Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report entitled Review of the Australian Prudential Regulation Authority annual report 2017 together with the minutes of proceedings and I ask leave of the House to make a short statement in connection with the report.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—On 28 March 2018, the Australian Prudential Regulation Authority, APRA, appeared before the Standing Committee on Economics as part of the review of APRA's annual report 2017. As chair of this committee, I'm very pleased to table this report. The committee examined APRA's activities supervising and enforcing prudential standards and practices in the Australian financial system. APRA explained that its focus has been on improving resilience in the financial system. The committee scrutinised APRA on its work on issues of governance, risk management and culture in financial institutions. In particular, the committee focused on measures to reinforce sound lending practices to ensure that Australian banks remained prudentially strong. In addition, the committee examined the new Banking Executive Accountability Regime, otherwise known as BEAR.

While APRA is seeking to improve responsible lending practices in the Australian financial sector, there is still a lot of work to be done in this area. The disturbing evidence coming out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry suggests that the major banks, in a number of cases, are moving from a low base when improving their responsible lending practices.

In recent years, APRA has provided guidance on lending practices that was aimed at maintaining strong lending in an environment of heightened risks. The benchmark limiting the growth of investor loans to 10 per cent, issued in December 2014, was updated in guidance from APRA on 26 April 2018. From 1 July 2018, financial institutions will no longer have to meet this requirement if they are able to provide APRA with certain assurances about the strength of their lending practices. The benchmark limiting the flow of new interest-only lending, established in APRA guidance on 31 March 2017, remains in place.

Strengthening accountability measures for senior executives was a key recommendation of the committee's review of the four major banks. The BEAR will provide mechanisms to make senior bank executives more accountable and subject to additional oversight by APRA. It comes into effect on 1 July 2018 for the major banks. There will be a measured transition for smaller institutions.

The committee also sees a need to continue to improve competition in the banking sector. In its review of the four major banks, the committee previously called for removing barriers to new entrants to the sector. It welcomes the recent changes to the restrictions on institutions using the term 'bank' in lifting this barrier to new entrants.

The new crisis-management powers introduced by the government provide important new tools for APRA. They will empower APRA to better prepare and take decisive action to more quickly and effectively address crises in Australia's financial system.

The proposed changes to superannuation will improve governance and transparency in the industry. The committee expects that, once the measures are implemented, it will better position APRA-related superannuation licensees to deliver sound outcomes for their members. The committee notes that APRA has extended its strategic focus to superannuation and will monitor APRA's performance in this area.

Certainly one of the issues raised in this respect was third-party transactions of superannuation members' funds, particularly to unions. This is money belonging to members, and I am concerned that APRA—these were issues that I raised—has not been focused enough on regulating these practices which undermine the confidence that members have in the trustees of superannuation funds. I trust that these matters will be better regulated and there will be a strong regulatory eye on these practices in the future.

In closing, I want to reiterate the very strong action that our government is taking to reform the banking and financial services sector across Australia. Over and above the reforms that we have passed to bolster the resources, penalties and powers available to ASIC, the Turnbull government very proudly has passed legislation to establish the Australian Financial Complaints Authority, AFCA, and a one-stop shop dispute resolution scheme to provide consumers with independent and timely access to justice and access to compensation where appropriate.

As I've talked about, the government has also passed legislation to create the new BEAR regime, with enhanced powers for APRA to remove and disqualify an executive or director, to direct adjustments to remuneration policies and variable pay and to enforce new prudential risk-management conduct obligations with penalties of up to $200 million where these are not met.

In March 2017, legislation was passed to establish a new Commonwealth company, the Financial Advisor Standards and Ethics Authority, to lift the professional, education and ethical standards of financial advisers. We've seen in evidence before the royal commission that some financial advisers have fallen well short of expected standards. We've passed legislation to cap the incentives paid to advisers for the sale of life insurance products. We've also passed new laws to ensure that retail client moneys are protected where financial firms become insolvent.

In December 2017, the government introduced legislation to bolster the whistleblower protection regime in the Corporations Act by providing protection for a wider range of disclosures, protection for anonymous disclosures and easier access to justice for those who suffer reprisals as a result of blowing the whistle. These are all very, very important reforms in strengthening our banking and financial services industry and the sector across the country.

On behalf of the committee, I would like to thank the chairman of APRA, Mr Wayne Byers, and other APRA representatives for appearing at the public hearing.

I commend the report to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

by leave—When it comes to financial services, the main show in town at the moment is, of course, the banking royal commission. We've seen some shocking revelations from that inquiry at the moment into financial services and banks, particularly in the wealth management sector, where we saw numerous cases of victims of predatory lending, alleged fraud, fees for no service and clear breaches of the Future of Financial Advice reforms and section 961B of the Corporations Act. It should never be forgotten that it was this government, the Turnbull government, that opposed that royal commission for 600 days, and Labor ensured that we pushed the government to establish this important inquiry. Labor have been totally vindicated in our calls for a royal commission into banking and finance in this country.

One of the worst offenders at the moment, unfortunately, is the once mighty Commonwealth Bank of Australia. It's got to the situation where there have been special inquiries by our regulators into what's been going on at the Commonwealth Bank. In the recent inquiry that we held with APRA, we discussed that with the representatives from APRA—in particular their inquiry into the Commonwealth Bank's governance, its culture and its accountability frameworks. What APRA determined in respect of what was going on in the Commonwealth Bank can basically be summed up in one sentence: too much focus on profit and not enough focus on culture, accountability and their customers. That's exactly what's been going on in the Commonwealth Bank and, unfortunately, in too many other banks and financial service providers in this country.

It took a Labor government, when we were in office, to actually put in place a best-interests duty in our legislation to ensure that financial advisers actually have to act in the best interests of their customers, because—believe it or not—prior to Labor instilling that legislation in 2012, there was no legal obligation for financial advisers to act in the best interests of their client, and guess what: they didn't. In many cases, they didn't. It was this government and its representatives that opposed Labor putting those Future of Financial Advice reforms in that legislation. So if the government had had its way, when you look at it, the cases in the evidence that's coming out of the royal commission—those shocking cases of what the counsel assisting the royal commission is recommending be prosecuted as criminal conduct—would not have been illegal. They simply would have been a bad look for some of the banks. That should never, ever be forgotten.

So there has been too much focus on profit and not enough on customers, accountability and culture. The Commonwealth Bank has had to enter into enforceable undertakings and a remediation program that's now being overseen by APRA, and APRA have assured our committee that they will continue to monitor what's going on in the Commonwealth Bank. Heap on top of that the AUSTRAC scandal and the alleged clear breaches of Australia's anti-money-laundering and counter-terrorism-financing laws by our biggest bank. The Commonwealth Bank have entered into a settlement with AUSTRAC, and it's a record settlement fine, up to $700 million, that the Commonwealth Bank will pay. When I questioned, in particular, the chairwoman of the Commonwealth Bank and the former CEO when they appeared before our committee on the last occasion, they used this notion of the sub judice rule. They said: 'Oh, we can't answer many of those questions, because these matters are before the court. We can't answer these questions, because these matters are before the court and they may be sub judice.' I made the point at that hearing that I wanted the Commonwealth Bank to answer those questions because it was likely that the matter would be settled and the Australian people would never, ever find out what had actually gone on in the Commonwealth Bank's boardroom and their decision-making processes about the AUSTRAC scandal. Well, what do you know? That's exactly what's happened. The Commonwealth Bank have settled the matter, and the Australian public are none the wiser about what's actually been going on in this bank. So I'm looking forward to representatives of the Commonwealth Bank coming back to our committee in October this year to, hopefully, answer some of those questions.

There was also clear discussion about the macroprudential standards that have been instituted by APRA—in particular the limit on the flow of new interest-only lending to 30 per cent of new residential mortgage lending, following an earlier 10 per cent benchmark. What the banks basically did in meeting that target was to push up the cost of interest-only lending. But they didn't do it only for new loans; they did it for existing loans as well. So existing customers got hit with the increase in the cost of credit on their existing loans, when clearly APRA and the regulator were talking about stemming the flow of new loans. I think most Australians would disagree with the approach of the banks there. Really, that's one of the reasons why a lot of Australians hate the banks—because they do things like this. They give an inch and take a mile when it comes to these macroprudential changes. That's exactly what the banks have done.

There was also a discussion about the competitive nature of those reforms and the fact that they locked in a market share for some of the bigger players compared to the smaller players, and, in many respects, have stifled competition in that market. They are the issues that were discussed. We look forward to our continuing relationship with APRA. I thank the officers of APRA and I thank the officers of our committee for the fine work that they do.