Treasury Laws Amendment (Financial Sector Regulation)

House of Representatives - 20 August 2018

Watch Matt's Speech here

Mr KEOGH (Burt) (18:58): To those who regularly follow my input in this chamber to myriad legislation, especially around financial services, I would like to start with an apology: I know that none of you like my tie, but, if you think this is an affront to sartorial excellence, wait till you get your head around this as part of the entire government's regulatory regime for our financial sector. As the member for Chifley has so eruditely explained—as had the member for Hotham—this legislation, at the end of the day, whilst a positive step, is, firstly, at severe risk of never making it any further than this chamber and, secondly, forms part of a lengthy set of pieces of legislation that have gone through this chamber and not progressed through the Senate or achieved very little in and of themselves. I won't use this opportunity to make some sort of lengthy contribution about the way in which this government's policy settings have failed the people of Australia by trying to put off the coming into force of FOFA reforms, by denying Australia, for 600 days, the holding of a clearly very necessary banking royal commission, or about the way in which they have failed to properly fund our corporate watchdog, now known as a corporate poodle, in ASIC, or the way in which they have failed to provide ASIC with the powers that it clearly needed and still needs to make sure that there are proper penalties in place and that it has the powers and the tools in its regulatory toolbox to be able to hold not just the banks but the financial services sector to account.

The changes that are brought forward in this bill will be positive, and they will be part of what needs to be a growing set of changes to the framework that will help those smaller financial services players grow themselves into being competitors, in a whole range of different ways, to the entrenched financial services framework that we have in Australia. It is definitely a positive thing that we have seen—effectively, only over the last year—a breaking down of the financial oligopolies that have existed in Australia, because we have seen the big banks now start to divest themselves of life insurers and we have seen the big banks starting to divest themselves of wealth management firms. That is actually all good for competition across the sector.

But what I want to highlight briefly here is that this legislation does two things. It raises the ownership restriction applying to financial sector companies from 15 per cent to 20 per cent, which allows new entrants into the financial services market—better. But the other thing it does is that it enables APRA to grant a time-limited ADI licence to encourage greater competition in the banking sector. These changes have come about through recommendations of the House economics committee in its inquiry into the banking sector, looking at how we could encourage, in part, greater competition in the banking sector so that we might see some better behaviour from our banks.

One of the other recommendations that has come from that committee has been to make sure that we have greater executive accountability within our banking sector, so that we can see the cultural change that is necessary in our banks to protect customers. However, what the government did was quite half-arsed. It said, 'We'll introduce a Banking Executive Accountability Regime, a BEAR, that applies for prudential matters, but we won't do one that applies to consumer-facing issues.' Yet that is actually the nub—in fact, the crux—of the issue when it comes to supporting customers and seeing that cultural change that is so desperately required in our banks, because the culture of a bank is quite an ephemeral beast. It's really about changing the behaviour of the senior executives in those banks and, therefore, the people who work under them as well. To do that, you have to hold them to account for the things they do that affect customers. And that's where the BEAR regime is quite deficient.

Again, here the government has not quite grasped the nettle of the problem of competition in the banking sector, because just making these changes is not actually going to do what we need. If it were about trying to access capital, which is effectively what these changes are all about, then, as to our international banks—such as HSBC, Bank of China, Citibank and, to some degree, even the Bank of America and Merrill Lynch—they all have a presence here; they have a footprint. But they are clearly not competitors, in any sense, to our big four Australian banks. If it were about access to capital, those banks have no lack of access to capital whatsoever. If they wanted to take on the banks here in Australia and it was about capital, they've got it. If it's about capital, our superannuation sector and our financial services sector have capital access.

There are clearly other issues going on. We have an entrenchment. The previous speakers, the member for Hotham and the member for Chifley, outlined this exact issue, which is that people are more likely to get divorced than they are to change banks. One of the most stressful things you can do is to buy and sell a house. The issue here is that we have a huge entrenchment in our big four banks. They do provide some stability, but they also bring a huge moral hazard. What regulator is ever going to go after them with ferocity if they hold such a big part of our financial services market, as they clearly do? And they hold it in such a way that it effectively excludes any other competitors or entrants from coming into the market. These changes are about trying to change that, but they are niggling at the edges, effectively, because they do not address some of the biggest systemic issues of our big four banks having the footprint that they do. If it was just about capital, you would see other entrants who have access to other sources of capital coming into this market. It's not like our banks aren't profitable. There's clearly money to be made in this sector.

So these changes are welcome; they are important changes. They will enable smaller entrants, the fin-tech sector in particular, to start coming up, niggling the banks and using, when it's eventually passed, the open access to customer information, for customers to be able to see through new financial models what they're able to access in banking products.

But, at the end of the day, the government is all bark and no bite. It likes going out for the media release, but it doesn't actually have any bang when it comes to delivering for Australian banking customers, who, when we think about it, are all Australians. All Australians are left worse off by this government not addressing fundamental issues in our banking and financial services regulation in Australia. We're all worse off for that, because they won't grasp the nettle. They won't do all of the things that are required. Not only in these speeches I give here, where you all love my tie, but also in the reports coming out from places like the House economic committee—of which the deputy chair, the member for Kingsford Smith, is here—we've been making recommendations and telling the government the things it should get on with, and the shame of it is that it can't even deliver things that even it has said it's delivering on, like the BEAR. It can't get it right. We keep telling them. There's now a consensus report from the Parliamentary Joint Committee on Corporations and Financial Services. All sides of politics have said, 'Extend the application of the Bank Executive Accountability Regime,' but they can't do it. So we support this legislation, but, at the end of the day, like so many things that this government is doing when it comes to financial services regulation, they just haven't got it right.