Wednesday, 26 May 2021
Financial Regulator Assessment Authority Bill 2021, Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021; Second Reading
I rise to support the Financial Regulator Assessment Authority Bill 2021 and the Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021, which act in response to the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Throughout the royal commission, we heard the complex and galling stories of failures of the Australian banking system. They were difficult stories for the public to hear, stories of ineptitude and corruption, stories of greed and failing to put the needs of customers above those of vested interests, stories of short-term profit put before the needs of customers. Commissioner Hayne highlighted widespread failures of governance and compliance in banks and other financial institutions that led to failures to detect and address misconduct internally, as well as failures to report misconduct to the regulators in a timely manner and, in some cases, failing to report it at all. That is not to say all the eggs in the financial markets are bad ones. Indeed, our banking and financial sector is one that we should celebrate for the most part as a stable, respected and trusted sector, which has helped us in our darkest hours, including through COVID-19 last year and into this year.
The Morrison government has listened to the concerns regarding these failures in the system, and these failures are not contested by either side of this House. These failures have resulted in terrible and heartbreaking stories that should never have happened, and the Morrison Government is acting. Indeed, we take our responsibilities in financial regulation with the utmost seriousness. The Morrison government has committed to accepting the findings of the royal commission and agreed to act on all 76 recommendations. The bill today acts in part to address those recommendations.
The royal commission considered that existing accountability mechanisms were not focused on how well the regulators performed against their statutory mandates. It also considered that some of the accountability mechanisms lacked strategic focus on regulator performance over time. That is why this bill facilitates the disclosure of sensitive, confidential and protected information from the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission to the Financial Regulator Assessment Authority.
The Morrison government's response to the royal commission, including through measures in this bill being debated today, builds on an earlier report in 2016 on ASIC, commissioned by then Minister for Revenue and Financial Services, the Honourable Kelly O'Dwyer—my predecessor as the member for Higgins. The task force chaired by Treasury observed five key themes in its assessment of ASIC. These themes cut across the main elements of the capability framework, governance and leadership, strategy and delivery, and drew together many of the observations highlighted throughout the report. As such, there were five main themes from the report on ASIC that were grouped as follows: first, that sound governance architecture was not well-used; second, it found the expectations gap was much greater than expected; third, it also found there was an opportunity to reorient for greater external focus; fourth, a cultural shift was needed to become less reactive and more strategic and confident; and finally, future-proofing and forward-looking approaches were needed to improve ASIC's capabilities. The bill today will help address these flaws in ASIC's capability to function effectively.
For Australians to have trust in banks, superannuation funds and the finance industry, the regulatory framework that governs the sector must be enforced by effective regulations. Indeed, recommendation 6.14 of the royal commission called for the establishment of a specialised expert authority to assess the effectiveness and capability of the regulators. It recommended that a new oversight authority for APRA and ASIC, independent of government, should be established by legislation to assess the effectiveness of each regulator in discharging its functions and meeting its statutory objects. The royal commission report recommended the authority should be comprised of three part-time members and staffed by a permanent secretariat. It should be required to report to the minister in respect of each regulator at least biannually.
It is worth noting APRA and ASIC are independent regulators responsible to the parliament. This independence is critical to their ability to fulfil their mandates and for them to have the confidence of the consumers who rely on them. Regulator independence is also important for maintaining the confidence of the market, including in the credibility of the regulators. That is why the Morrison government is today taking decisive action following the royal commission to enhance the power, funding and competency of regulatory authorities. Accepting the royal commission's recommendation, the Morrison government is responding through the introduction of this very legislation. This is congruent with the government's commitment to end misconduct within the finance sector. Indeed, we are acting on all of the other 75 recommendations contained within the royal commission's final report.
The Financial Sector Advisory Council will be disbanded given the establishment of this new body, and consideration will be given to streamlining other accountability mechanisms. As recommended in the royal commission report, the Financial Regulator Assessment Authority will comprise a panel of three independent and expert part-time members and an ex-officio member from the Department of Treasury. Further, this will be supported by a secretariat within the Treasury to ensure this newly created body fulfils its roles.
So that ASIC and APRA have operational independence and are not unreasonably impacted, the Financial Regulator Assessment Authority will not have the ability to direct, make, assess or comment on specific cases of the regulators' enforcement actions, regulatory decisions, complaints and like matters. The Financial Regulator Assessment Authority will be required to conduct biennial reviews to assess the effectiveness and capability of ASIC and APRA over time. The minister is also able to request ad hoc reports from the authority on any matter relating to the effectiveness and capability of ASIC and APRA. The introduction of the authority will help increase regulator accountability and oversight. Additionally, by having the authority review ASIC and APRA consistently over time, the authority will be able to provide strategic insights to help improve overall performance. Further improving our already strong and independent regulator will further improve market confidence, which is important as we secure our future in a post-COVID global economy.
As we continue to make inroads into enhancing transparency and accountability within the financial system, we are continuing to improve consumer outcomes and helping to restore trust. The importance of these objectives is heightened to ensure our economic security continues as we recover from COVID. I look forward to the government's appointment of the authority's panel members to further strengthen the regulatory regime. Australia needs its banking and financial sector, just as the reverse is true. But, equally, trust and respect between the Australian public and those who support the economy through banking and financial services are needed now more than ever.