Treasury Laws Amendment (Banking Executive Accountability and Related Measures)

House of Representatives, 5 February 2018
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Transcript

Mr KEOGH (Burt) (16:05): The changes to be brought about through the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017, the Banking Executive Accountability Regime and some related measures, have been driven by increased calls over many years now for intervention into the Australian banking sector. The call for increased government intervention into banking has been coming from a wide variety of voices across all sectors in our community. A key concern is the perception here that banking executives are not being properly held to account for the various scandals and mistreatment of customers emanating from Australian banks. For example, we've had the bank bill swap rate rigging scandal, which has now enveloped all four of our major Australian banks; we've had the AUSTRAC bank scandal with the Commonwealth Bank; and we've had many—in fact, way too many—examples of dodgy financial advice being handed out by our banks, or in fact customers being charged for that advice when it was not even provided. The introduction of a senior executive and director accountability regime is significant and it does recognise that it's about making the leaders of our banking sector responsible for the changes that are required in our banks and, in particular, for the cultural change that is required.

The government, in its explanatory memorandum, does point out that this scheme—the BEAR—comes about from a recommendation of the House Economics Committee, a committee of which I am a member. What the government seemed to skip over in its explanation in the explanatory memorandum is that this recommendation actually came from the opposition, not from its own members of the committee. But what the government has put together here doesn't quite go the full distance. It is actually quite limited. The committee recommendation was essentially based on the UK senior executive accountability regime, but, unlike that regime, which is about both consumer issues and prudential issues, the BEAR that is proposed by the government here is only about prudential ones. That is why we support it but we must also see it expanded. For, in truth, this isn't a real BEAR; it's a clayton's BEAR—it's the banking executive accountability regime you have when you aren't really having one. It's a bit like the government's banking royal commission.

The government appears also to have confused APRA, the prudential regulatory authority, with its consumer counterpart, ASIC. APRA is the prudential regulator in this country and is responsible for ensuring that banks, amongst others, do not undermine the integrity of our financial system and that, of course, they're able to pay out banking customers when they call on their funds. That is a very important role and it is key to this regime, as it should be. But ASIC, it also needs to be realised, is our key consumer focused regulator, looking at what the outcomes are for consumers and those that are purchasing financial products and using our banking sector, and that is the area that it has responsibility for regulating. So it's responsible for making sure that our banks do act fairly. For example, it is ASIC that is taking the bank bill swap case against the banks. It is ASIC that has been involved in the proceedings in relation to dodgy financial advice from our banks. So I do, in some regard, feel sorry for ASIC, because it's quite clear that, under this government, it's go-to financial regulator has become APRA, excluding ASIC from consideration—in fact, often not even asking it or consulting with it in relation to legislation just like this.

If we cast back to the flurry of these banking scandals, they were not prudential. The ones I mentioned before— in fact, none of the ones that we've seen—have been prudential. They have been customer-facing scandals and issues, and that's where we see the deficiency in this accountability regime. This deficiency has been acknowledged by ASIC in the evidence it's given to parliamentary committees—that this is a missing component of this regulatory regime when we compare it to the regimes that are in force in other places, such as the United Kingdom.

I will say that the government has taken on some of the initial feedback that was provided by stakeholders when it first proposed this legislation. So it has relooked at the application to banking subsidiaries. One of the key concerns was: what happens with insurers that sit under banks? It turns out in the process that the banks have largely sold off all of their insurance arms. They're clearly quite concerned. They've also clarified the role of directors in relation to the definition of accountable persons. They've set new start dates. They've tried to deal with the overlap between ASIC and APRA in its disqualification powers mainly to make sure that what they have proposed in this legislation would actually work. They have also dealt with the issue of the start date, as I said. Then there is the issue of how this will apply to small banks, and I'll come to that at the end.

The other issue that hasn't been addressed to anyone's confidence is the resourcing that this legislation is going to require from APRA. APRA is already very busy doing important work, making sure that the prudential regulation in this country is generally up to scratch and meeting world standards. It has been working with the Reserve Bank of Australia, looking at the level of household debt in this country and the changes that have been required, for example, to interest-only loans. Given that APRA is already going full pelt, to add this burden on top does require the government to make sure that they properly resource APRA to do the job that they're now asking them to do. However, if additional resources are not being given to APRA to enforce the new law that will be coming into place, the question has to be asked: is it the case that the government actually do not intend anything to happen under this legislation, that it is, as I said, a Clayton's piece of legislation that doesn't actually do the job? Or is it the case that, whilst they have put all of this in place, they have no intention of APRA doing any of the work, and they're happy for it to fail? Let me mark this term right here: we need to make sure that, if we're going to do these sorts of things, we resource the bodies that are going to be there to enforce them.

As I mentioned before, there is an issue about levelling the playing field between large banks and small banks, and that is why Labor have proposed that, in acknowledging this difference, we give a 12-month delay to the start date for our smaller banking institutions to comply with this new framework. As I'm sure everyone will appreciate, there is a world of difference between our large Australian banks—with their huge compliance teams and access to funds to be able to fund the lawyers to get these schemes and the internals that are required within the banks up to speed in order to comply with this law—and our smaller banks. For smaller banks, for smaller ADIs in Australia, to comply, it will take longer. They don't have that regulatory team just sitting there, waiting to go—though sometimes you do wonder about the large banks as well, given their rate of noncompliance of recent years. That is why Labor have proposed a very sensible amendment. As I said, we support the legislation. We just don't think it goes far enough. We've proposed an amendment to make sure that small banks are not disproportionately disadvantaged by the introduction of this regime.

As I mentioned before, the government has form, terrible form, when it comes to financial services legislation. We've had their attempts to rip up FOFA. We've had their superannuation backflips. We've had them refusing to hold a banking royal commission. We've had the crowd-sourced funding debacle, which they introduced legislation for, which no-one actually liked. They had to come back and fix it up, despite us telling them that at the time. We've had their attempt at multinational tax avoidance legislation, which doesn't even go halfway to doing the job. We've had ASIC and reviews calling for increased corporate penalties in this country for years and years and years, and the government have kept talking the talk but have never delivered the legislation to do it. We've had their attacks on the industry superannuation sector. And we've had the banking royal commission, which they finally announced, which, as I said, is a bit of a Clayton's royal commission, because they've given the terms of reference without any consultation with Labor, who have been calling for a royal commission for many years. They've effectively excluded looking at the regulatory part of the banking sector, which, in my view, means that they're not looking at the whole case for what is required for cultural change. You can't change the culture in Australian banking by just looking at the banking players. You've also got to look at the regulatory environment in which they play and the way in which their regulators operate.

The government has given the royal commission all of 12 months to get all of that work done. You would think that, after the amount of evidence and the countless inquiries that have happened through this parliament in relation to this issue, it would be abundantly clear that there is a lot of work to be done by a royal commission. By straddling it and really constraining it with a 12-month time frame shows just how much this government was trying to score political points by calling a royal commission and nullify a political issue that was hanging around its neck, instead of getting on with the work of making sure that financial regulation works properly in this country. Now we have the Claytons Banking Executive Accountability Regime. We thank the government for bringing it forward, but it doesn't actually deliver on what is needed. We all knew that this government was out of touch but, when it comes to financial services regulation, we now can see clearly, through the litany of failures through the term of this government, that it is clearly out of its depth as well.