Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. Will the minister outline to the House the importance of international engagement to help address the global financial crisis?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I thank the member for Blair for his question. One of the key contributing factors to the global financial crisis has been poor regulation. A cavalier attitude to risk, of course, has been relevant to this crisis, and also opaque and complex financial structures that have been allowed to develop in an inadequate regulatory framework internationally, particularly but not only in the United States.

That presents a very big reform challenge not just for Australia but also for the entire international community. Australia does have a very robust and strong set of regulatory institutions and a very strong regulatory framework. That is something that I have said on a number of occasions has emerged under both sides of politics. One of the reasons the recent attacks by leading opposition figures on the key regulators were so disappointing is that I believe both sides of politics in this country can take credit for Australia having a strong, robust and world-class regulatory regime.

The government is taking strong and decisive action both at home and abroad to pursue regulatory reform. Today, Senator Sherry, the Minister for Superannuation and Corporate Governance, and I announced new initiatives with respect to a couple of key issues that arise as a result of the global financial crisis: first, reform of regulation of credit-rating agencies and research houses to require them to hold financial services licences, which they have not previously been required to do, and to provide annual compliance reports to ASIC with respect to their methodologies; and, secondly, the requirement of full disclosure of covered short selling where the participant has a direct legal interest in the share that is being purported to be sold and an outright and indefinite ban on naked short selling, which ASIC will have the power to lift should it so consider that appropriate.

The Prime Minister and the Treasurer are both currently en route to the leaders of the G20 summit in Washington that is going to occur this weekend. The purpose of that summit is to analyse the causes of the global financial crisis, to receive reports from the key countries on progress on the responses emerging from those countries to the crisis and, in particular, to agree on a common set of principles for reform of regulation of the global financial sector in order to prevent any kind of recurrence of the crisis that the world has just been through.

The Prime Minister made a very early contribution to this debate in his address to the United Nations General Assembly, where he laid out a number of key principles in order to structure an approach on the part of the world’s financial system in order to ensure that we get stricter, stronger regulation, including things like clamping down on excessive executive salaries and stricter capital adequacy requirements. Australia is set to play a very significant role in the international efforts to reform our financial regulatory structure. As I said, that is something that both sides of this House should rightly take pride in, that we are in a good position to influence the international outcomes on these issues because we bring to the table in these discussions the strength and the credibility based on having had a strong, robust regulatory regime for some time—good arrangements in Australia that mean our word will be treated with some respect in these discussions.

There are big issues to be debated in these discussions that go to the entire role of the financial services sector in our economy. We have seen entire industries built up around moving money from here to there to here in ever increasingly complex arrangements, with ever greater complexity, with ever greater cavalier disregard for underlying risk and ever greater disconnection from the activities in the ordinary, mainstream real world economy. Many have lost sight of the role of financial services, which of course is intermediation of two broad kinds: to direct savings, whether national or global, into investment to maximise returns, productivity and efficiency and to enable day-to-day transactional banking activities to occur at the lowest cost and the maximum efficiency.

Those are the functions that the financial services sector are supposed to fulfil in a modern economy, but we have seen it grow and proliferate and mutate to a range of activities that, to any reasonable observer, seem to bear little relationship with its core tasks—as I say, with less and less transparency and attention to risk and with ever greater complexity. We have got to revisit these issues globally to ensure that the financial services sector serves the wider economy, not the other way around. The Rudd government is working hard, with the Prime Minister and the Treasurer pursuing global reform of the financial services sector at the G20. We are pursuing structural reform at home. We will continue these efforts to get better arrangements for all Australians.