Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Hansard source

I welcome the opportunity to speak on the Corporations Amendment (Financial Market Supervision) Bill 2010 and the Corporations (Fees) Amendment Bill 2010. These bills give effect to the government’s announcement in August 2009 of their intention to provide the Australian Securities and Investment Commission with powers to perform supervision of trading on Australian domestic financial markets. Both sides of this parliament have had similar intentions for some time. The bills provide that ASIC will consolidate the current individual supervisory responsibilities by imposing market integrity rules on each market operator. ASIC will recover the costs of supervision by levying market operators, who will recover the fees from brokers in a manner similar to the way the ASX currently funds the enforcement of its existing rules.

The legislation has a direct impact on the ASX, which is by far the largest market operator in Australia. By transferring responsibilities to ASIC, the legislation will end the perceived conflict of interest that the ASX has as a market operator and regulator. Whilst the industry has constantly pointed out that the ASX has discharged its obligations very well over the years, the perceived conflict of interest is an issue, particularly for foreign investors. The current system also effectively precludes foreign market operators from operating in Australia. The current regulatory arrangements allow the situation where the market operator’s competitors would be supervised by the ASX. Because of this situation, the government has not granted an Australian operating licence to a market competitor at this point in time.

By removing barriers to entry for market operators, we can promote competition and encourage best practice between market operators. Allowing foreign investors to enter a more competitive Australian financial market is an important step towards improving Australia’s standing as a global financial centre. The financial services sector is already an important part of the Australian economy, accounting for 7.5 per cent of Australia’s GDP and employing over 390,000 people. Improving the sector’s performance and opportunities on a global scale should be a goal for both sides of parliament.

The Johnson report, entitled Australia as a financial centre: building on our strengths, which focused on establishing Australia as a financial hub, demonstrates that Australia has some excellent opportunities for expanding our financial sector, but we need to ensure that our markets are competitive and working efficiently so that we can confidently promote the competitive advantage of our financial sector to the rest of the world. Encouraging competition between market operators is an excellent starting point. It will allow brokers to choose the most appropriate forum and it will encourage the ASX to evolve into an internationally competitive operator.

However, the ASX did raise number of concerns with the legislation which have largely been addressed by Treasury. For example, there is the issue of whether foreign markets should be subject to ASIC’s market integrity rules. The current regulations provide that an overseas market can only be granted an operating licence where the minister is satisfied that the regulatory regime in the foreign jurisdiction is sufficiently equivalent to Australia’s. Whilst we can debate which kind of oversight in Australia will provide the most competitive market, it is not the legislation’s intention to consider the issue.

Importantly, the legislation provides ASIC with alternatives to civil proceedings as a means to enforce the rules. The measure will give ASIC similar powers to those held by the ASX to deal with breaches of the rules, including the power to require a person in breach of the rules to make a payment or an undertaking to institute remedial measures as an alternative to civil proceedings. The provisions will prevent the courts from dealing with additional litigation relating to market operators. ASIC have had some high-profile failures in the courts recently and the merits of ASIC pursuing each case are being questioned by some. During Senate estimates, ASIC Chairman D’Aloisio indicated that ASIC took the public interest and deterrence aspects into account when deciding to pursue cases of this nature. Transferring supervisory powers to ASIC will allow them to work with the government to address the public interest and deterrence aspects of enforcing market operating rules. This will reduce costs when considering the legal merits of pursuing certain cases.

Comments have been made as to whether ASIC is equipped to handle market regulation. It is true that the responsibilities of ASIC have grown under this government. Too often ASIC have been forced to stretch their resources as a result of the government’s interference in the market. The bank deposit guarantee is an example. ASIC have been forced to administer withdrawals from mortgage trust accounts on hardship provisions after mortgage trusts froze redemptions because of the guarantee-initiated mass withdrawals from investment funds and into deposit accounts. The government’s actions forced mortgage trusts to freeze redemptions to prevent mass depreciation of their funds. Investors still have their money frozen away unless they can assess it under hardship provisions through ASIC.

ASIC should not be required to mop up unintended consequences of Labor government policies. Like with regulation of short selling and margin lending, too often ASIC has been required to get involved in policy rather than using its resources for its core responsibility of administering regulation. ASIC already have market powers to investigate misconduct such as insider trading, and they are the logical choice to assume supervisory responsibilities. Through committee oversight and estimates hearings, parliament will have a role to ensure that ASIC is discharging its responsibilities effectively.

How ASIC deals with the then stakeholders in the industry is essential to enforcement of the rules. The majority of industry stakeholders say they are already in a good relationship with ASIC. The industry is urging parliament to pass this bill to provide certainty and confidence to the sector. The coalition supports the measures. They will improve competition in the financial sector and free the ASX from its perceived conflict of interest. I commend the bills to the House.

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