Regulatory Capture Definition & Examples for Australians

Regulatory capture is a term that gets thrown around in the corridors of power—and for good reason. When the financial sector’s watchdogs end up serving the very industries they’re meant to regulate, the consequences can ripple through the entire economy. In 2025, as Australia sharpens its focus on financial stability, understanding regulatory capture is more important than ever.

What Is Regulatory Capture?

Regulatory capture occurs when a regulatory agency, established to act in the public interest, instead advances the commercial or political concerns of the industry it is charged with overseeing. This subtle shift in loyalties can happen for a variety of reasons, from industry lobbying to the ‘revolving door’ of personnel between regulators and the sector.

For Australians, regulatory capture isn’t just a theoretical risk—it can affect everything from your home loan rate to your superannuation fees. The issue is in sharp focus as the government rolls out new banking regulations and updates to ASIC’s enforcement powers in 2025.

How Regulatory Capture Happens

• Lobbying and Influence: Financial institutions often have deep pockets and strong connections, enabling them to lobby for favourable rules or less stringent oversight.
• Revolving Door Employment: Movement of employees between the regulator and the regulated industry can lead to conflicts of interest and a sympathetic view of industry needs.
• Information Asymmetry: Regulators may rely on the industry for expertise, data, or technical knowledge, blurring the lines between oversight and cooperation.
• Underfunding of Regulators: Agencies with limited resources might prioritise industry relationships to get things done, rather than strictly enforcing the rules.

In 2025, with Australia’s Treasury reviewing the effectiveness of the Financial Accountability Regime (FAR), the government is actively looking for ways to close these gaps and restore public trust in financial regulation.

Examples of Regulatory Capture in Action

1. The Banking Royal Commission Fallout
One of the starkest examples in recent history came out of the 2018-2019 Banking Royal Commission. Evidence revealed that some regulators, like ASIC and APRA, were slow to act on misconduct, sometimes opting for ‘behind closed doors’ negotiations rather than public penalties. Critics argued this was a classic case of regulatory capture, with the big four banks wielding disproportionate influence.

2. Superannuation Industry Oversight
In the super sector, regulatory capture concerns have arisen when industry groups successfully lobbied to delay or water down reforms designed to increase transparency and lower fees. In 2025, as APRA rolls out new performance tests for super funds, there are renewed calls to ensure the regulator remains impartial and immune to industry pressure.

3. The 2025 Digital Finance Regulation Debate
With the rise of cryptocurrency and fintech, the government’s Digital Assets (Market Regulation) Bill has attracted intense industry lobbying. Some critics claim early drafts of the bill reflected industry wish-lists more than consumer protection—a warning sign of potential capture as Australia’s digital finance ecosystem matures.

Why It Matters for Everyday Australians

Regulatory capture isn’t just an abstract policy failure—it has real consequences for households and small businesses. When regulators go soft on banks, insurance firms, or super funds, the costs can include:

• Higher banking fees or interest rates
• Slower response to financial misconduct or scams
• Lower returns on superannuation due to unchecked industry practices
• Reduced competition and innovation in financial products

For example, in the wake of the Royal Commission, millions of dollars were refunded to consumers after years of regulatory inaction on ‘fees for no service’ scandals. This highlights why transparency and strong, independent oversight are essential to protect Australians’ financial wellbeing.

What’s Changing in 2025?

The federal government is moving to strengthen regulatory independence through new legislation and oversight mechanisms. Key updates include:

• Financial Accountability Regime (FAR): Expanded in 2025 to hold senior bank executives personally liable for misconduct, aiming to reduce regulatory capture by increasing accountability.
• ASIC Funding Model: More robust funding to ensure the regulator isn’t reliant on industry relationships to fulfill its mandate.
• Transparency Requirements: New rules require public disclosure of meetings between regulators and industry, limiting the scope for behind-the-scenes influence.

These reforms are a response to years of public pressure for a financial system that works for Australians, not just for big business.