Our regulators are set up to fail by design

Our society is built on trust. Most of the time, we trust institutions and the government to do what they say they will. But when they break that trust – by not keeping their promises or acting unfairly – that’s when things start to fall apart. The system stops working for the people it’s supposed to serve.

As a result, we trust regulators to protect the things that matter in our society most. Whether it’s holding institutions to account, or ensuring our food, water and transport are safe, a regulator’s role is to ensure society’s safety net.  

But when something goes wrong, the finger usually points straight at the regulator. And while it’s tempting to blame regulators about why things have failed, new policy research from former Chairman of ASIC, James Shipton, suggests we’re asking the wrong question. 

The real issue isn’t just who’s doing the job, it’s how the whole system is built.

Shipton is working towards optimising regulation by improving regulatory design, strategy and governance. As a Fellow of The Ethics Centre, he has engaged with industry to develop a better understanding of regulators and the regulated. This work aims to crystalise the purpose of regulation and create a pathway where that purpose is most likely to be achieved.  

Shipton’s paper, The Regulatory State: Faults, Flaws and False Assumptions, takes the entire regulatory system in Australia into account. His core message is simple but urgent: our regulators are set up to fail by design. 

Right now, most regulators operate in a system that lacks clear direction, support, and accountability. Many don’t have a clearly defined purpose in law. That means the people enforcing the rules aren’t always sure what they’re meant to achieve.  

This confusion creates a dangerous “expectations gap” where the public thinks regulators are responsible for outcomes they were never actually empowered to deliver. When regulators fall short, they wear the blame, even when the system itself is broken. 

Shipton identifies twelve major flaws in our regulatory system and while they might sound technical, they have real-world consequences. He starts with the concept that our regulators are monopolies by design. Each regulator is the only body responsible for its area – there’s no competition, no pressure to innovate, and very little incentive to improve. In the private sector, companies that fail lose customers and reputations, and customers are free to go elsewhere. In regulation, there’s no alternative. 

The heart of Shipton’s argument is this: credibility is key. It’s not enough for a regulator to have legal authority, they need public trust. And that trust only comes when the system they work within is built for clarity, accountability, and ethical responsibility. 

For example, in aviation, everyone from pilots to engineers shares a common goal: safety. The whole sector becomes a partner in regulation. But in most industries, that kind of alignment doesn’t exist, often because the system hasn’t been designed to make it happen.

Shipton stresses that design matters. Regulators need clear goals, realistic expectations, regular performance reviews, and laws that actually match the industries they oversee. We don’t need another inquiry into regulatory failure. We need to ask why failure keeps happening in the first place. And the answer, Shipton says, is clear: the entire regulatory architecture in Australia needs redesigning from the ground up. 

This doesn’t mean tearing everything down. It means recognising that public trust is earned through structure. It means giving regulators the tools, support, and clarity they need to do their job well and making sure they’re accountable for how they use that power. 

If we want fairness, safety, and integrity in the things that matter most, we need a regulatory system we can trust. And as Shipton makes clear, trust starts with design. 

James Shipton is a Senior Fellow, Melbourne Law School, The University of Melbourne, Fellow, The Ethics Centre, and Visiting Senior Practitioner, Commercial Law Centre, the University of Oxford.