Abstract: This commentary interrogates the political economy of Australian financial regulation, arguing that the regulatory architecture — divided between the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) — systematically allocates economic risk in ways that protects important institutions while directing punitive accountability toward individual actors. Drawing on Katharina Pistor's legal theory of finance, the findings of the Hayne Royal Commission (2019), and key provisions of the Corporations Act 2001 (Cth), this commentary contends that Australian financial law operates not merely as technical market regulation but as a mechanism of capital preservation under democratic constraint.

I INTRODUCTION: THE MYTH OF TECHNOCRATIC NEUTRALITY

Financial regulation in Australia presents itself as a neutral, technocratic enterprise. The Australian Prudential Regulation Authority frames its mandate in language of "financial stability" and "prudential soundness," while the Australian Securities and Investments Commission speaks of "market integrity" and "investor protection." The twin-peaks model of regulation reinforces this division by allocating systemic risk oversight to the APRA, and market conduct enforcement to ASIC to project an image of rational, apolitical risk management.[1]

However, this characterisation is misleading. As Katharina Pistor has argued in her foundational account, financial markets are legally constructed and occupy a "hybrid place between state and market, public and private.”[2] Financial law does not merely manage pre-existing market relations, but rather constitutes them, and in doing so, allocates privilege, protection, and exposure to risk. These are political decisions, not technical ones.

This commentary advances three related propositions.

1)    Australian prudential regulation operates to shield systemically important institutions from the full force of market discipline and legal consequence. \

2)    The market conduct law under the Corporations Act 2001 (Cth) functions primarily to discipline individual actors, creating a structural asymmetry between institutional and individual accountability.

3)    This asymmetry was exposed most starkly by the Hayne Royal Commission (2019) and remains structurally unresolved despite subsequent legislative reform.

II THE LEGAL ARCHITECTURE OF RISK ALLOCATION

The twin-peaks model, introduced following the Wallis Inquiry (1997), divides financial regulation along functional lines. APRA administers prudential supervision under the Banking Act 1959 (Cth), the Australian Prudential Regulation Authority Act 1998 (Cth), and associated prudential standards including APS 110 (Capital Adequacy) and CPS 220 (Risk Management). On the other hand, ASIC administers market conduct and disclosure obligations under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

This structural division encodes a particular theory of how financial risk should be managed and who should bear it. APRA's mandate is oriented toward systemic stability — the concern is that institutional failure will cascade through the financial system, harming depositors and the broader economy. ASIC's mandate is oriented toward conduct — the concern is that individuals will exploit informational asymmetries to extract unfair gains at others' expense.[3]

Applying the foundational “law and finance” literature authored by La Porta (et al) insights into Australia’s twin peak structure, the choice to protect institutions through prudential law, while policing individuals through conduct law directly shapes capital allocation and risk exposure.[4]

III PRUDENTIAL REGULATION AND THE PROTECTION OF INSTITUTIONS

APRA's risk-based supervisory model subjects institutions that pose greater systemic risks to more intensive oversight and, potentially, higher capital requirements.[5] This logic is explicit: institutions whose failure would threaten financial stability are afforded greater regulatory attention. The clear underlying objective here is institutional survival and continuity, not punitive. For example, Prudential Standards APS 110 and APS 111 impose capital adequacy requirements designed to ensure that banks can absorb losses without collapsing.

The "too big to fail" (TBTF) problem sits at the core of this analysis. APRA itself has acknowledged that "attention must be directed to means of addressing the 'too big to fail' problem and the disincentives for sound risk management that this label may create.”[6] The implicit guarantee that systemically important institutions will be stabilised in a crisis generates moral hazard: institutions and their creditors have reduced incentives to manage risk prudently, knowing that the legal and regulatory system will intervene to prevent their collapse.

The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 (Cth) extended APRA's powers to resolve distressed financial institutions, including the ability to make statutory bail-in instruments (converting creditors debts into equity holdings) for certain capital instruments. This reflects a structural priority within financial regulation: rather than allowing failing institutions to collapse and be disciplined by market forces, the state intervenes to stabilise them and preserve the functioning of the financial system.

Pistor's "legal theory of finance" captures the underlying dynamic with precision. She argues that in times of financial crisis, "the full enforcement of legal commitments would result in the self-destruction of the financial system," and that this paradox is typically resolved by "suspending the full force of law where the survival of the system is at stake."[7] The 2018 Act represents exactly this logic in legislative form: a standing mechanism to suspend the normal operation of law -  including creditor rights, property rights and contractual obligations - when institutional survival demands it.

IV MARKET CONDUCT LAW AND THE DISCIPLINE OF INDIVIDUALS

While APRA's framework is oriented toward institutional preservation, ASIC's market conduct regime under the Corporations Act 2001 (Cth) is oriented toward individual discipline. Three provisions will be discussed

1)    Section 1041A (market manipulation),

2)    Section 1043A (insider trading), and

3)    Section 674 (continuous disclosure).

Insider trading prosecutions exemplify the individualist logic of market conduct law. In CDPP v Forrest (2026), former investment manager Rodney Forrest was sentenced to six years' imprisonment for insider trading involving more than $3 million of Platinum Asset Management shares. The sentencing judge described the conduct as "serious and pernicious offending.”[8] In CDPP v Waugh (2024), Cameron Waugh received two years' imprisonment for insider trading in Genesis Minerals. In the earlier R v Kamay and Hill (2014), both a National Australia Bank employee and an Australian Bureau of Statistics employee were imprisoned for a scheme in which confidential macroeconomic data was exploited to trade foreign exchange derivatives over nine months.[9]

These cases highlight a key issue: the enforcement energy of Australia's financial conduct regime is concentrated overwhelmingly on individual actors. The prosecutorial and sentencing apparatus of imprisonment, asset forfeiture, disgorgement etc is calibrated for human defendants. Even where misconduct occurs within institutional environments, enforcement typically targets employees rather than the organisations that enable or benefit from the conduct.

V THE ASYMMETRY EXPOSED: THE HAYNE ROYAL COMMISSION

The tension between institutional protection and individual discipline was exposed with extraordinary force by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, led by Commissioner Kenneth Hayne AC QC and reporting in February 2019.

Hayne's findings documented systemic institutional misconduct of a scale and duration that cannot be explained by individual ‘bad’ actors. The Final Report found evidence of "conduct that caused substantial loss to many customers but resulted in substantial profit to the entities concerned and, more disturbingly, very often the conduct broke the law or fell short of community expectations.”[10] Fees were charged for services never rendered — sometimes to deceased clients. Financial advisers provided advice that was demonstrably not in clients' interests. Lending standards were systematically ignored. In each case, the misconduct was not incidental but structural as it was embedded in incentive systems, sales cultures, and governance frameworks that the institutions themselves had designed and maintained.

However, what is most enlightening about Hayne's approach is what he did not do. Hayne made 24 referrals to regulators concerning possible misconduct by individuals but did not name any specific individual as warranting criminal charges.[11] The institutions such as the banks, insurers and superannuation trustees who had profited systemically from illegal conduct faced civil penalty proceedings and governance reform requirements. However, no institution faced criminal prosecution.

This outcome is precisely the asymmetry this commentary identifies. The conduct law apparatus was designed to discipline individuals. Systemic institutional misconduct was met with civil remedies, governance recommendations, and the impetus for reform, but not with the criminal and carceral machinery reserved for insider traders.

Professor Kevin Davis has argued that the Royal Commission was unlikely to produce lasting reform because it was "unable to investigate the complex question of whether there are more deep-seated, fundamental issues driving financial sector misconduct."[12] The Governance Institute of Australia raised similar concerns, noting that calls for cultural reform "like pebbles in a pond... seldom result in very much structural or cultural change.”[13]

VI CAPITAL PRESERVATION UNDER DEMOCRATIC CONSTRAINT

Moreover, it can be argued that Australian financial law operates as a mechanism for preserving the institutional architecture of financial capitalism within the constraints imposed by democratic accountability.

This analytical claim is not conspiratorial and does not imply that regulators or legislators consciously design the system to protect capital at the expense of individuals. But rather, the structural logic of the regulatory framework — the choice to protect systemic institutions prudentially while disciplining individuals conductively — produces this outcome regardless of intent.

Two recent enforcement actions illustrate the legitimation dynamic. First, ASIC has pursued ANZ before the Federal Court for serious misconduct as duration manager in a government bond issuance, seeking penalties of $240 million.[14]While this is significant enforcement, it is still civil, financial, and institutional — not criminal and individual.

Second, in the same period, Societe Generale Securities Australia was penalised $3.88 million for failing to prevent 33 suspicious trading orders.[15] These penalties perform accountability. They are published. They generate media coverage. But they leave the institutional structure intact.

The Financial Accountability Regime Act 2023 (Cth) (FAR) is the legislative centrepiece of the post-Hayne reform agenda. FAR imposes personal accountability obligations on senior executives of banks, insurers and superannuation trustees, requiring them to identify and manage areas of responsibility and to conduct those responsibilities in a manner that is "fit and proper."

However, this is, structurally, the imposition of individual-conduct logic upon institutional actors – which is just an extension of the asymmetry rather than its correction. The institutions retain their prudential protection. Their senior executives now face individual accountability obligations. The hierarchy remains since the regime just extends individual liability rather than altering the underlying distribution of risk.

VII COUNTERARGUMENTS AND THEIR LIMITS

The strongest counterargument to this analysis is the public interest case for prudential protection. Institutional stability is not merely a benefit to shareholders and executives, but further protects depositors, superannuation holders, and the broader economy. The Reserve Bank Act 1959 (Cth) section 10 mandates monetary stability for "the economic prosperity and welfare of the people of Australia." The Productivity Commission's 2018 inquiry into competition in the financial system acknowledged that stability and competition objectives can be in genuine tension.[16]

This argument has real force and should not be dismissed. The distributional critique advanced in this commentary does not require the conclusion that prudential protection of institutions is illegitimate. It requires only that we recognise that prudential protection is a political choice with distributional consequences — one that consistently advantages the apex of the financial hierarchy over its periphery — and that this choice be evaluated as such, not naturalised as technical necessity.

Empirical support for the political-economy critique is provided by Haselmann, Sarkar, Singla and Vig, show that regulators are more likely to oppose proposed prudential rules when large domestic banks oppose them, particularly where regulators have prior connections to those institutions.[17]This demonstrates that prudential regulation is not a neutral, technocratic exercise, but a process shaped by the interests of the institutions it seeks to regulate.

VIII CONCLUSION

Australian financial regulation is not a neutral, technocratic system of market oversight. It is a legal architecture that allocates economic risk. The twin-peaks model embeds this allocation by shielding systemically important institutions through prudential regulation while directing punitive accountability toward individuals through conduct law. In doing so, it limits the operation of market discipline at the institutional level, as mechanisms of stabilisation and resolution prevent failure and absorb losses without threatening the existence of major entities. The Hayne Royal Commission exposed the consequences of this design. Systemic institutional misconduct was met with civil penalties and reform, while criminal enforcement remained focused on individual actors. Post-Hayne reforms, including the Financial Accountability Regime Act 2023 (Cth), reinforce this structure by extending individual responsibility without displacing institutional protection. Accordingly, Australian financial law operates as a mechanism of capital preservation under democratic constraint, preserving institutional stability while displacing accountability onto individuals and constraining the disciplining force of the market.

IX FOOTNOTES

[1] Financial System Inquiry, Financial System Inquiry Final Report (Commonwealth of Australia, 1997) (Wallis Report); Australian Prudential Regulation Authority Act 1998 (Cth); Australian Securities and Investments Commission Act 2001 (Cth).

[2] Katharina Pistor, ‘A Legal Theory of Finance’ (2013) 41(2) Journal of Comparative Economics 315, 316 (‘Pistor’).

[3] Emilios Avgouleas and Charles Goodhart (eds), The Political Economy of Financial Regulation (Cambridge University Press, 2019) ch 1.

[4] Rafael La Porta et al, 'Law and Finance' (1998) 106(6) Journal of Political Economy 1113.

[5] Australian Prudential Regulation Authority, APRA Insight: Issue 2 (APRA, 2019); International Monetary Fund, Australia: Financial Sector Assessment Program — Technical Note on Banking Supervision (Country Report No 19/48, 2019) 5.

[6] International Monetary Fund, Australia: Financial Sector Assessment Program — Technical Note on Banking Supervision (Country Report No 19/48, 2019) 20.

[7] Pistor (n 2) 326.

[8] Australian Securities and Investments Commission, 'Former Fund Manager Sentenced to Six Years' Imprisonment for Insider Trading' (Media Release 26-007MR, 23 January 2026).

[9] Australian Securities and Investments Commission, 'Man Sentenced for Insider Trading in Genesis Minerals' (Media Release, 2024); R v Kamay (Supreme Court of Victoria, 2014); R v Chan [2010] VSC 312.

[10] Kenneth Hayne, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: Final Report(Commonwealth of Australia, 2019) vol 1, 1.

[11] Ibid; Governance Institute of Australia, Banking Royal Commission Final Report: Cultural Issues and Implications (Policy Brief, Governance Institute of Australia, 2019) 3.

[12] Kevin Davis, 'The Hayne Royal Commission and Financial Sector Misbehaviour: Lasting Change or Temporary Fix?' (2019) 30(2) Economic and Labour Relations Review 200, 201.

[13] Governance Institute of Australia (n 12) 5.

[14] Australian Securities and Investments Commission, ASIC Enforcement Priorities 2026 (November 2025).

[15] Australian Securities and Investments Commission, 'Societe Generale Securities Australia Penalised $3.88 Million' (Media Release, 2025)

[16] Productivity Commission, Competition in the Australian Financial System (Inquiry Report No 89, Productivity Commission, 2018) 24–27 https://www.pc.gov.au/inquiries/completed/financial-system/report; Reserve Bank Act 1959 (Cth) s 10.

[17] Rainer Haselmann et al, 'The Political Economy of Prudential Regulation' (SSRN Working Paper No 4048091, 25 May 2022) https://ssrn.com/abstract=4048091.