House debates

Monday, 21 June 2010


Corporations and Financial Services Committee; Report

8:49 pm

Photo of Bernie RipollBernie Ripoll (Oxley, Australian Labor Party) Share this | | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee’s report entitled Statutory oversight of the Australian Securities and Investments Commission, together with evidence received by the committee.

Ordered that the report be made a parliamentary paper.

I am pleased to speak to the Parliamentary Joint Committee on Corporations and Financial Services June 2010 report on the statutory oversight of ASIC, the Australian Securities and Investments Commission. The committee have been busy. We have been increasing our understanding of ASIC’s role and operations and of the issues facing Australia’s market regulator.

On 22 March, the committee visited ASIC’s Information Processing Centre at Traralgon, in Victoria’s Latrobe Valley. This gave us an opportunity to better understand ASIC’s business and to experience firsthand its call centre operations—really, the nerve centre of the complaints that are received by ASIC. It is my understanding—and I stand to be corrected if it is not the case—that this is the first time the committee has undertaken to do a full committee visit of this very important operations centre. The committee thanks the many staff at Traralgon for their assistance and also for their hard work and dedication. We really got a firsthand impression of just how dedicated the people who work there are to doing a great job.

The committee also sought briefings from experts in the field of corporate regulation, and we thank Professor Michael Adams and Associate Professor Joanna Bird for providing the benefits of their expertise. It is something that the committee will endeavour to continue to do—to seek outside as well as internal expertise. The committee are also very interested in improving our oversight of ASIC and, as such, we have increased the number of oversight hearings from two per year to four per year, with a view to also playing a more active role and having a more hands-on approach in oversight of the regulator.

I now turn to issues that were covered in the report and our most recent oversight hearing, particularly the transfer of market supervisory powers. Responsibility for securities market supervision is being transferred from the Australian Securities Exchange to the Australian Securities and Investments Commission. The committee visited the exchange’s Sydney offices to hear from them about the transition to the new regulatory regime. It then discussed the transition with ASIC at the public hearing later that day. ASIC was confident that it was on schedule to take responsibility for market supervision between 1 July and 30 September this year. The committee is very confident in that process.

The committee is also confident in the systems that are being put in place—the redundancies, the computing systems and the legacy left behind between what ASIC does now and will do under new regulation and what the Australian Stock Exchange has done in the past. ASIC indicated that it would start consultation on new market rules for competition between share markets only once the transfer of powers from the Australian Stock Exchange to the Australian Securities Investments Commission have been implemented. The implication appears to be that trading on competitor platforms, such as Chi-X, would not take place earlier than the first half of next year, in 2011.

Issues of concern that have been raised by this committee, such as contracts for difference, are real issues and the committee is taking these on. The markets for derivatives such as contracts for difference have remained a focus also of the commission’s surveillance. The number of participants in markets for contracts for difference grew 23 per cent in 2009, which is an enormous growth figure. These are very risky products suited to market players with considerable knowledge and experience and people who actually do very much understand the risks and limitations that are involved when dealing with these types of market derivatives.

The committee’s examination of the collapse of Storm Financial and Opes Prime highlighted potential problems when retail investors start trading such high-risk products, as just one example. The committee encourages ASIC to remain extremely vigilant in this area and will itself also continue to keep the derivatives market under active consideration. The committee continues to closely monitor progress being made in the wake of the collapse of Storm Financial. The committee is aware that ASIC has attracted some criticism for the time it is taking to make progress on this important case. But the committee also appreciates that a balance needs to be maintained between public disclosure and achieving the best possible outcome for investors who have lost their lifesavings—and, for some, much more as well. The committee accepts that ASIC is attempting to strike that balance; however the committee also believes that delays beyond July may lead to further questions about the effectiveness of that particular strategy.

There is a range of other areas that the committee continues to keep on its agenda—in particular the issues of rumourtrage. Effective financial markets rely on the communication of accurate information about the products that are being traded, and rumourtrage is something that is not acceptable on the Australian market. It is the spreading of rumours or false information in order to deliberately affect the price of a market product such as a company’s shares. ASIC established Project Mint in March 2008 to investigate such misconduct. The committee is aware that there has been some debate about how best to deter behaviour designed to mislead markets. It has noted that the Corporations and Markets Advisory Committee, or CAMAC, in a June 2009 report recommended reforms to the Corporations Act to make it easier to undertake prosecutions in this area. CAMAC’s proposal has been endorsed by the Australian Securities and Investments Commission. The committee now believes that proposal should receive active consideration by the minister. I know that the minister will take this on board. While I am on that, I again congratulate the minister for the great work that he has done in this area. He has been actually been ahead of the game and, I dare say, even ahead of the market in terms of some of the reforms in these areas. So I congratulate him for his work and I know that he will do a great job in this area in the future as well.

I particularly want to talk about recent litigation and some of the areas where ASIC has lost some high-profile court cases in recent years. One in particular was the case against One.Tel, and there was also AWB and Fortescue Metals. These are a small number of the hundreds of prosecutions ASIC has conducted, most of them being successful. The committee is firmly of the view that it should always remain within the capacity of ASIC to take on cases whether it wins, loses or draws, to send a strong signal to the market about its position and to set the precedent or to make certain the laws and regulations in terms of particular cases, and that is what ASIC continues to do.

The committee accepts that it is of course inevitable that some litigation will be lost. Lost litigation is not the same thing as failed litigation particularly when court decisions provide greater legal certainty for all parties without undermining the objectives of the regulatory regime. The committee strongly endorses the need for rigorous review of cases particularly those that are likely to be expensive to litigate, and it understands that ASIC is committed to strengthening internal processes to ensure that this occurs. The committee holds its next hearing with ASIC later this week and we will continue to pursue a number of these issues discussed in the report.

I thank the secretariat and the committee members for the hard work that they do and their assistance in preparing these reports. I also want to thank the ASIC officials for their continuing cooperation, and I commend the full report to the House.