Treasury Laws Amendment (ASIC Governance)
9 May 2018, Federation Chamber
Watch Matt's Speech
Mr KEOGH (Burt) (10:46): The Treasury Laws Amendment (ASIC Governance) Bill 2018 amends the ASIC Act to provide the Governor-General with the discretion to appoint a second deputy chairperson of ASIC. Labor supports this bill. This bill forms part of what I see as the first tranche of legislation that this government is belatedly bringing forward to implement changes to our financial services regulatory framework in reaction to the royal commission, which it avoided holding for so long. The regulation and the regulatory framework are something that it has avoided changing and improving for so long.
We note that the government has announced its intention to nominate Daniel Crennan QC to fill this new deputy chairperson role, and an excellent appointment he will be. But why have we ended up at this place? It all comes back to an issue that the outgoing chairperson of ASIC identified some time ago, which is that we have a fundamental failure in the way in which ASIC is regarded, not just by the public at large and not just by those that it seeks to regulate but, critically, by its international colleagues around the world. It is not seen properly as a law enforcement agency. ASIC cannot just be some cuddly regulator working closely with those companies, organisations and individuals that it seeks to regulate, gently pushing them and prodding them towards better behaviour. It has to carry a big stick as well. It may walk quietly, but, without that big stick of actually being a proper law enforcement agency, that gentle cajoling ultimately will have no effect. This change—introducing a second deputy chairperson role and making sure that the head of enforcement fills that role—is a very positive change to create a better perception of ASIC in this country.
But, as I said: how has this all come about? It has come about because the government has realised it suddenly has a problem on its hands. Suddenly it sees it as a political issue. Now that we've finally got to a situation where we are having a banking royal commission and issues are starting to come out, the government needs to make sure it has strong and effective regulators to back the strong and effective—oh no; we're still waiting for the laws to come. Not only do we need to have a strong and effective regulator that is a proper law enforcement agency; we need to make sure that it has the powers to do its job properly. In particular, we need to make sure that it has the penalties to back up the offences that it's trying to go after. But I will come to that again towards the end of my speech.
If we go back and look at ASIC under the term of this government and why it's ended up in this predicament reputationally, a lot of it goes back to the government's 2014 budget, its first budget, where it moved to slash the funding to ASIC, where it gutted our key corporate regulator. And then, in an effort to forestall and avoid holding a royal commission, the government said, 'Nay, wait: it's okay; we'll restore the funding.' But, as we've seen in numerous committees that I've sat on, and others, it takes quite a time once ASIC gets its funding restored for it to bring its capability back up to scratch, and even now there is a question mark over whether that capability is still fully there. So we still suffer the consequences of those cuts back in 2014 by this government.
And those cuts can't be just seen in isolation. I thought it was astounding that we saw the Treasurer go out and say that we need to make sure that we effectively throw the book at corporate crime and the crimes that may have been committed by the big banks in this country after some of the revelations that have come out through the banking royal commission. I thought about that, as a former federal prosecutor myself: how is he going to do that? He might say, 'I've restored the funding to ASIC,' and he may well say, 'Look, I've got a tough cop on the beat and I'm going to make the head of enforcement the deputy chair of ASIC.' But who's going to prosecute it? The government has cut funding. It has slashed and burned through the Commonwealth Director of Public Prosecutions office. When we look at yesterday's budget, the government has said, 'We'll give the Commonwealth prosecutor an extra $3 million in about three years time so it can do some enforcement around the illegal importation of tobacco.' But it hasn't given any extra funding to prosecute the crimes that the Treasurer himself has said should be prosecuted coming out of the banking royal commission. He's all bark and no bite, this Treasurer. So we see that the government is consistent when it comes to funding its law enforcement agencies; it's just consistent in the wrong way.
Related to this, after the Financial System Inquiry, the government promised to update the ASIC statement of expectations. It said it would do that by mid-2016. But it took until this year, 2018, for the minister to announce that new statement, and the minister did that only after a significant amount of pressure applied by Labor through the Senate estimates process. This is quite an important document. We're talking about ASIC governance in this legislation, and this document goes to the heart of the government's expectations about how ASIC will fulfil its mandate. In the meantime, up until this point we've been left with the Abbott-era statement of expectations from 2014—remember, that's the period when ASIC had its resources gutted.
If we also turn back and look at what the priorities were for the Abbott Liberal government at that time, let's look at FoFA. The Future of Financial Advice reforms that were introduced by the former Labor government were of course opposed by the coalition, who voted against them at every opportunity. Then, when they got into government, they tried to repeal them, and then they tried to stop them from operating through regulation. When they couldn't do that, because we successfully disallowed those regulations in the Senate, the Minister for Finance cooked up a great little scheme with ASIC where they said, 'Well, let's just use your power to defer the operation for two years so that we can let the industry adjust'—an industry that had already had about two years to adjust when Labor passed the legislation in the first place. This has of course meant that we had more time during which improper fees were charged to Australian consumers. Indeed, ASIC has worked out that the amount of fees that have improperly been charged to consumers is effectively over $200 million—and that's not including interest.
Then there's the FoFA opt-in requirement—again, introduced by Labor—which would mean that financial advice clients with ongoing fee arrangements would have to opt in to that relationship advice, and pay for it, every two years. It seemed quite reasonable—unless, of course, you're the coalition; they're not really into this transparency with the customer. ASIC subsequently concluded that this reform significantly reduces the likelihood that customers will continue to pay fees for ongoing advice services if they do not wish to receive those services or pay those fees. Well, that sounds quite good. But, instead, a number of financial services and entities decided they would just charge the fees regardless of whether they gave any advice—indeed, they would charge them even after people died.
I mentioned tougher penalties earlier. ASIC's been onto this for quite a while. ASIC first asked this government for tougher corporate penalties back in 2013—some five years ago. Indeed, if we look at some of the revelations that have come out of the banking royal commission recently, some of the conduct which the commissioner said is likely criminal would have incurred these higher penalties if the government had got around to introducing the higher penalties when the regulator asked for them in the first place. That's not to mention the impact that the government says is going to clean all of this up—that's its Banking Executive Accountability Regime. The Treasurer has mentioned this quite a bit recently. I think he even mentioned it in his budget speech last night. But the thing I don't understand is that the Treasurer says this is going to clean up all this behaviour when the legislation clearly says that it has nothing to do with consumer outcomes—it's all about prudential regulation. It actually has nothing to do with this. I and Labor have been quite critical of this. In fact a parliamentary committee report handed down recently—a consensus report across all parties—said the Banking Executive Accountability Regime should be extended to apply to bad behaviour towards consumers by the banks and financial services. That's what they did in the United Kingdom, and that's what this regime is apparently based off, but the government can't even do copying properly.
Then, just today, we have seen that the Commonwealth Bank have finally settled their bank bill swap rate case with ASIC. They've settled that by admitting to a number of cases of unconscionable conduct and manipulating the bank bill swap rate. They will pay a penalty and donations to financial service literacy organisations of $20 million. It sounds like a lot of money until you compare it to the tax cut this government wants to give them. But I will commend ASIC for taking the hard line when it came to the bank bill hard line swap rate cases. It took all four banks to court in relation to that matter. It has settled with three of them so far and obtained some significant penalties. However, it is concerning that the state of the law, and the state of ASIC's resources and the Commonwealth DPP's resources, has meant criminal charges were not brought to bear in relation to any of that conduct.
In relation to all of these things we have seen critical failures by the government. They have allowed a situation to exist where there is effectively no confidence in our corporate regulator. It is good that they are bringing forth this bill. It is good that they will elevate the role of enforcement to the level of the deputy chairperson of ASIC, and we support that. We support them in making sure there are tougher penalties. We support them in making sure ASIC has more powers; that it has the powers it needs to be the tough cop on the beat of corporate crime in Australia. We need to make sure not only that that happens here but also that it's seen to happen overseas, because there is criticism of ASIC such that other law enforcement agencies in this area will not give full cooperation with ASIC because they don't regard them as a law enforcement agency. This is very concerning, and the government needs to address it, as it does with so many other matters.
When it comes to this specific piece of legislation, well done, government—eventually, years later, you have got around to fixing a small problem. We look forward to you eventually fixing some others.