FINANCIAL SERVICES

DANIEL MULINO

I shall begin by acknowledging the traditional owners of the land on which we meet and pay respects to elders past, present and emerging.

It’s great to be back in a forum where it’s possible to present and debate ideas, and that’s a really valuable thing, and particularly at a time when so much discussion is highly polarised. The Sydney Institute is always a forum where there is a genuine engagement and an engagement in good faith on issues even where we don’t agree.

Tonight, I wanted to talk about regulation in the financial services sector. Some of the observations I’m going to make are about regulation more generally, but observations on these kinds of matters make a bit more sense when they’re contextualised.

It’s fair to say that, as Michelle Grattan’s observed, productivity is on every galah’s lips or beak in the pet shop at the moment

, just as microeconomics was back in the day. But regulation is a very important strand of that for many people. When we go back to the 3-day Economic Reform Roundtable late last year, which was a very constructive and important forum for giving real impetus to a lot of significant reforms in Australia, one of the days was dedicated to regulation. Some of the usual topics came up – the speed of approvals, the clarity of regulation, and so forth. I’ll touch on some of that. But one of the things that most people agreed with is that, especially in complex areas or areas where there’s a lot of dynamic change, we need to think about better regulation. Not deregulation for its own sake. Better regulation takes us back to thinking about the original purpose of regulation in different contexts. For me, better regulation is about getting the design right, targeting real risks, removing pointless complexity and building systems where consumers can participate with confidence.

In the context of the financial services sector, regulation is about ensuring that the financial services sector supports productivity and growth while keeping people’s savings and retirement outcomes front and centre.

So, let’s start with a bit of the economic thinking on regulation and how that has evolved over time. After thinking about that, I want to make some observations with that in mind. Examples such as the Shield and First Guardian collapses, for me, are really central challenges to getting some of the regulatory trade-offs right in our investment and superannuation systems. I’ll finish with a few of the other issues in the financial services sector that we’re working on.

When it comes to the way economists think about regulation, it is important to go back to the primary goal. For me, it’s useful to think about better regulation rather than deregulation per se. Most regulation starts with a really important public policy goal behind it. It might be public safety, it might be consumer protection, particularly of vulnerable consumers, it might be creating trust and stability and predictability. In many contexts regulation can correct market failures or align practices with broader societal goals. So, it’s really important to go back to those goals and clarify exactly what it is that we’re seeking to achieve through regulation. Sometimes we feel that that the original policy goal is obvious, but I feel that quite often it’s important to go back and clarify what it is we’re seeking to achieve. Only then can we figure out whether regulation is well defined.

In financial services in particular, it’s really clear. It’s important to remember that in all markets we need both a supply side and a demand side. In many markets, regulation for consumer protection is important. For financial services, in particular, consumer protection features prominently because of the complexity and dynamic change we see in a lot of products and services.

The way that regulation affects consumer confidence is absolutely key. Of course, it’s absolutely critical when we’re thinking about regulation that we make sure that in addition to the ways in which it achieves that primary underlying public policy goal, that we do so without unnecessary impediments to innovation, without unnecessary cost through red tape, without unnecessary uncertainty. And that’s often the debate that we get into with regulation where regulation might start with a good purpose, but then over time there might be additions to that regulation, that regulation might creep, and so it’s worth periodically coming back to thinking about whether we can achieve that underlying goal with less cost and with more certainty.

Recently, at parliament, I attended the launch of the ACCI red tape report, which focused on trying to measure a lot of the costs associated with regulation. A lot of the discussion was on this trade-off where we’re wanting to maintain the original policy goal while at the same time reducing any unnecessary costs.

With regard to the economic theory underlying regulation, I’ll cite Arthur Pigou. Pigou thought about regulation in terms of trying to correct market failures. He’s famous for designing taxes or subsidies that try to correct a negative externality. So, if society imposed a tax that exactly offset a negative externality in the market, we’d get back to somewhere approaching what a perfectly competitive market would have been had there not been the market failures. And we can think of all sorts of contexts where Pigouvian taxes have been suggested. I raise that as one of the archetypes. It is the kind of regulation where government is stepping in to try to achieve an outcome that is socially optimal as positive, by trying to correct market failures where the societal benefit is what’s driving it.

The other famous economist that is worth citing is George Stigler who, in his 1971 paper “The Theory of Economic Regulation”, cited the possibility of regulation as being proposed by self-interested parties. Obviously, as just one example, that’s a theory of regulation where sometimes regulation might be advocated for and achieved by an incumbent trying to achieve regulation but trying to impede or prevent new entrants.

George Stigler’s theory of regulation is a bit more pessimistic. In a sense, there’s a way in which we might think about both Pigou and Stigler in terms of what kinds of regulation do we think are arising in our society. I don’t think there’s a real question as to which one we prefer. We’d obviously all prefer the Pigouvian kind of regulation, where it’s motivated by and designed in favour of public interest, but the fact that regulation could potentially take either of these forms begs the question.

 We should look at regulation periodically and make sure that regulation takes the form more of the public interest motivation and that regulation is designed more in the broader public interest rather than other kinds of interests creeping in to regulatory design.

Obviously the theories of regulation are much deeper and wider than that, but I pose Pigou and Stigler as, in a sense, two extremes to think about when we consider, firstly, what kinds of regulations we want to see and, secondly, what the dangers are we fear might creep into the system.

It’s worth having a look at regulation in Australia’s financial system over the last century or so. It’s changed a lot, as has the sector itself. During the 1930s our financial system consisted of a few players – the Commonwealth Bank, Trading Banks, State Saving Banks, Life Office and Pastoral Financial Offices. It’s worth noting that many of those big players were public sector players and they had a big role in the way that the sector was regulated. A lot of it was government provided or government owned. Over the decades there were structural changes and a broadening and diversification of financial instruments and techniques. Building societies, financial companies, finance companies, credit union and superannuation funds all came into the role.

For me, it’s interesting to look back at different parts of Australian history to see how prominent mutuals and credit unions have often been in our financial services sector. We often assume that it’s always been big corporates when in fact a lot of the financial services history has many ebbs and flows and periods when other forms were very prominent. Then there was a big push towards financial deregulation in Australia, which began in the early 1970s and then saw significant further changes in the 1980s.

Then there was the Wallis Inquiry in the 1990s, a major turning point in regulation. It found the financial services sector, with its great complexity of products and services, required specialised regulation, especially as consumers faced significant adverse consequences when choosing the wrong product or when financial promises might be broken. Then there was the GFC which caused extreme stress in global financial markets and banking systems between mid-2007 and early 2009. Australia and many of our peers responded to that with much stronger banking regulations. We also strengthened lending standards to make the financial and private sectors more resilient.

The Financial System Inquiry in 2014 was another milestone. It made recommendations for the sector to become more resilient. It also made a number of recommendations in relation to our retirement income system and ways in which to promote innovation and ensure the fair treatment of consumers.

Most recently there has been the Hayne Royal Commission, which placed a significant emphasis on consumer outcomes and particularly vulnerable consumers. It found that in many contexts consumers lacked the capacity to undertake well-informed choices and in some instances laws were broken without organisations being held to proper account. Following on from the Royal Commission we saw, after a review in between, the Compensation Scheme of Last Resort and the Financial Accountability Regime.

Now I raise all of those different steps to say that one thing that stands out is there have been deregulatory and regulatory impulses that have gone back and forth to some degree. One can think of this as a bit of a pendulum that has swung back and forth. Perhaps just as important is that, as I mentioned earlier, there have been times where mutuals and building societies played a very prominent role, other times, like now, where it’s more driven by corporates, and in a sense the regulatory system has to adjust to those ebbs and flows, and it has.

What has changed over the course of the last century is that, in many contexts, people have been exposed to increasingly complex services and complex choices.

That has raised questions over how much we want to respond through empowering choice; how much we want to respond to that through setting up guardrails. That has been a trend in our financial services in many areas. When I talk about Shield and First Guardian, one of the real challenges is that many of us are correctly in favour of choice in principle, but there are real questions around how much people can exercise those choices in a way that benefits them and is truly well-informed.

Context is really important because we don’t just have a financial services sector, we have one which has a history, and we have one which won’t just stay the way it is. It’s going to evolve. We’ve already seen ways in which it’s evolving in the trading system with wallets, with stablecoin. We see it evolving through after that, or a significant proportion of our society either in retirement or approaching retirement; we see it evolving with the use of AI in all sorts of ways.

For me our history of the financial services sector is important because it’s the context in which we need to think about what kinds of regulation are fit-for-purpose. This takes me to two recent collapses. By no means the only thing going on in the financial services sector, they’re important because they draw together the strands in a lot of areas of policy. They also go to the heart of a lot of the trade-offs that we face when we’re trying to design regulation. I am referring to the Shield Master Fund and First Guardian Master Fund collapses.

ASIC and APRA are obviously undertaking a significant number of actions as we speak in relation to this. Rather than go into all the details of the status of those actions, let’s step back and think of what we know about those collapses. What does that suggest about how we can move forward with financial sector regulation. Getting financial sector regulation set correctly is foundational to some of the most important aspects of our safety net. It includes the retirement income system, the ways in which we invest for our working lives.

Getting regulation settings correct in relation to some of the matters I’m about to raise, is foundational to questions for the welfare of many people in our society.

What we know from the liquidators and from the investigations that have occurred, it is that many of the transactions that occurred with Shield and First Guardian, which ultimately involved losses of over $1 billion, were not genuine, arm’s length commercial transactions. We also know that they involve many vulnerable people. In total, these collapses placed more than $1 billion of funds at risk with around 12,000 investors involved. In addition to the pain that it has caused those individuals (I’ve met with a number of victims) it raises the question of systemic risks that we need to grapple with to make sure that these kinds of events are less likely to occur in the future. There is a real human dimension to these collapses. A number of people who lost funds in these collapses were near retirement, were at a point in their life where it’s very difficult to make up the losses. This is something which we need to guard against going forward given the number of people that we know are approaching retirement now and will in the coming decades.

One issue that is critical when thinking about the First Guardian and Shield collapses is that we need to think about this as an ecosystem. It was really not a failure in any one part of the financial services sector that led to this. The starting point, it appears, was aggressive behaviour by lead generators. Lead generators acting on internet sites, lead generators acting through call centres who made unsolicited calls, but often informed by very sophisticated models of persuasion and informed by sophisticated models where they obtained information about individuals they were reaching out to.

These lead generators then referred people on to financial advisers, and many of those financial advisers recommended that people roll their superannuation, sometimes out of safe products, MySuper products, that they roll them out of that into options available with quite risky-managed investment schemes or sometimes into SMSFs. It’s really the whole chain that matters, because in this case it’s likely that when we see the full cause of all of these legal actions play out, we’re going to see that there was failures at multiple steps in that chain; in the lead generators and their behaviour, in some of the behaviour of financial advisers, in some of the behaviour of platforms, and in the behaviour of the managed investment schemes that a lot of these funds went into.

That word “ecosystem” is really important because when we’re thinking about how to improve regulation in this sector, we’re going to have to think about the regulation of each of these parts of the financial services sector and how they all interrelate with each other

; how people are contacted, how trust is created, how financial advice is delivered, how platforms create a wide range of options for people and then make investing almost frictionless at times, and then what happens when things go wrong.

That brings us to a central tension in a lot of financial service regulation at the minute. How do we support consumer choice and balance consumer choice and market efficiency. In a sense I think we need to think about this in terms of building in a safe level of friction. A well-functioning market needs choice and competition and low-cost access. We want households to be able to compare products, switch easily and to benefit from innovation, and in the case of their retirement products to benefit from the possibility of higher returns. There is also a difficult truth here, which is that in a range of contexts, when the system because frictionless in the wrong places and in the wrong ways, it can become a fast lane to harm.

Whether we have friction or no friction, the question is where the system should be frictionless and where it should slow down a bit. Good friction can do a few things: it can slow high-risk decisions based on poor quality or misinformation, especially where decisions are difficult to reverse. This is especially so where they involve people’s retirement savings, in meaningful information at the point consumers are deciding, not buried in a disclosure pack that people may not read, and it tests legitimacy, not by adding red tape, by ensuring basic checks can’t be bypassed.

There’s bad friction as well. Bad friction can do the opposite; it keeps people stuck in expensive products, it can make switching harder than it should be when people want to make a well-informed choice and change products for good reason, and sometimes it can protect incumbents rather than consumers, the point Stigler made in 1971. So better regulation is about being intentional, removing bad friction that props up inefficiency and sometimes adding a bit of sand in the wheels where that is better for the overall system.

I can draw parallels here in a number of other contexts, I would argue. One is scams, My predecessor, Stephen Jones, brought in the Scam Prevention Framework towards the end the previous term. I would argue that it’s world-leading. We’re now working on codes in order to give effect to that.

That’s an example of where the payment system has been moving towards frictionless and immediate transactions. It was something which the sector was heading towards, because there had been a lot of unnecessary delays in peopling getting their money a few decades ago, but there is now benefit in slowing things down a little so that banks can, for example, reach out to people if there are a lot of red flags on a transaction and ask if they really want to undertake this.

This morning I spoke at a banking conference and I relayed the example of an elderly couple that came into my electorate office last Friday who had wanted to undertake a transaction based upon a deep fake video, which they didn’t realise was deep fake at the time. They called up their bank in order to undertake the transaction, and the bank pushed back. They got upset, and this often happens. In the end, there was a bit of discussion and the transaction didn’t happen. One of the couple who wanted the transaction to occur asked the other to try through a different route. It got locked in that route, and then their suspicion was raised, and they had another look at it. In my electorate office, we had a discussion with them and confirmed pretty quickly that this high-profile person in a deep fake video would not be recommending investing in this product.

It’s an example of where a little bit of friction has led to a much better outcome.

If we go back 30 years, quite often people might see payments delayed by a number of days. You might be a vulnerable person who’s waiting for a payment to come through, and if it doesn’t come through on the Friday afternoon, you spend the whole weekend without money. So, there’s good reason why we would try to speed up transactions. What we needed to do was to figure out a way where we would get optimal speed, where we balanced the convenience of people getting access to their funds, but we put a bit of sand in the wheels so that we can protect people.

I just wanted to talk about a few of the areas where I think First Guardian and Shield is going to raise public policy questions. One is around governance and accountability for managed investment schemes. This is an issue which has been on the public agenda for a long time. It’s a complex issue. We’ve released a discussion paper which sets out options for how to control related party transactions, improve governance and improve data reporting. We know that managed funds, managed investment schemes in particular, play a very important role in collective investments. They play a critical role across our economy, but there is also a risk here. Retail investors who go into MISes often face risks that are disproportionate to the potential gains. We need to figure out ways in which retail investors can go into MISes, but with sensible guardrails.

The second stand-out issue is lead generation. This is where people can be reached out through a call centre and find themselves on a poorly regulated website making recommendations. This is an area where consumer harm can start well before the product itself is purchased. It can start at the first contact, the first promise, the first referral, the first free review. So, we’re going to also consult on additional proposals to curb inappropriate lead generation.

The third area is the role of platforms which play such a critical role in enabling choice in our system. Again, it’s a question of enabling the right choice but making sure that platforms undertake the right due diligence and that platforms stand behind the products that they have on their systems.

Fourthly, there’s the Compensation Scheme of Last Resort (CSLR). And this has become a pivotal part of the broader financial sector reform question in that it provides a back-stop for people, up to $150,000, in compensation if they take their case to Australian Financial Complaints Authority (AFCA)  and win, but the party against whom they take that case can’t pay. This is the system saying we’re going to have your back for up to $150,000. It doesn’t provide automatic full compensation, but it provides a significant amount of compensation, and for many investors will give them at least their capital back.

One of the challenges with the CSLR at the moment is that it’s struggling under the weight of collapses that have occurred even before we get to First Guardian and Shield.

The CSLR is something which has bipartisan support. It was recommended by the Royal Commission and then the Ramsay Review. Josh Frydenberg introduced legislation including a CSLR of almost the same characteristics as the one that was eventually passed in the previous term by my predecessor. It’s another example of where there are trade-offs and where regulatory design will need to be revisited.

Finally, there’s the trade-off with access to advice and guidance, where we need to get people more access to financial advice or, at the very least, guidance but understanding that we need to make sure that guardrails are in place before we expand that access. This is particularly important given how many people are retiring in the near future.

This is a critical area of regulation design more generally. Regulation featured very prominently in the 3-day Economic Reform Roundtable. I’m sure many of you are aware it featured in relation to the EBPC Act, the National Construction Code. It features in the trade-offs that I’ve just outlined in financial services. We have regulation that is more often than not there for very good reason, but we need to make sure that it is fit-for-purpose, and that we are willing to, when circumstances change, step back and revisit whether the trade-offs are well designed.

I wanted to touch on a couple of other areas where regulation is changing. One is digital asset platforms and tokenised asset platforms, which is a booming area of investment in Australia, and asset trading. This is an area where many other jurisdictions passed legislation in recent years. Millions of Australians are already using or investing in digital assets every year. We can’t just pretend this activity doesn’t exist, and with the rise of stablecoin, and the rise of tokenised assets, whether it comes to physical goods or bonds, we know that these markets are going to grow incredibly quickly.

We have introduced legislation to the parliament that will see the regulation of these two types of markets, making participation safer and more secure, and I would argue making innovation more likely. They bring digital asset platforms into a regulatory framework which is well known, which is the AFSL licence, not to smother innovation, but to provide certainty. This really matters for productivity. It reduces unnecessary compliance costs, clarifies examinations for businesses and supports integration with the broader financial system.

When it comes to these areas that are very new and dynamic, this notion of the sandbox is important. This is where there is rapid innovation and where even the people in charge of the innovation don’t necessarily understand its trajectory or its full impacts, but where there is the real prospect of consumer harm. The sandbox allows the jurisdiction to begin to regulate, particularly in relation to the clear consumer harms, without smothering what is highly innovative and potentially productive.

It is an area where Australia already has a sandbox, but there is a review underway to see whether or not we need to expand that sandbox in different areas to bring us in line, for example, with the UK and Singapore.

Superannuation is another area where balance really matters. For the past 30 years, super has focused on the accumulation phase, which makes perfect sense. That’s why we’re fostering an environment where funds can innovate and deliver better retirement income solutions for their members. This includes work recently undertaken by the Treasurer, but with me providing assistance as the Assistant Treasurer, and includes the Retirement Reporting Framework and the best practice principles for superannuation retirement income solutions.

Our retirement income system is in many ways the envy of the world. It is world-leading on many fronts. There’s also an acknowledgement that when it comes to the retirement phase there is room for us to strengthen the offerings that are available, but also our understanding of consumer preferences and consumer experiences. I believe that these are really significant steps forward, collecting better data on the retirement phase and, as a first step, developing principles that will usefully guide the sector.

Finally, I want to touch on the fact that, in the financial services sector, we’re also working on things that are more concrete, you might say, than the high-level Pigou versus Stigler debate. How do we better align and integrate the work of regulators? We rightly, I believe, have multiple regulators in financial services. There are different critical roles. There’s an importance in having a competition regulator, in having a prudential regulator, in having a conduct regulator, in having a regulator such as AUSTRAC dedicated to our payments system and a lot of the risks there, in having an independent umpire in AFCA, and others.

What’s clear is that a lot of them for good reasons are collecting data, but often on slightly different timelines or slightly different asks. One of the things we’re looking at, which is a good first step, is to ask whether there are ways we can align the tasks, and even align the definitions of what’s being asked for. This is going to lead to better quality data, but also a red tape reduction cost.

This for me is one of those areas where, in terms of some of the complex trade-offs, I was touching on earlier. This is low-hanging fruit in that I feel that there’s ways in which we can improve the quality of our intelligence and, at the same time, lower the burden on the financial services sector, which obviously should ultimately pass through to consumers.

So, to bring it all together, whether it’s in tech innovation, superannuation or regulatory coordination, the principle is the same. I do feel that we have to return periodically to the core underlying principle of what is it we’re trying to achieve with regulation. We need to be striving to achieve that Pigouvian outcome, which is to achieve the societal optimum wherever possible. We should be cautious about regulation that’s not well-designed as Stigler would warn, but we need to have the light on the hill, if you will, clear. We need to make sure that regulation targets real risks, removes unnecessary friction and encourages responsible innovation, all while keeping consumers at the centre of the system.

So, thanks very much to The Sydney Institute for the chance to be here tonight. I’ve touched on a few of the most topical issues in my portfolio. Hopefully, at the same time, I have shed a little bit of a light on some of the regulatory challenges that government here and everywhere is facing at the moment.