House of Representatives, 27 June 2018
Watch Matt's Speech
I stand to address the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018, one of many pieces of legislation that we've been dealing with recently in respect of ASIC's capabilities. I stand to mention this bill in particular, because whilst it only makes in one part small textual changes to ASIC's legislation, it should have extensive ramifications. This minor change actually should've been introduced back in 2016, but I think it would serve as no surprise, as with the conduct of most of the legislation we've dealt with recently in respect of financial services, that it has, indeed, taken around 18 months for this bill to be presented to this place. In fact, it's consistent with the lack of any prompt action at all by this government when it comes to financial services regulation.
This bill seeks to amend the current Australian Securities and Investment Commission Act 2001 to require that ASIC will consider the effects and the performance of its functions, and the effects the exercise of its powers will have on competition in the financial services sector. At the moment, the ASIC Act includes the specific objects that ASIC must, of course, strive towards. These include:
Promote the confident and informed participation of investors and consumers in the financial systemmaintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economytake whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on itreceive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; and ensure that information is available as soon as practicableand take whatever action it can in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.
This bill will mean that without limiting any of those existing elements, ASIC must also consider the effects its functions and the exercise of its powers have on competition across the financial system.
How did we get to here? Members may recall way back to the heady days of this government in 2013 when it established the Financial System Inquiry to hold a root and branch examination of Australia's financial system. Recommendation 30 of that inquiry asked that ASIC's mandate be updated to include consideration of competition. In particular, it read:
Review the state of competition in the sector every three years, improve reporting of how regulators balance competition against their core objectives, identify barriers to cross-border provision of financial services and include consideration of competition in the Australian Securities and Investments Commission's mandate.
In October 2015, the government accepted recommendation 30 of the inquiry, a mere 10 months after the release of that report. The government told us, in their response to the inquiry, that it will help deliver a financial system that is resilient, efficient and fair. That was 2015. It is now the middle of 2018. We now have the billfinally.
The bill will mean that without limiting the existing elements of ASIC's powers and responsibilities, it will also have to consider the effect of competition. It'll mean it will have to take into account whether any decisions that it takes will create a competitive advantage for some over others, or industries overall. It will have to evaluate whether a decision that will improve a consumer's ability to exert demand-based competitive pressure in a market would be compromised. This may impact on competition in the financial system and will enable ASIC to favour one option over another because of the effects of competition. For example, ASIC could consider whether a decision will create regulatory advantages for some companies over others competing in the same sector across the industry as a whole. In addition to this, it will be able to evaluate whether a decision made by it will disproportionately impact smaller entities. This is particularly relevant in the current environment, where we're considering the regulation of our banks, and in a context where we are seeing the banking royal commission undertake its work and likely make further recommendations for not only legislative change but also the way in which the regulators undertake their work.
I have met with a number of smaller players in the financial services sector during my time in this place, in particular, with reference to the work of the House economics committee. Because of what has unfolded in the Australian financial services sector, we have the big four banks and a large number of much smaller players. One of the issues that is often raised in this respect is that, when regulatory changes come into place, the capacity of smaller players to respond is much less and much more hampered. Whilst there is some consideration of this by APRA, there's no specific reference to this in the way in which ASIC undertakes its work. If we want to maintain a competitive financial services system where we don't see powerin particular, market poweraggregate to just a few, it is important that the way in which regulation will impact upon those smaller players is continually taken into account. We need to be aware of the capacity for work in small financial institutions as opposed to just the big four. ASIC will need to ensure that those small businesses and others are not negatively affected by industry-wide crackdowns. We need to see appropriate regulation across these sectors.
The bill will see this change to ASIC's objects and make sure that ASIC is able to, and does, consider the issue of competition. Earlier this year, the Productivity Commission's draft report recommended that ASIC or the ACCC be designated as the competition champion for the financial sector. Their final report is due next month. However, the change in the bill now will appear to fall short of designating either body as a financial services competition champion, because it will still see a situation where the ACCC, as the competition regulator, has some oversight of competition at a general level, including for financial services, but ASIC is at least able to consider this in its mandate and what it does. There are clear gaps that develop because of this split in the regulatory framework. Effectively, though, what we will see is that this change in ASIC's objects will align it in a similar way to what we already see with APRA.
In relation to APRA, we see that its act provides that:
In performing and exercising its functions and powers, APRA is to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives, is to promote financial system stability in Australia.
It will be interesting to see the extent to which the way in which competition is inserted into APRA's mandateas opposed to the way in which it is being considered in ASIC's mandatecreates any difference. The changes in this bill are more modest, and simply require not that it be a function of ASIC but that it gives consideration to competition matters whilst performing its functions.
One of the aspects of having to now consider competition in the performance of its functions is that this bill contributes in an additional way to ASIC's remit. It effectively expands the things that ASIC has to do. Of course, this is at a time when ASIC already has more to do. Just this week we considered the legislation that is amending the fin-tech regulatory sandbox provisions that apply to ASIC, which means that there is work to do for ASIC in that space. We've recently considered updating legislation around crowdsourced equity funding, another area that ASIC has to control. Both of those are areas where ASIC needs to get up to speed, where it needs to increase its capability and where it needs to be able to provide services to the financial services sector. We also have the issue of initial coin offeringagain, another situation where we see an intersection between ASIC and the ACCCwhere some of these coin offerings may be regarded as financial products and some of them may be regarded merely as commodities. The issue being discussed between ASIC and the ACCC is how to best manage that so that we don't create regulatory gaps that put consumers at risk.
On top of all those things, we have the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. What that means, of course, is that as that unfoldsas there are recommendations that come forward from the royal commission and revelations as to the further misconduct that has occurred in this sectorit will undoubtedly create additional work that ASIC, as the corporate watchdog, must perform. But over the years this government has displayed a complete indifference to the impact of the financial sector misconduct on ordinary Australians. Every time that ASIC is given another job or there is an increase in its remit or, as we are yet to deal with, there is an increase in the penalties ASIC may seek or a broadening of the powers that it can utilise in the financial services sector, how does this government reward ASIC when we talk about capability review? In 2014, the way the government rewarded ASIC in this area was to cut its funding by $120 million. Soon after those cuts were made, ASIC declared that their work would be severely impacted by those cuts. The chair of the day told a parliamentary committee hearing that ASIC would be required to rely on misconduct reports and complaints rather than being able to conduct its own supervision, due to those financial cutbacks in the budget. He said:
our proactive surveillance will substantially reduce across the sectors we regulate and, in some cases, it will stop.
We've definitely seen the impact of that in recent years. We've seen, as a result of those cuts, a severe decline in the supervision of banks and financial institutions, with little or no proactive surveillance being undertaken. The decline has been so dire that we have seen further creation of the environment that has led to the pressure on this governmentpressure that it continually resisted for over 600 daysto establish the royal commission into banking, which has heard about the many lives across this country that have been turned upside down by our banking sector and financial service providers, with people's homes and livelihoods torn away as a result. As I've said, this government was dragged kicking and screaming to holding that royal commission, because it cared more about a protection racket of the banks than about making sure that victims were protected or that those entities like ASIC which are there to make sure that those people are protected were properly resourced to make sure that these sorts of things don't happen.
Of course, we can't forget about the way in which the coalition opposed the Labor government's Future of Financial Advice laws and their attempt to hollow out their application as soon as they came to government. The current Minister for Revenue and Financial Services told the parliament back in 2012 that FOFA would increase administrative burdens and compliance costs and consequently decrease productivity. In actual fact, FOFA legislation gave ASIC important tools to regulate financial advice in this country and to be able to protect consumers. ASIC knew that. ASIC have said that. But what was the government's response even when those laws remained in place? It cut the funding to ASIC so that nothing could be done about it.
Amongst the critical aspects of FOFA which we have seen was the introduction of the best-interests test, a legal obligation on financial advisers to do the right thing by their customersa novel approach, you would think. It also included the opt-in requirement so that financial advice clients would have to agree every two years to ongoing fee arrangements with their advisers. ASIC have told us that the requirements of FOFA, including this one, were essential to uncovering the massive fee-for-no-service scandal. This was a scandal in which big banks and others spent years charging clients for advice that they never provided. We've heard in the royal commission stories of clients being charged for no services. In fact, we've even heard that dying will not stop these entities from charging you a fee for doing literally nothing. In opposition, those now in government voted against FOFA. In government they tried to gut itfirst by legislation, then by regulation and, of course, by defunding the entity that was responsible for enforcing it. Fortunately, Labor prevailed in the Senate, preventing the removal of those regulations.
Of course, there are more examples of this ilk. I'm sure many listening to me today will think: 'I've heard the member for Burt talk about these issues many times before. Why do we keep hearing about them again?' It's really an old ballad that we know well by now. It's the ballad of the government protecting its big bank buddies. I would like to point to another example of negligence by this government when it comes to financial services. Since 2016, this government has been promising to give ASIC important powers to crack down on dodgy payday-lending practices to help consumers and stop them from being ripped off. But to date this legislation still hasn't happened. In 2017, the Minister for Revenue and Financial Services said the bill to implement these reforms would be introduced into the parliament at the earliest opportunity and that the reforms would pass that year. The sentiment was repeated by the Deputy Prime Minister last October. Well, 2017 came and went and the government had achieved diddly squat. In February, Treasury said they expected the legislation would be introduced in the autumn sittings. At the May budget estimates, Treasury officials, when pressed, told us that they couldn't provide an answer on when this vital legislation would be introduced, stating that it was 'a matter for government'. Yet here I stand, as we're about to go into the winter recess for 2018, and there is still no legislation in that area. I think what we are seeing is the bite-back on this government's agenda from the 'parliamentary friends of payday lending' sitting on the government backbench. They're almost as bad as the 'coalition backbench committee for power station nationalisation'.
But all of this is the same trend from this government, where they talk a big talk and they have a big bark, but, when it comes to financial services regulation, they really have no bite. And when they did eventually get to introducing the legislation that is required, that was recommended to them by the Financial System Inquiry and that they said they would implement, it took them 18 months to drag the legislation into the chamber. Then, lo and behold, what do we find? They add thison top of many other areasto the expansion of ASIC's powers, but, at the same time, they are cutting fundingeven in this budget just passedto ASIC, the corporate regulator and the corporate watchdog. How on earth is this entity, which we rely on to protect consumers in the financial services sector in Australia, supposed to do its job when we all recognise it needs to do be able to do more? It needs more tools and it needs more powers. It needs to consider more things, as this bill proposes by making sure that ASIC has regard to competition. But how is it supposed to do that when the government says to ASIC, 'We're going to give you all these new powers so you can do things, but, at the same time, we're going to reduce the level of funding that we're providing to you'?
In response to the royal commission, the Treasurer has said that this government wants to throw the book at these who have breached financial law and ripped off the victims of scandals in the financial services sector. I don't know which book he's going to throw, because there won't be any book left. The entity that is supposed to hold them to account, that is supposed to do that work, is being underfunded by this government.
I wish to turn to the second aspect of this bill, and it is actually very important. It will remove the requirement for ASIC staff to be engaged under the Public Service Act. This, again, follows a recommendation from the ASIC capability review. This will bring ASIC into line with the other regulators in the financial services sector: APRA and the Reserve Bank. The 2015 ASIC capability review found that being subject to the Public Service Act negatively impacted on ASIC, in that it:
impacts ASICs ability to attract and retain suitably qualified employees
slows down and impedes the ability to promote internally
limits opportunities for career advancement, therefore contributing to employee attrition
has an operational effectiveness consequences
increases reliance on individual flexibility arrangements
increases the frequency with which ASIC must go to the market to advertise roles, increasing cost.
I will point out that when they referred to impeding the ability for internal promotion, they seemed to take the view that it would be desirable for ASIC to have even more SES band employees within its ranks. When we talk about the capability of ASIC, I would have thought that having a few more legs on the groundpeople doing the actual work at the front line of what we need ASIC to dowould be more desirable than creating an ever more top-heavy organisation with more senior executives. When it comes to employee attrition and employee advancement, that might have something to do with the fact that this government keeps cutting the funding to ASIC. How on earth would you expect any employees to hang around?
But, in any event, this bill provides for ASIC to employ directly rather than under the Public Service Act. It will allow certain functions, therefore, to also be delegated to ASIC senior staff members. This will actually improve flexibility within the agency, and that is an important thing. It will ensure that ASIC members who hold positions such as ASIC chairperson can delegate powers to other senior staff. It requires the ASIC chairperson to determine an ASIC code of conduct and ASIC values. These would come in to replace the code of conduct and values that currently apply under the Public Service Act. It will provide arrangements to transition ASIC staff engaged under the Public Service Act to be engaged directly under the ASIC Act. It's intended that all the changes will take place from 1 July 2019.
The Community and Public Sector Union have raised concerns about the implementation of these changes, as well they should. The union are concerned that the application of the Australian Public Sector Commission's workplace bargaining policy may impact on future ASIC enterprise agreements. ASIC have advised that they will likely still have to bargain under the current framework for the next round of enterprise agreement negotiations.
Another issue of concern, though, is superannuation entitlements. As you would imagine, there are a number of employees within ASIC who have transitioned into ASIC over a number of decades from its predecessor organisation and others, who are covered by transitional arrangements and historical arrangements when it comes to superannuation. ASIC have advised the CPSU that they have in-principle agreement from the finance minister that ASIC employees will retain and remain in their current super fund and superannuation arrangements. This is vitally important for these employees.
I hope that ASIC will actually be able to attract and employ suitably qualified people and provide them with good career advancement opportunities. I can tell you from firsthand experience when I was prosecuting corporate crime and working closely with ASIC that ASIC is full of good, well-intentioned people. They do a very commendable job, given the limited resources that they are provided by this government. But we also need to make sure that ASIC is able to be filled with people who have a good understanding of the real world of business, of commerce, of the financial services sectorthat they have an understanding of what happens in this sector on the ground.
But we also need to guard against this becoming a revolving door of people moving from the banks and financial services sector into the regulator and then back out into more senior roles in the industry which they once regulated. This is a problem that also confronts other regulators, such as APRA. Where is the ground from which APRA can recruit? The banks. Where do the people who work at APRA go once they leave APRA? The banks. It's a bit of a revolving door, and that is a problem. Regardless of whether people are employed under the Public Service Act or newly under these amendments to the ASIC Act, we need to make sure that there is not an element of industry capture that confronts ASIC. At the same time, we need to balance that against ensuring that people within ASIC actually understand the sectors that they are seeking to regulate. The ability to promote from within them that will be granted is good in theory, but, as I say, we need to make sure that we don't create a top-heavy organisationif all that is sought to be done here by creating these changes is to allow for an easier pathway into the more senior ranks of the organisation.
All things considered, I think this will help ASIC to make sure that it's able to obtain the highly qualified people, the experienced individuals, whom it needs to do not just the senior managerial work but the work on the front line that ASIC needs to be able to do to make sure that it is an effective regulator, that it is able to make use of these new powersthe new considerations such as competitionthat it will have. But I also hope that, in doing that, ASIC is not continually stifled by this government as it has been. It's one thing to say, 'Let's change the law to allow ASIC to pay its staff more and recruit and retain higher qualify staff,' but, if you're cutting the funding to that agency, how on earth is it going to do that? You give it the power and say, 'Go, flourish, blossom, employ all these great people, but we're not going to give you any money to do it.' That is the problem of this government. It is all bark and no bite. It likes a headline, but it never actually delivers on the things that it needs to when it comes to regulation in this country and protecting the vulnerable consumers of this country.
I would like to just turn briefly to industry funding, because one of the things that we have been able to see with industry funding is that it has not matched up to what the government promised us here. When the government introduced its industry funding model for ASIC, it said that ASIC would be the tough cop on the beat. It said that industry funding would ensure that ASIC is able to deliver on the promise of protecting consumers, of making sure that we had a proper regulatory environment. It said that the industries that are consuming the most of ASIC's time and resources would have to pay for that work that ASIC was having to undertake to protect consumers and regulate those industries.
And yet we have a situation where ASIC has had to go cap in hand to government and say, 'We feel that we need to embed supervisors into our major banks, into the financial services sector.' And who's going to pay for that? Not industry, not the big banksthe taxpayers are going to have to pay for that. After government has cut the funding to ASIC, for each project ASIC has to go back, cap in hand, to government and say, 'We now want more money to do this.'
The whole point of industry funding is that you give ASIC and other regulators the capability to say: 'We can see a problem. We need to chase that down. We need to be able to do that, and we can obtain the funding to do it because we're able to take that from the sector that we are regulating.' What we have seen here is a complete breakdown of what the promise of industry funding was. It's something the government needs to turn its mind to quite seriously because this legislation is important. It's legislation that we on this side of the House support.
However, I also note that, when this government continually refuses to take steps to actually fund ASIC and the work it needs to perform, it's almost a complete waste of the time of this place. I think it is actually quite misleading to the public and confronting for the employees of ASIC when their concernswhen the concerns of the public, the concerns raised in review after revieware recognised and eventually, months or years later, this government gets around to introducing legislation to fix these issues, to say to ASIC, 'We'll give you more powers. We'll increase your capability. We'll give you regard to competition in the work that you do,' but they continually receive a lack of funding, funding cuts in the process and no regard for the fact we have a royal commission going on that is going to require even more work from ASIC as it concludes its work.
So, while we support the bill, I note that it comes from a government that has repeatedly refused to take the necessary steps to actually protect ordinary Australians from the misconduct in the banking and financial services sector. Despite the name of the bill, I'm sorry to say that ASIC's capability will not in any way actually change in practice if this government over here doesn't deliver on the promises of the resources to allow ASIC to get on with the job it so crucially needs to perform in regulating our corporate sector, in regulating our markets, in looking after financial services and looking after community creditall areas where this government really has a poor record. In some of the areas it hasn't even gotten around to bringing the legislation into this chamber, despite the fact that over a year ago it said it would deliver on it.
As I said, Labor supports this bill. It's actually vitally important that we get this right. But we do want to see that the government actually delivers on funding ASIC to make sure that ASIC can do the things that we in the place through legislation all say that it needs to do.