The Australian Competition and Consumer Commission today issued its report Water market intermediaries – industry developments and practices.
Water market participants often use the services of a water market intermediary when seeking to trade a water access right. Water market intermediaries is a general term that refers to water brokers and water exchanges.
While developing its water trading rules advice to the Murray Darling Basin Authority, many stakeholders raised concerns with the ACCC about the current and potential future conduct of intermediaries. While the ACCC found that the water trading rules are not able to directly regulate intermediaries, it committed to examine broader industry developments and practices.
"Water market intermediaries play an important role in the water market by bringing buyers and sellers together, reducing search costs, improving information flows and assisting in obtaining regulatory approvals," ACCC chairman Graeme Samuel said today.
"The ACCC surveyed irrigators and key stakeholders. These surveys found that very few complaints are made about intermediaries, though there remained a significant degree of concern about the conduct of intermediaries—including about possible future misconduct."
There is currently no industry-specific government regulation of intermediaries, however many stakeholders believe there should be. While there are examples of self-regulation in the industry, coverage is not industry wide.
Stakeholders raised a number of concerns including potential misleading or deceptive conduct, theft, fraud and insolvency by intermediaries.
"These concerns are addressed to a significant extent by the Trade Practices Act 1974, state/territory fair trading legislation, the criminal law and the Corporations Act 2001. However, potential gaps remain where legitimate concerns are not addressed through current regulation.
"Potential gaps include the existence and disclosure of conflicts of interest, the use of trust accounts for clients’ money and the adequacy of insurance held by intermediaries," Mr Samuel said.
The report finds that consideration should be given to the following policy issues:
- the use of trust accounts, professional indemnity insurance, and / or a fidelity fund by intermediaries
- disclosure of intermediaries’ potential conflicts of interest
- measures to address conflict of interests that can arise where a water intermediary owns / operates a trade approval authority.
"It is a question for governments whether the costs of mandating measures to address these concerns—which will ultimately be borne by water traders—are outweighed by the likely benefits of reducing the risks to individual water traders and to confidence in the market more generally," Mr Samuel said.