Wednesday, 4 August 2021
Financial Sector Reform (Hayne Royal Commission Response — Better Advice) Bill 2021; Second Reading
[by video link] The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry tabled their final report in parliament on 4 February 2019. The royal commission was established on 14 December 2017, but only after this Liberal government voted against having that inquiry 26 times. To state the blatantly obvious, it is now August 2021. It's taken 2½ years just to get to recommendation No. 2. This Morrison government's response to the royal commission has been unbelievably weak. They didn't want it, and now they don't want to have anything to do with it either. In taking this long to implement recommendations, this legislation, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021, is only before us today when it is well and truly overdue. That's not to mention legislation that we dealt with recently that actually directly contradicted other recommendations of the royal commission.
Recommendation 2.10 of the financial services royal commission recommended that a single disciplinary body be established for financial advisers. This bill also implements recommendation 7.1 of the Tax Practitioners Board review, which recommended that a new model be developed for regulating tax advisers in line with the recommendation. Labor has committed to rapidly progressing any legislation that appropriately implements the findings of the banking royal commission. These are the result of consultation and expert recommendations and where there's been public acceptance. All of this, though, is two years old, so it's high time that these recommendations were implemented.
These recommendations are implemented through this new legislation, which will expand the role of ASIC's current Financial Services and Credit Panel to provide a single disciplinary body for financial advisers. It will require financial advisers to be registered with ASIC, and it will allow financial advisers to provide tax advice if they meet prescribed standards.
The Senate Economics Legislation Committee examined this bill, and it earned bipartisan endorsement. That is a good sign. Labor will support the bill. We also support the committee's recommendation that there be a proper review of this legislation in a further two years time. No-one could see these changes as anything less than an enormous admission of failure on the part of this government.
From a small-business perspective, it's vital to ensure that financial advisers are appropriately regulated to ensure that individuals, microbusinesses and small businesses are receiving appropriate advice. But, of course, those being regulated through this legislation are also themselves small businesses. Upon responding to this legislation, the Australian Small Business and Family Enterprise Ombudsman observed:
Clarity and simplicity of regulatory frameworks is critical to ensuring time-poor small business owners are able to properly implement regulatory requirements in their businesses.
Small businesses are currently exposed to a large number of regulatory changes in the financial advice industry, and the cumulative effect of these changes results in a significant increase in the complexity of compliance. Constant chopping and changing by this government hasn't been helping. The Financial Adviser Standards and Ethics Authority was introduced nearly five years ago by the Morrison government, but it's been a monumental failure. It's been bungled from day dot. It bungled the development of a standards test for financial advisers at the very time that the Hayne royal commission was shining a spotlight on the need for an overhaul of a workforce that was struggling to make the transition from being a sales force to being a profession. It literally permitted professional advisers to fail every three months.
There's never been a more important time for Australians to get good financial advice, especially in the turbulent economic conditions that our whole nation is facing at this point. Ultimately, anyone providing financial advice to anyone should be providing that advice from a place of professionalism, qualifications and following an industry code of conduct. That is what people will be expecting when they go to seek professional advice. While Labor has always been in favour of reforms that will support a professional, consumer focused financial advice industry, the government's implementation of those reforms has demonstrated reckless incompetence. While it's necessary that this authority is wound up, the power of the organisation will transfer to the responsible minister. Certified Practising Accountants Australia, CPA, has questioned whether Treasury has the skills and expertise to perform the functions of the Financial Adviser Standards and Ethics Authority once they are transferred over. CPA Australia was also concerned about potential increased costs to the financial advice sector with the formation of the Financial Services and Credit Panel. It cited that in the past two years the fee per financial adviser has increased 160 per cent, while the number of financial advisers had fallen from 25,000 in 2017-18 to just over 19,000. To quote them:
While the introduction of a single disciplinary model is welcomed, consideration must be given to the fact that the model will sit within ASIC, which will likely further impact the costs incurred by Australian financial services licensees and their financial advisers under the ASIC industry funding model.
They went on to say:
The increasing cost burden is a significant challenge for many, noting that 90% of financial advisers are sole traders or part of a small business. The increasing costs will also continue to negatively impact the accessibility of affordable advice by the community, an issue on which ASIC are currently focused.
Of course, we can never completely divorce the nature of regulation from the costs to the community, as well as the protection that this regulation should afford the community.
The Liberal government cut the budget for ASIC when it came into power. It then had to reverse that decision, but then it cut the budget again. The budget for ASIC has reduced significantly over time, partly because this government continues with its task of applying efficiency dividends, which, ironically, are making ASIC less efficient and less able to do its job. It's softening ASIC, which should be that tough cop on the beat. That's why Labor's shadow Assistant Treasurer has written to the Treasurer demanding a review of ASIC's industry funding model. In turn, he's also called for greater recognition of specialisations and experience in education and exam standards for financial advice.
So, ultimately, whilst Labor supports the implementation of the Hayne royal commission recommendations and this bill, it's well and truly overdue. Good financial advice doesn't come in the form of documentation; it comes from professionals who are ethical in providing their advice and come with a wealth of knowledge and who can tell clients what they need to hear about their finances, not just what they want to hear. The government has failed in the management of this sector. We do support this bill, but after years of waiting we want to make sure we get it right. We hope this bill goes some way towards building a better, more reliable and ethical financial services industry. Whilst this bill has come way too late, and the government has continued to drag its heels on implementing all of the recommendations from the Hayne royal commission, it is crucially important not only that we support this legislation but that the government gets on with the job of bringing forward the legislation necessary for the other recommendations that came from that royal commission.
As I mentioned earlier, we are now in much more turbulent financial times. Only this last week I was talking to members of a local men's shed, who were querying with me where they could get good advice on how to handle their finances in retirement. They identified the problems of conflicts of interest and of being concerned that people weren't giving them information and advice that were in their best interests—and also that that advice be affordable. Fixing the regulation of financial advisers is crucially important to making sure that as people head towards retirement and are in retirement they're able to access the professional, ethical and appropriate advice that they require in an affordable way.
This legislation will go towards that, and that's why we support it. But it does also need to be reviewed in two years time, to make sure it's actually delivering on the outcomes that it says it will. It is also crucial that the government gets on with the job of making sure that the rest of the recommendations are brought forward for legislation, instead of the government's approach, as I mentioned before, where it has directly contradicted the Hayne royal commission in other places. These are difficult times for Australians in many ways and in many different areas, and it's important that we provide them with the best confidence that they can have in the financial advice that they will and need to be receiving. So we commend the bill to the House.