Promoting Responsibility through Internal Transparency: Evidence from Australian Prudential Regulation
Specifically, three works are conducted in this paper. First, I examine classical as well as contemporary writings on reciprocity and identify two ways of direct reciprocation according to underlying motivations. In calculation-based reciprocity, people would be willing to reciprocate if the expected return was greater than the cost of reciprocation. But as empathy-based scholarship points out, people may have a desire to justify their claims to those with whom they must cooperate. This would drive them to care about their own morality and what others do, displaying a strong tendency to make their own contribution even without recourse to material incentives. In addition, this tendency will be reinforced if their performance is observed by their peers and subject to a process of reflective revisions. Second, I explore APRA’s pursuit of being a responsible prudential regulator, with an emphasis on reciprocal relationships and strategies prevalently harnessed and fostered by frontline supervisors. It will be revealed that APRA's frontline supervisors adopt different types of direct reciprocity as a response to the financial institution’s receptiveness and subsequent risk profile. The way principles-based approach is implemented in practice features a lot of empathy-based reciprocity. Third, I analyse APRA’s systematic device preventing reciprocal regulator-regulatee relationships from capture. By analyzing 37 unstructured, in-depth interviews that have been conducted face-to face and one-on-one with frontline supervisors and professionals in regulated entities, I argue that, unlike the conventional understanding of transparency that requires an institution to open and share its operation and performance with external stakeholders, internal transparency will contribute to promoting institutional integrity and responsibility of the institution.