The Financial Regulator Assessment Authority will be tasked to evaluate both ASIC’s and APRA’s effectiveness and capability every two years, with ad hoc assessments on particular issues only to be conducted at the request of the minister.

The new authority will be independently chaired, along with two other part-time members, and the Secretary of the Department of the Treasury as an ex-officio member. It will not be subject to directions on how a particular assessment is undertaken and will have full discretion in exercising its powers.

The creation of the new financial regulator watchdog comes after the Hayne royal commission found that ASIC’s and APRA’s effectiveness in delivering on their mandates was not subject to consistent and independent expert review over time.

It noted that while both regulators were already subject to an array of external assessment, review and oversight mechanisms, greater expertise beyond the scrutiny of politicians was required to keep them accountable.

“While both regulators are accountable to the Parliament, the financial services royal commission noted that parliamentary committees, including Senate estimates, have some limitations in assessing the effectiveness of the regulators (for example, the fields of expertise required to assess the regulators),” the bill’s explanatory memorandum said.

“Both agencies report extensively on their activities, but these reports are not necessarily subject to rigorous and consistent external analysis. Performance audits by the Australian National Audit Office are conducted on an ad hoc basis.

“The [new] authority’s activities are designed to complement and augment the existing external accountability mechanisms that apply to the regulators, not to duplicate them.”

The government will provide $7.7 million over three years to establish the Financial Regulator Assessment Authority, beginning from 1 July.