Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Link to 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.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased to speak in support of the Corporations Amendment (Financial Market Supervision) Bill 2010 and the Corporations (Fees) Amendment Bill 2010. Australia has one of the most robust financial systems in the world. We saw that through the global financial crisis, and we also see that in the movement of funds to Australia over the last few years as Australia, particularly Sydney, I would suggest, moves towards becoming a financial hub of Asia through some of the initiatives of the Rudd government—initiatives that were mocked during the 2007 election campaign, I seem to recall. However, there seems to be some egg on the faces of those opposite as funds do move to Australia because we do have such good regulation and such good governance. It shows foresight on the part of the Rudd government to see what we might be. There is no greater proof of this than how we performed, obviously, in the global financial crisis. I will take my hat off to the former member for Higgins and Treasurer, Peter Costello, for some of the initiatives that he brought in in terms of making sure we do have a strong financial system. He was following on from the work and reforms of Paul Keating and Bob Hawke, but I do acknowledge some of his contributions, which did help us during the global financial crisis.

However, the Rudd government believes that more can be done to ensure the integrity and transparency of the financial markets. In August last year the Treasurer and Minister for Financial Services, Superannuation and Corporate Law announced that the responsibility for supervision of Australia’s domestic licensed financial markets would be transferred from market operators, which is essentially self-regulation, to the Australian Securities and Investments Commission. Anyone who operates a financial market in Australia must obtain a licence to do so or otherwise be exempted by the minister. This bill ensures that licensees are no longer required to supervise the markets. If you like, in shorthand, there will no longer be Caesar judging Caesar. Under this bill ASIC will be responsible for supervising trading activities by stockbrokers which take place on a licensed financial market. Individual markets, such as the Australian Securities Exchange, will continue to have responsibility for supervising the entities listed on them.

The government believes that there is no need to change the way ASIC and the Australian stock exchange currently work together to supervise listed entities. ASIC is well placed to take on the role of whole-of-market supervisor. Unlike some of the members opposite, I actually have a lot of faith in ASIC. I acknowledge that there have been a couple of legal hiccups lately. It is interesting that some of the prosecutions that were launched under the previous government actually ended up not being successful, and now those opposite say, ‘I don’t know why they took this on.’ It is a typical case of Monday’s experts saying, ‘No, I wouldn’t have done that.’ It is easy to be an expert on Monday. Obviously you need to pick the form on the Friday before the game. As I said, some of those prosecutions were commenced under the Howard government. I do actually have a lot of faith in ASIC. The balancing act of the public interest test is difficult to get right. You also have to be able to prove in the court, to the satisfaction of the judicial system, some things which are very complicated. Recently, as part of the caucus economics committee, I went for a tour of the ASX. I had no idea how complicated the cheats out there can be, but the ASX are even more complicated at tracking down these irregularities. It is incredible. I was very impressed. So that will continue.

Not only will ASIC provide transparent and independent oversight of the market; as a government agency it also removes any perceived conflict of interest. This is in line with Australia’s G20 commitment to protect the integrity of financial markets by avoiding any such conflicts. A discussion topic quite focused my understanding, at the G20 meetings. It also mirrors the trend towards centralised or independent regulation in other countries. Instead of a situation where all licensees act as supervisors, ASIC will consolidate this responsibility into one entity, streamlining supervision and enforcement and providing unified supervision. One whole-of-market supervisor will provide far greater stability and integrity for Australia’s financial market.

The bill also empowers ASIC to set market integrity rules, with full enforcement powers to respond quickly to emerging market situations. Any breach of these rules can be enforced through the courts. Once up and running, this new function is expected to cost around $1.8 million a year, which will be met through cost recovery. The related bill before the House, the fees bill, ensures ASIC will be able to recover the cost of supervision. Under this provision ASIC will be able to collect fees from the financial entities which they regulate. I am sure most people would agree that the costs of financial regulation should be borne by those who benefit from it. How these fees will be calculated will be contained in the regulations which are currently being developed. This bill needs to be passed soon to ensure ASIC has enough lead time to prepare for its new role from October this year and to ensure a new era of transparency of our financial markets. I commend the bills to the House.

Stuart Robert (Fadden, Liberal Party, Shadow Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

I rise to lend support to the National Consumer Credit Protection Amendment Bill 2010. This bill seeks to amend the credit act that was passed in November 2009. I acknowledge the Minister for Financial Services, Superannuation and Corporate Law across the table and thank him for his generosity. The purpose of the bill is to refer powers or allow powers to be referred from the state to allow the bill to be enacted. The bill will seek to implement a uniform law for the regulation of consumer credit. It will implement phase 1 of the Council of Australian Government’s agreements from the beginning of 2008 to allow the responsibility to be assumed for the regulation of consumer credit.

The original bill that came to the House in November last year was intended, and I believe still intends, to be the final act to bring all of the consumer credit and financial matters from the state across to the Commonwealth. This will be the last move to ensure that all issues with respect to financial regulation regimes, consumer credit and the like will be governed and taken care of by one power set within the Commonwealth. This in itself is a good thing. One has to argue that it took the global financial crisis for the states to realise that the need for credit to be regulated by one body within one power was indeed a good and necessary thing. The credit act will commence on 1 July this year. However, it is noted that the government cannot enact a uniform regulatory framework in the absence of referral of powers from the Senate. Section 51 of the Constitution requires a move for those powers to be referred. The states—

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Mr Bowen interjecting

Stuart Robert (Fadden, Liberal Party, Shadow Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

We have moved on? Well, the states have referred their powers and that is a good thing!

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

in reply—I do thank those honourable members who have contributed to this debate, the member for Cowper, the member for Moreton and in his own very special way the member for Fadden. While I may quarrel with some of the points the member for Cowper made, I will not on this occasion go through those and I would acknowledge the constructive approach he has taken to this very important legislation. The Corporations Amendment (Financial Market Supervision) Bill 2010 does give effect to a government decision to transfer responsibility for supervision of Australia’s domestic licensed financial markets from market operators to ASIC.

The reforms as set out in the bill will change the way financial markets in Australia are supervised. These changes will further enhance the integrity of Australia’s financial markets and will contribute to the goal of making Australia a financial hub. It is important that the supervision of Australia’s financial markets be transparent and independent. It is also important that any actual or perceived conflicts of interest be avoided. Consequently, it is appropriate for an agency of the government to perform this important function.

The decision to transfer responsibility for supervision of Australia’s financial markets to ASIC is a significant one which will stand the operation of Australian financial markets in good stead into the future. By removing the requirement for markets to supervise themselves, this bill meets Australia’s G20 commitment to protect the integrity of financial markets by avoiding conflicts of interest. This reform is also in line with the move towards centralised or independent regulation in leading jurisdictions. ASIC is well placed to take on the role of whole-of-market supervisor and has been fully resourced to perform this role. ASIC’s role as whole-of-market supervisor will enhance the stability and integrity of the market.

In addition, the bill provides ASIC with a wide range of enforcement options which will enable ASIC to respond swiftly to emerging market situations. Supervision by ASIC will consolidate the current individual supervisory responsibilities into one entity, streamlining supervision and enforcement and providing unified supervision of trading on the market.

To enable the shadow Assistant Treasurer some time to get into the chamber for the next bill I might just take one or two more minutes to explain that this is a reform which is extremely important for the operation of Australia as a financial services hub. It is important, as other honourable members have commented, that the integrity of Australia’s financial markets not only be completely transparent but be seen to be completely transparent. The government took the view, correctly, that this is a role best played by a government instrumentality in the form of ASIC and that it was inappropriate for the Australian Securities Exchange to supervise itself. Should the government take the decision to introduce competition, it would be inappropriate for the ASX to supervise its competitors. Therefore, this is an appropriate bill which I commend to the House.

Bill read a second time.