Corporations (Fees) Amendment (ASIC) Bill 2018
House of Representatives, 18 June 2018
Watch Matt's Speech
Yet another sitting week and yet another piece of legislation dealing with ASIC, it is almost as if the government thinks it can convince the public that by having a separate piece of legislation for every sitting week that we come here that has something to do with an economic regulator that they might just think that they are going to get tough on the banks and tough on financial regulation. Before I get into the substantive remarks of my speech, can I just commend the member for Mackellar for giving an absolute textbook workshop on how to speak about absolutely nothing to do with the bill and somehow top and tail his speech to make it vaguely relevant. I really want to commend him for that effort.
Last month, it was revealed that ASIC asked the federal government for more funding to embed its own staff into the big banks, the intention being to ensure the banks are complying with—wait for it—the law, the rules and regulations. This comes following allegations of misconduct by the biggest banks in Australia and the financial advisers that work for them. Considering the appalling stories that we have heard come out of the royal commission into banking, this is a strategy that, I believe, should be supported. The misconduct by the nation's biggest banks and financial advisers is clearly inexcusable. People have lost their homes, their businesses, their life savings. Customers have been charged fees for nothing. It seems not even death will stop some of our financial institutions from charging you a fee. In the most recent sittings of the royal commission, we heard about people losing their homes and businesses due to poor financial advice. We heard about banks knowingly taking advantage of guarantors who were not capable of making educated financial decisions themselves and were being misled. That's only been unlawful in this country for around 30-odd years but we still see that conduct. So I do support ASIC embedding supervisors inside some of the country's largest financial institutions because, clearly, there is a lot of work to be done in changing their culture and attitude and because, when left to their devices, following the law seems to be quite beyond them. We need to ensure that these previous misdemeanours—and 'misdemeanours' is putting it lightly—are never repeated.
I understand that, along with onsite supervision by ASIC—staff being placed in these organisations when required—it is also proposed that staff will work off-site at ASIC, continuing to conduct surveillance and data collection. These activities would be determined by necessity and re-evaluated periodically as required. With the vast majority of the banking market in the clutches of the big four banks—in fact, nearly 80 per cent of banking business occurs between those four—valuable insights would be gained from data collection and analysis, and one would hope that this would serve as an ongoing reminder, to ensure previous malefactions are never repeated.
ASIC is in negotiation with the government to secure this funding, for what I believe is a very valid cause. The new Chair of ASIC, Mr Shipton, revealed in Senate estimates that he had already met with the Treasurer and the financial services minister, and they'd both responded positively, apparently, to this request for funding.
It seems that the Treasurer is forgetting, though, his own industry funding model, specifically designed for ASIC, which, of course, we debate now in this bill. In 2016, the industry funding model was proposed and designed to ensure that financial institutions—including the banks, auditors, insolvency practitioners and credit licensees—would pay to ASIC certain levies to fund its work to hold them to account. In theory, the better behaved these financial institutions are as a whole, the less work ASIC will need to do, and that will of course reduce the bill that these financial institutions need to pay. It's pretty simple, and that's why Labor supported that legislation—though, at the time, I do recall remarking that, as with so many pieces of the government's legislation, I suspected there might be a few ways that they could improve it, pointing to some of the other industry funding models that already exist for other regulators. So I find it interesting that, now, we have this legislation, and we also have a process where ASIC has approached government saying that they need more financial support. It seems to suggest that the industry funding model is deficient to provide the money that ASIC requires to do its job.
The bill that we now debate is part of this furtherance of the industry funding model. This is the fee-for-services phase, and it's based on the principle that ASIC's costs for specific regulatory activities to do with an entity should be fully recovered from that particular entity. This bill is to ensure that those financial institutions pay, effectively, for their bad behaviour and regulation. So if the government is considering funding ASIC's plan to embed staff in these big banks then clearly it has no faith in its own industry funding model. Why would the government consider charging the taxpayer to keep an eye on the banks when—and I think this is quite apparent to everyone—the banks are more than capable of footing the bill themselves?
In 2017, the first stage of ASIC's industry funding model was implemented, with the introduction of industry levies to recover the costs of ASIC's regulatory activities. This was supported by Labor at the time, and we are supportive of this bill as well. The principle is that ASIC's regulatory costs should be borne by those entities it regulates and oversees.
The bills before us today take this, as I say, a step further. This stage deals with fees for services. This is on the basis that those services primarily benefit that entity that has sought them, and they include document compliance reviews, licence applications or variations for various Australian financial services licences and credit licensees. ASIC has released a cost-recovery implementation settlement, setting out how it proposes to implement these fees-and-services elements of its industry funding. The overarching motive is that it creates more incentive for self-regulation and to improve the behaviour of those operating in the financial services sector. We understand that those fees will be reviewed every three years. The minister has assured the House that the government has consulted extensively with industry on the design of this funding model—and no doubt industry is probably pretty happy with it, because it seems like those that are making the most money out of the financial services regulatory system, the banks, won't even have to pay to have people embedded in them to make sure that they follow the law. I'm sure industry is pretty happy with that!
I hope the government really has done its homework here and that it does manage these changes appropriately because, when it comes to ASIC and financial services regulation, frankly, this government has a pretty shoddy record. In 2014, this government's budget made significant cuts to ASIC's funding. At estimates the same year, the then chairman, Greg Medcraft, explained that ASIC's 'proactive surveillance' would 'substantially reduce across the sectors' that they regulated because of those cuts, and that, in some cases, it would even stop!
ASIC said that it would be forced to focus on activity by entities that have the greatest market impact and that it would have to be at the expense of smaller entities with smaller customer bases. It took two years for the government to backtrack on those cuts.
Of course, this was all after Labor started making these calls for the obviously much-needed and required banking royal commission, but the impact of those cuts on ASIC could not be easily undone. In fact, ASIC gave evidence before the House economics committee, of which I am a member, that it has taken it quite a while, even when such funding was restored, to be able to restore the staffing levels that were cut as a result of it losing that funding. It created the situation, effectively, where we find ourselves now, where we had to hold a royal commission into the banking sector—a royal commission that this government resisted holding for more than 600 days.
In responding to the financial systems inquiry, the government promised to update ASIC's statement of expectations by mid-2016 as part of reviewing its overall regulatory approach of ASIC. True to government form, I suppose it did pretty well by actually getting around to doing it by 2018. If you compare it to delivering the NBN, that's exceedingly quick when it comes to a rollout, compared to some of the other processes this government has undertaken. But by 2018 we finally got around to seeing the new statement of expectations.
Up until that time, though, we were stuck with the Abbott-era 2014 statement of expectations, which was focused on what this government likes to call 'red tape reduction', which they say is to the detriment of consumer outcomes. Another name for red tape would be 'appropriate regulation to protect consumers from the big banks ripping them off'. We can never forget, of course, that this is the government which, when in opposition, opposed Labor's Future of Financial Advice laws and which has attempted to hollow them out ever since coming into government.
The FOFA legislation was to give ASIC the important tools it needed to make sure that the financial services industry was properly regulated. It included a new test: the best-interest test, a legal obligation for financial advisers to do the right thing by their customers. A novel concept. It was a concept so novel that those now in government opposed it. And, of course, the importance of that test has been so clearly highlighted by the evidence coming out of the banking royal commission.
When in opposition, the government opposed the FOFA—it voted against it—and when in government, the Liberal Party tried to gut it. It tried to stop it; it tried to delay it—first by legislation, then by regulation and then by having ASIC delay and defer its implementation. Luckily for Australians—for Australian financial services consumers, who are, let's face it, nearly every Australian—Labor has prevailed in the Senate to stop the government's actions in trying to stop these laws from being in force. ASIC has subsequently identified the FOFA requirements as being significant in helping to uncover the massive fees-for-no-service scandal unveiled prior to and during the royal commission, in which clients were charged by the big banks for advice which they never provided.
We saw in the budget this May that ASIC's funding has been cut again. Even in this industry-funding environment, there was a cut by government of $26 million over the next three years. I thought industry funding was supposed to make sure ASIC was adequately funded. Of course, then we also saw that there's no guarantee of funding for the Serious Financial Crime Taskforce beyond 30 June next year. It is quite clear that, for all of the talk—for all of the bark—that we get from this government, there is no bite when it comes to financial services regulation. They talk a big game. They say, even after we've seen these things revealed at the royal commission, 'That's okay, we're gonna throw the book at this lot.' And what do they actually do? What book are they going to throw? The increased penalties ASIC asked for five years ago still haven't appeared. Then, when we look at what the resources are to make sure that these big banks and other financial services are held to account—wait for it!—they've cut $26 million in funding over the next three years from the corporate regulator, the one that's now supposed to be industry funded. And they haven't provided any additional funds. In fact, funds have been cut from the Commonwealth DPP, which is the entity that actually has to pursue these prosecutions when they eventuate.
This is in stark contrast to Labor's approach, which would set up a $25 million special task force in the Office of the Director of Public Prosecutions to make sure those who need to be held to account are properly held to account, with prosecutions being pursued as we see the findings come out of this royal commission. It is quite clear that only Labor will continue the work of the royal commission in making sure that it delivers justice so that those who have suffered from financial misconduct can be vindicated and those who have caused those financial crimes to be committed against them will be held to account. It is only Labor that will make sure there is appropriate regulation of our banks, that there is proper funding of our financial regulators to ensure that the people that caused this pain to so many Australians are properly held to account, and that the right thing is done to make sure that we have a proper and sustainable footing for our economy going forward that people can have trust in.