Wednesday, 26 May 2021
Financial Regulator Assessment Authority Bill 2021, Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021; Second Reading
This bill, the Financial Regulator Assessment Authority Bill 2021, implements recommendations 6.13 and 6.14 of the financial services royal commission. The first of those recommendations is that the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission should be subject to quadrennial capability reviews, and the second recommendation, 6.14, is that a new authority should be established to assess the effectiveness and capability of the financial sector regulators. This bill implements those recommendations, but in a minimalist way.
A new statutory body will be established, consisting of three appointed part-time members as well as the secretary of Treasury as an ex-officio member. The authority will be responsible for providing a biennial assessment to the minister on the effectiveness and capability of ASIC and APRA, and these reports will be tabled in parliament. The new authority will have no grounds or authority to make directions in relation to the regulators or to advise on specific individual cases of the regulators' enforcement actions.
ASIC and APRA are already subject to a number of levels of oversight—through parliamentary committees, ministerial oversight, audits by the Australian National Audit Office, established public governance frameworks and the International Monetary Fund's Financial Sector Assessment Program. While this bill does implement 6.13 and 6.14 of the royal commission's recommendations, it's time that the Morrison government got on with some of the other important recommendations of the royal commission, particularly the ones that they seem to be ignoring, most notably recommendation No. 1, which relates to ensuring that responsible lending standards for Australian consumers are kept in place.
The government is going to ignore the No. 1 recommendation of the royal commission, which was to keep those protections in place to ensure that consumers couldn't be ripped off and taken for granted by the banks. Particularly in the lead-up to the global financial crisis, there was a lot of irresponsible lending going on, with banks lending for assets that were assessed to be of questionable value over time. When the wall came crashing down, it was Australian consumers and workers that suffered. It wasn't the banks themselves. They went on to continue to operate profitably. It was Australian workers that lost their homes. It was Australian consumers that were put out by the collapse of the financial system. And many of these recommendations in the royal commission were specifically to address that and to ensure that that cannot occur again in Australia. But it appears that this government is willing to ignore the No. 1 recommendation of that particular commission in relation to responsible lending laws.
It's also rather ironic that the government is once again taking an interest in ASIC and APRA in the wake of what occurred, particularly in the early days of this government, when the Abbott government cut funding to ASIC and that resulted in ASIC losing a number of people that had particular expertise in assessment of financial crime and prosecution of financial fraud and misconduct. Because of those cuts to the ASIC budget that occurred under the Abbott government, the regulator lost a lot of its expertise. That resulted in the claims that were being made by Australian consumers and whistleblowers that ASIC wasn't up to its job and wasn't doing its job properly. We saw that with the financial scandals that then began to be uncovered in this industry, most notably the first one that gained notoriety and attention, and that was the scandal that occurred in the CBA, the Commonwealth Bank of Australia, in relation to their wealth management practices.
We had whistleblowers who were willing to risk their livelihoods, to risk their reputations, and blow the whistle on some very dodgy and, in some cases, very inappropriate practices and breaches of Australian financial laws that were going on at that time in the Commonwealth Bank. They were reported to ASIC on numerous occasions, yet ASIC did nothing about these reports. There were emails that were sent and there were phone calls that were made by people with extensive experience in the financial services industry blowing the whistle on some very dodgy practices indeed by financial planners at the Commonwealth Bank. These were reported to ASIC, yet ASIC did nothing. It took these whistleblowers having to go into the ASIC office, physically walking into the office to demand that they take their allegations seriously and have a look at them. It was only after those brave people took that action—most notably Mr Morris who was working at the Commonwealth Bank at the time—that ASIC finally investigated these issues. When they did, what they uncovered was truly shocking and completely exposed not only that bank but also most of the other big four banks in respect of their wealth management practices, and that opened the door.
Then we had the parliamentary inquiries that ensued. Again, the government had to be forced into them by Labor senators like Doug Cameron, who forced the government to investigate these issues through parliamentary inquiries. He was joined, I might add, by former Senator Williams, a Nationals senator, who was also quite brave in forcing the government that he was a member of to take this issue seriously. When we had those parliamentary inquiries, more people started to come forward and tell their stories. It became evident that this wasn't an issue that affected only tens of Australians, but it was an issue that affected hundreds of thousands of Australians. Then we had scandals in Comminsure. We had scandals in wealth management and the collapse of managed investment schemes. In every single one of them there was a consistent characteristic, and that is that it was working Australians that lost their lifesavings, lost their homes, had family members lose jobs, had mental health problems, had family members commit suicide. Yet not one of the executives of those organisations was ever prosecuted and went to jail. Can you believe it? Not one of them.
It was the same thing in the global financial crisis. Everything that happened in the United States and that spread throughout the world and collapsed the international economy—literally hundreds of millions of workers put out of work—all came out of Wall Street. Do you think any of those executives ever went to jail? One of them did! It's an absolute disgrace.
That was why Labor pushed so hard for the royal commission. That is why that royal commission was so important, because it uncovered what was going on across the industry in Australia and those shocking practices, not only in banking but in wealth management, in insurance, in managed investment schemes, in mortgage broking, in all of the financial services that Australians rely on a daily basis and, more importantly, that they establish a trust relationship with. They were found to be manipulated in all of those.
It took the royal commission to uncover on a wide-scale view what was going on, and that, unfortunately, came down to the fact that at the time ASIC was ill-equipped to deal with these investigations. ASIC had had its funding cut by the Abbott government. It had lost people that had that expertise that could have done that work, and, if they had have done it a lot earlier, a hell of a lot more Australians may have been able to keep their life savings and keep their homes and wouldn't have been put in the precarious financial situations that they eventually were put in because of the government's delayed reaction and inability to act on something that they knew for a very long time was a big issue in this country.
Let's not forget that Labor kept forcing the issue here in the nation's parliament, the place where we make decisions like that, by requesting the government hold a royal commission on 26 occasions, and on each occasion they voted against that recommendation. It wasn't until, unfortunately, the executives of the big four banks agreed and wrote to the Prime Minister at the time and said: 'Okay, we're copping it in public. The public relations exercise that we're going through at the moment is damaging our reputation. We'll agree to a royal commission. We want it done quickly so we can get it out of the way and get on with making money again.' That was the approach that the government took—it took the banks agreeing to it before they acted—and, yet, they try and claim in this place that they're on the side of workers, they try and claim in this place that they act for consumers. We should never forget they voted against that royal commission 26 times and it took them a hell of a long time to take these issues seriously, but only because they were coming from working people and they didn't like the fact that working people were saying bad things about people that were running our banking sector and, of course, the fact that they were willing to vote against this 26 times as they'd cut funding from APRA and they'd cut funding for ASIC—the bodies that were put in place and specifically have the role assigned by this parliament to look into financial fraud and misconduct in this country—so they didn't have the resources. It took those brave whistleblowers to force ASIC to take this issue seriously and blow the whistle, and that led to the opening up of what was going on and the financial services royal commission.
I'm quite proud of the role that Labor played in forcing the government's hand on this, because, once again, Labor was on the right side of history with this issue in backing those working people who'd lost their life savings and were asking for support from the government to look into what was going on. All of those people deserve the credit of this parliament and the Australian people for forcing this government's hands, and Labor was very proud to support them through the royal commission.
This bill is important. It does implement recommendations 6.13 and 6.14 of the royal commission. But, I say to those opposite: if you're fair dinkum about the royal commission recommendations, if you're fair dinkum about ensuring that this can't happen again in Australia, then don't water down our responsible lending laws, because if you do, again, you're going down that path of opening up the gate to financial misconduct and fraud. It may not happen immediately, but it's the thin end of the wedge. Over a period of time, when you relax laws like that—we saw what happened in the United States with the global financial crisis and the changes that were made by the Bush administration in relaxing responsible lending laws over there and allowing free rein in their markets. That was the beginning of the global financial crisis. I fear if we do the same here again it will be the beginning of another series of financial scandals in Australia that will develop, and the Australian people deserve better from their government when it comes to that.