Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

The Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 introduces measures to streamline and simplify the prudential regulation of the financial sector and aims to cut red tape. The bill also amends part 23 of the Superannuation Industry (Supervision) Act 1993, otherwise known as the SI(S) Act, so that, where a fund has suffered a loss as a result of fraudulent conduct or theft, financial assistance is available on a more equitable basis. It also makes technical amendments that are consequential to the enactment of the Legislative Instruments Act 2003. Labor supports this bill. However, I will be moving a second reading amendment to remove the new restriction on compensation and call, in principle, for losses in the event of an employer insolvency to be covered. Further, I note the need for major simplification of the currently unreadable, complex and costly disclosure regime.

Schedule 1 of this bill amends the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995, the Superannuation Industry (Supervision) Act 1993 and other related legislation, including the Corporations Act 2001 and the Financial Sector (Collection of Data) Act 2001, to implement government commitments relating to prudential regulation in response to Rethinking regulation, the report of the Taskforce on Reducing Regulatory Burdens on Business, otherwise known as the Banks report. It also introduces additional measures to streamline and simplify the prudential acts in a manner which is consistent with the regulation task force’s findings.

Schedule 2 of this bill amends the SI(S) Act and the Financial Institutions Supervisory Levies Collection Act 1998 so that, where a superannuation fund has suffered a loss as a result of fraudulent conduct or theft, financial assistance is available on a more equitable basis. The amendments also abolish the special protection account.

The prudential framework within Australia is widely acknowledged as meeting its broad objectives. Rethinking regulation found that Australia’s financial and corporate sectors and the associated regulatory structures are highly regarded internationally and that ‘the broad policy framework has widespread support within business and the wider community in Australia’. However, Rethinking regulation also noted that there is scope to improve the regulatory framework in some areas and made recommendations to improve the flexibility of the framework, harmonise aspects of the framework with the Corporations Act and improve the coordination between the key financial sector regulators—that is, APRA and ASIC. The government accepted the recommendations in Rethinking regulation that were relevant to prudential regulation.

Recommendation 5.4 of Rethinking regulation states that the government should ensure that APRA has sufficient flexibility to tailor requirements to accommodate the differing circumstances. It should also be flexible to cater for the diverse range of entities operating within the financial sector. The government has made some changes in this regard through recent reforms to the prudential framework for both general insurers and superannuation funds, implemented through the General Insurance Reform Act 2001 and the Superannuation Safety Amendment Act 2004. These amendments build on these initiatives through further reforms to streamline and improve the flexibility of the prudential framework.

The prudential acts administered by APRA and related legislation, such as the Corporations Act, have often evolved separately and in response to industry developments. There is scope to refine and update the four prudential acts to make them more consistent. Rethinking regulation highlighted breach reporting under the prudential acts and the Corporations Act as a particular area where there is scope to improve consistency and reduce the compliance burden. These amendments address concerns in this area.

On 4 December 2006, the Minister for Revenue and Assistant Treasurer released a paper entitled ‘Streamlining prudential regulation: response to Rethinking regulation’ to facilitate discussion on the government’s proposed various responses to the Rethinking regulation recommendations and the outstanding HIH royal commission recommendations as well as additional reforms to streamline and simplify the prudential acts in a manner that is consistent with the regulation task force’s findings. The amendments in the bill give effect to most of the proposals in that paper.

The changes do improve efficiency and streamline the regulatory application by APRA and ASIC as well as reduce some overload. To that extent the changes are welcome, with one exception, and represent useful, practical red tape reduction. However, to the extent that red tape is reduced, it is the government that has imposed the current red tape regulatory web on financial services over the past 11½ years.

With respect to one specific proposal, the whistle-blowing provision, Labor would have preferred a more general provision to apply rather than the different requirements operating concurrently. The consequence of this change will be greater complexity, additional red tape and unnecessary costs.

In relation to schedule 2, part 23 of the SI(S) Act provides for a grant of financial assistance for certain superannuation entities that suffer a loss as a result of fraudulent conduct or theft, subject to certain conditions. In 2003 the government announced a review of part 23 and released a consultation paper seeking written submissions on the operation of part 23 and associated levy process under the Superannuation (Financial Assistance Funding) Levy Act 1993. The government released the outcomes of the review in 2004.

Following the review the government agreed to expand eligibility for financial assistance under part 23 to ensure treatment is more equitable. However, this also includes a new limitation as detailed in the last dot point, which is that it removes compensation in the event of an employer failing to pay contributions under part 23. That last provision that I just referred to will apply to a new limitation on compensation in the event of theft and fraud when an employer has not made their compulsory superannuation guarantee payments. Labor does not agree with this new restriction and our second reading amendment reflects this. Further compulsory superannuation is effectively deferred wages and, unlike statutory entitlements, is not compensable in the event of employer insolvency through the GEER Scheme. Approximately 10,000 Australians lose between $20 million and $30 million a year as a consequence of this. Labor believes compensation in these circumstances should be examined and, again, our second reading amendment reflects this.

Finally, this legislation does nothing to cut the complex, costly and unreadable level of disclosure documentation, often running to 50 or 100 pages, imposed by this government in the financial services legislation. As we have said consistently, we will take an axe to this regime by introducing simple, standard, three- to four-page disclosures on a product-by-product basis and the complex lengthy documents will only be provided on request. This is something welcomed by the industry and also welcomed by consumers. It is also the case that the current regime, as we have said many times, creates a level of complacency on behalf of investors because some people assume that, because there are 50 to 100 pages worth of disclosure documents, the product must therefore be safe. I have had this experience in my own electorate—people coming to me who have invested in funds which have failed and saying, ‘But I thought it was safe because they gave me 100 pages worth of disclosure documents.’ Clearly, this is counterproductive. Our second reading amendment reflects the announced policy in this regard. I take this opportunity to formally move the second reading amendment circulated in my name:

That all words after “That” be omitted with a view to substituting the following words:“whilst not declining to give the bill a second reading, the House:

(1)

notes that the Liberal Government is imposing a new restriction to Part 23 compensation, paid in the event of theft and fraud if an employer fails to pay compulsory superannuation contributions and supports Labor’s calls on the government to remove this new restriction;

(2)

notes that there is no compensation for compulsory superannuation payments in the event of employer insolvency;

(3)

acknowledges that compulsory superannuation payments are effectively deferred wages but unlike other statutory entitlements such as annual leave, redundancy pay and unpaid wages superannuation is not covered by the General Employees Entitlements and Redundancy Scheme (GEERS) resulting in up to 10,000 employees a year standing to lose between $20 to $30 million in superannuation contributions a year and supports Labor’s calls on the government to investigate compensation in these circumstances”.

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