House debates

Monday, 20 August 2018


Treasury Laws Amendment (Financial Sector Regulation) Bill 2018; Second Reading

6:22 pm

Photo of Clare O'NeilClare O'Neil (Hotham, Australian Labor Party, Shadow Minister for Justice) Share this | | Hansard source

It is a great pleasure to make a contribution on behalf of the opposition on the Treasury Laws Amendment (Financial Sector Regulation) Bill 2018. The opposition will be supporting the bill that's before the parliament. Of course we're going to support the bill, because the bill before us is one that is designed to increase competition in our banking sector, and you're not going to find a political party in this parliament, in this House or the other, that is more committed to making sure that we have more competition in banking and that we have better services for Australians through that crucial sector in our economy.

It's important that we don't see the bill come into the House today with too much fanfare. This is a bill that covers off an important area of law, but I don't think we can get too excited about any seismic shifts in competition. That's because the changes that are being proposed by the government are small ones.

I've got the member for Chifley next to me here. There's probably no-one in this parliament who knows more about fin-techs—about this exciting explosion of growth that we can see in financial services.

The bill is going to make a small impact on the ability of fin-techs to come into financial services and to compete against the major banks. But I'm going to go through the changes, for the purposes of the House, but also so that I can explain why this is going to make a small but somewhat positive difference and that's why Labor's happy to support this bill.

The first major change that's being made in this bill is that it will increase the ownership threshold applying to companies that want to provide life insurance or general insurance or to become authorised deposit-taking institutions or relevant holding companies in Australia, from 15 per cent to 20 per cent. What that really means is that, today, we have limitations on how much one person or company or related set of companies can own a financial institution. That's because we don't want to tie the stability of our financial system to one individual or to one group of companies.

The bill before us recognises that when we're looking at start-ups or when we're looking at companies that are early in their life, it's quite common to have a ownership structure that's more closed than more evolved companies. This bill will do something to support new entrants into the financial services market. I think that any layman listening to this would acknowledge that 20 per cent is a bit bigger than 15 per cent, but not that much bigger. We're making a change here; it's a small change. It's a positive change, but it's relatively minor.

There are other changes in the bill that are going to make some movement for start-ups coming into financial services. The bill creates a streamlined pathway for owners of qualifying domestically incorporated companies with assets that are less than the relevant threshold applying to become a financial sector company. In plain English, that means that a company that's owned and operated here in Australia is going to face a slightly more streamlined process to become a provider of financial services in Australia.

The bill also makes some changes that will allow start-up banks to enter the market at an earlier stage than is currently possible by allowing APRA to impose a time limit on licences that are granted to new applicants. What that means, in plain English, is that when a company wants to provide financial services in Australia, we're allowing APRA, the prudential regulator, to give them a licence, but to give them a licence for a shorter period of time. It's not a permanent licence to offer financial services but one that might be time limited to something around two years. Again, this is, as always, trying to manage the risk to our financial services sector of new entrants coming into the market with the crucial need for more competition in this sector. We're seeing that every day in the banking royal commission that Labor fought so hard for—this urgent need for us to have more accountability and more competition in financial services.

Let's just summarise what's happening in the bill here. It sounds a little bit like merchant banker gobbledygook—dare I suggest!—but today we're really talking about providing more opportunities for newer companies, companies which are doing exciting things, communicating with their customers in different ways and trying to offer competition in financial services. Of course, that's something that Labor would support.

The measures that are before the parliament right now are consistent with a recent Productivity Commission report that I want to speak about a little. As I mentioned, for the last 600 days Labor has been pushing and pushing the government to agree to a royal commission. Throughout the process, in the lead-up to the royal commission, the government got very creative about different ways that it would avoid having to call a royal commission. One of those was by asking the Productivity Commission to do an investigation into banking. The Productivity Commission finished that report recently, and it was pretty damning reading.

I want to quote a little from what the Productivity Commission found in its draft report. It said:

      That pertains to the bill before us.

      I said that the Productivity Commission made some commentary about some of the issues within financial services. What the Productivity Commission's final report described as 'competition' in the current context is:

      … more accurately described as persistent marketing and brand activity designed to promote a blizzard of barely differentiated products and 'white labels'.

      What the Productivity Commission found is that competition in financial services faces enormous challenges. What that means for Australians who are watching or listening to this broadcast is that there is a reason for why you feel that you're not getting good services when you go to your bank. That is a very common experience; it's something that I'm sure all the Labor members here find when they knock on doors around their electorates. Just about everyone in this country has a story to tell about getting poor services through their financial institutions. We hear it from people who are farmers, who have had their land taken away in circumstances that they feel are incredibly unfair, right down to people who have had some type of credit card fraud and can't get fees back from their bank. So there's a huge spectrum of issues here.

      Some of the issues that the Productivity Commission talked about in its recent final report were things like opaque pricing. That is a trick that some financial services companies will use, where they'll incorporate lots of different things in the price they're charging you for financial products. What some people in this sector are saying when they look at that is that it is a deliberate tactic to prevent customers from being able to compare financial products. An essential aspect of competition is that consumers can actually see and compare products and make good decisions for themselves. But there is some evidence here to suggest that that's not possible, and it's not possible because the banks don't want it to be possible.

      One of the other issues that the Productivity Commission talked about was conflicted advice and remuneration arrangements. This is a practice that has been rife in some aspects of our financial services industry, where we've seen people providing financial advice about selling products where they are getting a commission and not revealing the commission to the customer. They are extraordinary things that are completely out of step with what Australians expect of their financial services institutions. These are just a couple of the issues, but in addition to those there are things like layers of regulatory requirements and, indeed, public policies that seem to support the existence of four, perhaps five, big players in our financial services landscape, when we know that there are lots of other companies that could be providing these products with the right supports.

      I was pleased to see the Productivity Commission make a really clear statement about how it saw the state of competition in this sector, but I did see some disappointing noises from the government. We had the Treasurer coming out and doing a press conference, talking about how upset and shocked he was. I think he was probably the only person in Australia who didn't realise that these problems were there in the banks. We all know it, don't we, because we're all bank customers. As I said before, just about every person you will meet in this country has a story about how they've been mistreated by a big financial institution and they've felt they had no recourse. We've seen that right at the public policy end of the discussion, through the Productivity Commission, and I hear it at people's doors when I go doorknocking around my electorate.

      I want to make some comments about broader issues in financial services that relate to the type of regulation we're talking about today. The problem is that when we look at this legislation in its context—and I do say we support this bill because it's a step in the right direction, though a very small step—it pales in comparison to the extraordinarily destructive things that the government has done over the last five years when it comes to financial services. One of the first things the government did, when I was first elected to parliament, was attempt to dismantle the Future of Financial Advice reforms. These were crucially important reforms, but I think they probably were implementing what any Australian would regard as common sense—just basic things, like requiring financial advisers to reveal when they've got a commission. That is the minimum that we should be requiring of financial advisers. But it wasn't just the Future of Financial Advice reforms. In that first budget, that shocker 2014 budget, the federal government cut $120 million from ASIC. Now the government's out today and through this week talking about how they're 100 per cent behind the tough cop on the beat. They cut $120 million from this organisation in their very first budget, and now there's shock and awe about all these problems in financial services. It is a pretty predictable outcome, if you ask me.

      Then we can't forget the 600 days that the government spent running a protection racket against the idea of having a banking royal commission. I don't think there is a person in this parliament who has been observing that royal commission who would say now that they were right, that all those things that they said about the banks and how they were trying to do the right thing were accurate and correct—because they weren't. And of course we can't forget that after all this, after all of these issues, the government is now trying to give the big banks a $17 billion tax cut. Can you believe it? We wonder why support is falling away from these guys on the other side of the House, but it is pretty obvious to me.

      I want to say a couple more things about the royal commission before I close. For 600 days it was Labor's position that we urgently needed a royal commission into our banking sector. It's obvious to just about every Australian that there are issues that go right to the core of the culture inside these big institutions and it is urgent that we fix this problem.

      We heard outrageous claims being made on the other side of the House all the while this debate was underway. We heard the Treasurer say:

      It is nothing but a populist whinge from Bill Shorten.

      What a ridiculous statement. We heard the Prime Minister and the Treasurer, when they eventually got around to announcing the royal commission, some 600 days after Labor first proposed it, saying:

      We have got to stop the banks and our financial services sector being used as political football.

      …   …   …

      … this is essentially a regrettable but necessary action.

      So, even after all that, they couldn't admit that it was actually the right thing to do, the right policy, to have a royal commission into banking. It had to be described as though this was in some way a political exercise. For 25 million Australians who rely on these institutions, it's not a political exercise. It's actually about making sure the fundamentals of our economy are operating correctly. That's why we needed a royal commission then, and it's why we need a royal commission now.

      We heard the Minister for Revenue and Financial Services say, 'A royal commission is in fact very dangerous.' I highlight that one in particular because, on Friday, the Governor of the Reserve Bank came out and talked about how important this royal commission is for the financial stability of this country. So the Governor of the Reserve Bank doesn't agree with the relevant minister saying that a royal commission is 'dangerous'. Of course it's not dangerous. If we've got widespread misconduct in some of the institutions in which millions of Australians hold their life savings, we want to make sure that those institutions are acting in line with Australian values—that they are not ridden with misconduct.

      Labor understands that; the Governor of the Reserve Bank understands that; and I would like to see some people on the other side of politics acknowledge that. And of course we can't forget John Howard, who said:

      I would be staggered if the coalition proposes a bank royal commission, that is rank socialism …

      We don't hear things like that anymore, do we, Member for Chifley?

      Photo of Ed HusicEd Husic (Chifley, Australian Labor Party, Shadow Minister for the Digital Economy) Share this | | Hansard source

      No, we do not.

      Photo of Clare O'NeilClare O'Neil (Hotham, Australian Labor Party, Shadow Minister for Justice) Share this | | Hansard source

      We don't hear talk of socialism enough in this chamber, frankly. But that was what John Howard had to say. I would be interested to hear John Howard's views now, I really would, because I truly believe that there's not a person in this parliament who could now stand in the chamber and deny the need for this royal commission, because some of the things that have come out are putrid.

      What frustrates me the most is not the errant example here and there of some wrongdoing of one particular person in one bank or institution; it is the copious examples we have seen where banks have sat down and made a business decision to rip off their customers. Can you imagine these banks sitting down and saying, 'We are actively going to decide to charge people for services they are not receiving'? It's been very distressing. We've seen a range of responses from people who work in these big institutions to some of the charges that have been laid at their feet. Some of them—'fair cop'—are apologetic, and I think they understand now that that was the wrong thing to do, that they are not licensed to commit what the royal commissioner seems to be suggesting is theft. But there are other people who are appearing before that royal commission who do not take that stance, who continue to sit in the dock and argue that they should be allowed to charge any customer anything because the customer somehow is deeming it to be acceptable by the fact that they have not changed banks or they have not changed super funds.

      We know that, try as we might to get Australians to be interested in their financial affairs—and we do ask that of them, and we do want them to be in that situation—we can't rely on people to change banks because they're not getting good services. Every piece of evidence we have is that people are more likely to get a divorce, they're more likely to leave a marriage, than they are to switch banks. There are an extraordinary number of people who are still in the same bank they were in when they were a kid, when they were a teenager and they got their first jobs.

      So we are going to have to do a lot better to make sure that we have competition in this sector and that we are demanding and observing good conduct in this sector, because it's not just like any other service. It's not like a pizza delivery shop. The way that these big banks and institutions operate is pivotal to the stability of our financial system. I don't know about you, but I want us to survive the next financial crisis and the one after that and the one after that. What we have here is a once-in-a-generation opportunity to look right into the heart of these institutions and to look right in the heart of the regulators and ask whether this is good enough. I think the member for Chifley would probably agree with me—I think people on my side of politics would agree with me—that a lot of what we are seeing is not good enough.

      What I do know is that there is only one side of politics that people can trust to actually deal with this problem, because what we have seen from the Liberals in five years of government is that just about every year there has been some step trying to create an improper regulatory environment for banks and financial services. I'll talk through them. They dismantled the FOFA reforms. Those reforms asked very little more of our financial services industry than that they act in the best interests of their customers—and that was a controversy on the other side of politics. Do you think there is a single person you could stop in the street and ask, 'Hey, do you think banks should be required to act in the best interests of their customers?' and they would say no? But we had a whole side of politics, a whole government, arguing that it was somehow above and beyond that we should require financial advisers to act in the best interests of their customers.

      Photo of Ed HusicEd Husic (Chifley, Australian Labor Party, Shadow Minister for the Digital Economy) Share this | | Hansard source

      Or review their performance.

      Photo of Clare O'NeilClare O'Neil (Hotham, Australian Labor Party, Shadow Minister for Justice) Share this | | Hansard source

      Or review their performance—exactly. So what we are saying here is that enough is enough. We've got a royal commission on our hands. It is, frankly, fantastic to see this royal commission blowing a breeze through some of the cultural practices and some of the completely suboptimal protections that are being provided to 25 million Australians who rely in one way or another on the services of these institutions. I'm very much looking forward to seeing what the royal commissioner has to say about some things we can do better in this industry. It is my fervent hope that we see more coming through this parliament to arrest what is an extremely serious problem, a very big problem, facing our country, than the sort of thing that is before the House at the moment.

      I say again that we are happy to support this bill. It's going to make a small difference to competition in this sector in terms of the ability that it will give APRA to provide time-limited licences. I think there is one fin-tech that's gone through this process with APRA already—one. Moving the ownership restrictions from 15 to 20 per cent is great, sure. We're happy to agree to it. But is this really the best that we can do? We've got a set of institutions here that are experiencing some extraordinary difficulties in their culture and I just think we need to do a little bit better than making some minor tweaks to who can provide financial services in this country. It's quite clear that we are going to need bigger tweaks to make the sort of difference that Labor, on this side of the House, envisages.

      What we envisage, just to make it clear, is a financial services sector that people can feel they can trust, where they can make an agreement with a bank and not only will the bank abide by the letter of the agreement but it will be acting in good faith. That's been the issue with a lot of the banks. There are probably a number of people in this chamber who met with some of the bank victims who recently came to Canberra. One of the issues with the way the royal commission has been run is we haven't been able to hear a lot of stories from people. This is because it has been given only a year by those on the other side of the House to look at banking superannuation insurance. We could have probably had three two-year royal commissions on those issues because they are just so serious and substantial. We had a superannuation round in the last couple of weeks and we didn't hear from many victims. That's because of the constraints the royal commissioner is operating under. He is doing a very fine job and I very much respect the work that he is doing. But we did have some victims come to Canberra, and it was extraordinary talking to them. It really was. I'd urge members of parliament to talk to victims in their community because there are so many people who we all represent who have a story. It's through talking to people that you realise that it's often not about the letter of the law in these issues. It's about people who make agreements with the banks and the banks, for one reason or another—they probably have an answer to it—don't always act in the best faith. That's what we have really got to get to the heart of.

      So Labor will support the bill before the House. We are pleased to see some microsteps in the direction of providing better competition in financial services. But I think over the coming year, as the royal commission wraps up its work and Labor is able to provide a fulsome response that our heart is really in, we will see something much bigger and better than this.

      6:44 pm

      Photo of Ed HusicEd Husic (Chifley, Australian Labor Party, Shadow Minister for the Digital Economy) Share this | | Hansard source

      It is a pleasure to follow the member for Hotham on this legislation, the Treasury Laws Amendment (Financial Sector Regulation) Bill 2018. The legislation was characterised by the member for Hotham as being microsteps. There is no better term—if I can say that through you, Deputy Speaker, to the member for Hotham—to describe some of these. They are released with a flurry and they're announced as a big move, but you need to look at it in the context of all the other things that have been promised and not delivered. This is the problem with the government at its most critical juncture: it is addicted to announcement and deficient on delivery, regularly, particularly in the fin-tech space. On the fin-techs, as was pointed out by the member for Hotham, the fact is that we do need greater competition. Labor has argued that, in the financial services sector, having more options for customers and greater transparency, as the member for Hotham indicated, is vital. Ultimately, I might add—coming to another point that the member for Hotham raised—what is critical at this point is the need for greater trust.

      Consumers clearly feel that they are not getting the best deal possible. They do expect better from their financial services system and particularly from the larger institutions. I dare say that this is why, in terms of Australia's fin-tech community, this community is so big. The reason is that—as has been seen with disruption elsewhere to industry sectors, where smaller firms apply technology in a smarter, truer way—they are going for sectors that are bloated, slow to change and not providing the services that are required or wanted or desired by consumers. Where the profit margins are so large, the smaller firms go in, and that's why the fin-tech community here has had so much initial success. But, having said that, what they are confronted with is obviously, through the disruption, a need for us to change our regulatory frameworks. The tremor that is felt through that reaches here in the form of all these new laws that have to be considered by the parliament.

      This isn't the only bill. In my contribution I want to reflect on a number of pieces of legislation that have been touted by the government as taking a big step forward with respect to fin-tech reform and helping the local community. A number of pieces of legislation are out there, but, before they even get to this place, there's consultation round after consultation round after a draft item of legislation is put forward. In particular, industry bodies that have been formed, especially to represent the fin-tech community in Australia—notably FinTech Australia—have to consult with the Treasury, have to put in submissions and have to put in their argument for a financial regulatory framework that is much more amenable to the smaller firms.

      I went to FinTech Australia's website just to see the list of submissions. They put in a submission to the Attorney-General on anti-money-laundering and counterterrorism regulations; a submission to the consultation paper regarding digital currencies under the AML/CTF regime; supplementary submissions to ASIC papers on regulating digital financial advice; and submissions on equity crowdfunding, and we know how long that's taken to amble its way through the parliamentary chambers, but whether it gets through is another question. They also had to provide a submission on a discussion paper on the GST treatment of digital currencies; a submission on the exposure draft legislation on GST treatment of digital currencies; an initial submission to the Productivity Commission report on data availability and use; a submission to the ACCC regarding collective bargaining with Apple; a submission to the draft Productivity Commission report on data availability and use; a submission to the Australian Treasury on the open banking inquiry; a submission on screen scraping to the Australian Treasury open banking inquiry; a submission on opening banking implementation earlier this year; a submission on non-ADI lender rules, which we are discussing now; and a submission by them and some others on changes in relation to skilled migration use. I could go on. I won't detain the House further, but that is the list of submissions that have been put forward. They're doing a huge amount of work. They expect the legislation to get through and what happens?

      I mentioned equity crowdfunding. The second group of laws that were put forward in relation to that were introduced to this place in September last year by the Treasurer to fix up a set of laws that we urged him not to put through because they would be too cumbersome. He didn't do it. He put those first laws through and then came back, only mere months later, to put another set of laws through to change equity crowdfunding, as a way to help smaller businesses and start-ups get access to capital. He hasn't even had the wherewithal, despite regular needling by the opposition, to put it on for debate in the Senate. It won't even go to the Senate this week. What'll happen is we'll come back in September to debate laws that were introduced last September. That's fin-tech reform Scott Morrison-style—the Treasurer's style.

      In terms of the regulatory sandbox arrangements to allow fin-techs to explore the development of new products and services without the heavy regulatory approach that is normally accustomed or expected in the delivery of these financial services products, when the initial arrangements were announced in 2016, in a blaze of glory, they discovered that they weren't such a smash hit. In fact, only four fin-techs used the arrangements. The government was then forced to reform those arrangements in legislation brought to this place earlier this year. Where's that legislation? Again, it's stuck in the Senate. It is not being debated this week, and we'll come back in September to debate it.

      We also had, for instance, the comprehensive credit reporting arrangements stuck for ages, in terms of consultation. There was no end in sight to the consultation process. Then, suddenly, it's brought in, and the government fails to acknowledge that a separate piece of work in relation to the Attorney-General's review on hardship provisions—which is pretty important in terms of credit history and those people who may have suffered poor credit history because of hardship that they've experienced, and how that would be contemplated within a new regime—hasn't been finished, this area of review by the Attorney-General's Department. We are then pressured to support a regime absent hardship provisions, because the government can't do its homework properly in relation to that element of reform. Again, it is very important to the fin-tech community that this comes through and, again, it was stuffed up by the government—addicted to announcement, deficient with delivery. We often get this in this space.

      The other thing that has been raised with me is that announced with a flourish earlier this year was a UK-Australia fin-tech bridge that's supposed to allow for greater cooperation between the UK and Australia in supporting the activities of fin-techs in our respective nations. On paper, that sounds like a great idea. But what's happening now is that fin-tech firms are raising with me their concerns that this is ushering in a period of what they have characterised as 'digital recolonisation'. The fin-tech arrangements in the UK are very well established, and the firms are growing very strongly. In our case we haven't had either time for local fin-techs to mature or a supportive regulatory framework to encourage maturation. What will likely happen is that, if we harmonise our arrangements with the UK, particularly in terms of open banking—and I understand, for instance, that there are key officials in Data61 that are guiding the development of our own open banking arrangements—

      Photo of Jason WoodJason Wood (La Trobe, Liberal Party) Share this | | Hansard source


      Photo of Ed HusicEd Husic (Chifley, Australian Labor Party, Shadow Minister for the Digital Economy) Share this | | Hansard source

      Data61, yes. We've got officials who had been working on the establishment of open banking standards in the UK who have been deployed here in Australia for our open banking arrangements. The concern is that you've basically got an uneven playing field insofar as you've got firms that have become accustomed to a framework on the other side of the country coming in here, where we haven't even had time for our own people to see the framework put in place or have time to adjust to it. Again, all these announcements have been made and yet the government doesn't follow through to make sure that what it's doing will be delivered upon in a timely way, in the period in which they were announced.

      This legislation, on its face, is quite good, lifting the permissible ownership stake in smaller financial services firms, particularly start-ups. While capital is flowing better to a lot of these start-ups now, and the issue of capital drought is not as evident now as it was a couple of years ago, there are still instances where it may be hard to get a number of investors to back firms in this area that would be capital-intensive and need a lot of support. If you can find an investor who is prepared to back you, and you can provide some leeway through the legislative ideas that are being advanced through this particular proposition that we are debating now, that is a good thing. There's no doubt about it. As the member for Hotham, the shadow minister, indicated, we are happy to support it. My question is: when are we actually going to see this eventuate? We have said we are not going to oppose the bill, but, when it goes to the other place, will it even get on the legislative program to be passed?

      As I said, if you look at equity crowdfunding, if you look at the fin-tech regulatory sandbox, if you look at CCR and if you look at this, all of these are reforms that are put forward and they all get logjammed. As I have previously said, I think the Treasurer is the faux friend of fin-tech. Despite all his claims that he supports the sector, he doesn't deliver for them. And he had the temerity to say to the fin-tech community a few weeks ago on open banking reform: 'I have put forward all these great ideas. Don't stuff them up'—as if they are accountable for his stuff-ups, as if they are accountable for the quality of his ideas or his homework. That is a ridiculous proposition. There is no way the fin-tech community in this country should be held accountable, wholly and solely, for the Treasurer's work—poor work or otherwise. The Treasurer should be accountable for the quality of the work that is being done and doing it in a timely way. He likes to create publicity for himself. He has put together a fin-tech advisory group. He brought a lot of people with serious clout onto that advisory committee. Look at the range of people who are members of that committee. He consults with them and they must be scratching their heads. They come to these meetings with the Treasurer and put their ideas forward expecting to see legislative reform that makes it easier for fin-techs to deliver new products and services to inject serious competition into financial services in this country—and it goes nowhere because ScoMo is on the go-slow. He won't put these pieces of legislation through. We get this piece of legislation we are debating now, and you've seriously got to wonder whether it will see the light of day this calendar year. If they are going to be serious about this, they need to make sure that, once it has gone through the House, it actually gets onto the Senate legislative agenda and gets passed and gets implemented as quickly as possible.

      The other big fear is that, in the meantime, you don't know what is going to happen on that side of the House. There are all sorts of questions about whether we are going to have fundamental changes in the face of the government. So you would have to wonder whether the legislation logjam will get worse. So they should get on with it, stop using the fin-tech community for publicity purposes, do the right thing by them and make sure the regulatory framework in this country is fit for purpose, modernised, up to date and allows the emergence of a sector that can provide real competition, alternative products, better services and, ultimately, as I made reference to in my submission earlier, a rebuilding of trust that is so badly needed in this sector given some of the things that have been reflected upon in the contribution by the member for Hotham.

      6:58 pm

      Photo of Matt KeoghMatt Keogh (Burt, Australian Labor Party) Share this | | Hansard source

      To those who regularly follow my input in this chamber to myriad legislation, especially around financial services, I would like to start with an apology: I know that none of you like my tie, but, if you think this is an affront to sartorial excellence, wait till you get your head around this as part of the entire government's regulatory regime for our financial sector. As the member for Chifley has so eruditely explained—as had the member for Hotham—this legislation, at the end of the day, whilst a positive step, is, firstly, at severe risk of never making it any further than this chamber and, secondly, forms part of a lengthy set of pieces of legislation that have gone through this chamber and not progressed through the Senate or achieved very little in and of themselves. I won't use this opportunity to make some sort of lengthy contribution about the way in which this government's policy settings have failed the people of Australia by trying to put off the coming into force of FOFA reforms, by denying Australia, for 600 days, the holding of a clearly very necessary banking royal commission, or about the way in which they have failed to properly fund our corporate watchdog, now known as a corporate poodle, in ASIC, or the way in which they have failed to provide ASIC with the powers that it clearly needed and still needs to make sure that there are proper penalties in place and that it has the powers and the tools in its regulatory toolbox to be able to hold not just the banks but the financial services sector to account.

      The changes that are brought forward in this bill will be positive, and they will be part of what needs to be a growing set of changes to the framework that will help those smaller financial services players grow themselves into being competitors, in a whole range of different ways, to the entrenched financial services framework that we have in Australia. It is definitely a positive thing that we have seen—effectively, only over the last year—a breaking down of the financial oligopolies that have existed in Australia, because we have seen the big banks now start to divest themselves of life insurers and we have seen the big banks starting to divest themselves of wealth management firms. That is actually all good for competition across the sector.

      But what I want to highlight briefly here is that this legislation does two things. It raises the ownership restriction applying to financial sector companies from 15 per cent to 20 per cent, which allows new entrants into the financial services market—better. But the other thing it does is that it enables APRA to grant a time-limited ADI licence to encourage greater competition in the banking sector. These changes have come about through recommendations of the House economics committee in its inquiry into the banking sector, looking at how we could encourage, in part, greater competition in the banking sector so that we might see some better behaviour from our banks.

      One of the other recommendations that has come from that committee has been to make sure that we have greater executive accountability within our banking sector, so that we can see the cultural change that is necessary in our banks to protect customers. However, what the government did was quite half-arsed. It said, 'We'll introduce a Banking Executive Accountability Regime, a BEAR, that applies for prudential matters, but we won't do one that applies to consumer-facing issues.' Yet that is actually the nub—in fact, the crux—of the issue when it comes to supporting customers and seeing that cultural change that is so desperately required in our banks, because the culture of a bank is quite an ephemeral beast. It's really about changing the behaviour of the senior executives in those banks and, therefore, the people who work under them as well. To do that, you have to hold them to account for the things they do that affect customers. And that's where the BEAR regime is quite deficient.

      Again, here the government has not quite grasped the nettle of the problem of competition in the banking sector, because just making these changes is not actually going to do what we need. If it were about trying to access capital, which is effectively what these changes are all about, then, as to our international banks—such as HSBC, Bank of China, Citibank and, to some degree, even the Bank of America and Merrill Lynch—they all have a presence here; they have a footprint. But they are clearly not competitors, in any sense, to our big four Australian banks. If it were about access to capital, those banks have no lack of access to capital whatsoever. If they wanted to take on the banks here in Australia and it was about capital, they've got it. If it's about capital, our superannuation sector and our financial services sector have capital access.

      There are clearly other issues going on. We have an entrenchment. The previous speakers, the member for Hotham and the member for Chifley, outlined this exact issue, which is that people are more likely to get divorced than they are to change banks. One of the most stressful things you can do is to buy and sell a house. The issue here is that we have a huge entrenchment in our big four banks. They do provide some stability, but they also bring a huge moral hazard. What regulator is ever going to go after them with ferocity if they hold such a big part of our financial services market, as they clearly do? And they hold it in such a way that it effectively excludes any other competitors or entrants from coming into the market. These changes are about trying to change that, but they are niggling at the edges, effectively, because they do not address some of the biggest systemic issues of our big four banks having the footprint that they do. If it was just about capital, you would see other entrants who have access to other sources of capital coming into this market. It's not like our banks aren't profitable. There's clearly money to be made in this sector.

      So these changes are welcome; they are important changes. They will enable smaller entrants, the fin-tech sector in particular, to start coming up, niggling the banks and using, when it's eventually passed, the open access to customer information, for customers to be able to see through new financial models what they're able to access in banking products.

      But, at the end of the day, the government is all bark and no bite. It likes going out for the media release, but it doesn't actually have any bang when it comes to delivering for Australian banking customers, who, when we think about it, are all Australians. All Australians are left worse off by this government not addressing fundamental issues in our banking and financial services regulation in Australia. We're all worse off for that, because they won't grasp the nettle. They won't do all of the things that are required. Not only in these speeches I give here, where you all love my tie, but also in the reports coming out from places like the House economic committee—of which the deputy chair, the member for Kingsford Smith, is here—we've been making recommendations and telling the government the things it should get on with, and the shame of it is that it can't even deliver things that even it has said it's delivering on, like the BEAR. It can't get it right. We keep telling them. There's now a consensus report from the Parliamentary Joint Committee on Corporations and Financial Services. All sides of politics have said, 'Extend the application of the Bank Executive Accountability Regime,' but they can't do it. So we support this legislation, but, at the end of the day, like so many things that this government is doing when it comes to financial services regulation, they just haven't got it right.

      7:07 pm

      Photo of Matt ThistlethwaiteMatt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | | Hansard source

      The Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 aims to reduce the barriers to entry to improve competition in the banking and financial system. It includes two schedules. Firstly, it raises the ownership restriction applying to financial sector companies from 15 per cent to 20 per cent in order to support new entrants into the financial services market and create a streamlined path for owners of domestically incorporated companies applying to become a financial sector company. The criteria for approval include an asset threshold of the entity sought to be acquired by fit-and-proper-purpose assessment for the prospective owners. The total resident asset threshold will be $200 million for an ADI or a company registered under section 21 of the Life Insurance Act or will be an amount prescribed by the Treasurer in a legislative instrument. For companies authorised under the Life Insurance Act, the threshold is $50 million or an amount prescribed by the Treasurer under a legislative instrument.

      The fit-and-proper-purpose test will replace the current national interest test. It will be set out by APRA as a legislative instrument. Ministerial consent will also be required prior to APRA making a ruling under the FSSA. If an approval is granted under the streamlined path, it will generally remain in place for two years. The second aspect of this bill goes to time-limited authorisation deposit-taking institutions. The bill enables APRA to grant a time-limited ADI licence in order to allow or encourage greater competition in the banking sector and to allow start-ups and banks to make and enter the market at an earlier stage.

      The bill clarifies that APRA may impose a time limit on an ADI licence granted to a new applicant. The bill will provide APRA with greater flexibility when considering applications for authority to carry on banking businesses from new entrants to the banking sector. The Australian Prudential Regulation Authority Act highlights the regulator's purpose to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality, and, in balancing these objectives, to promote financial system stability in Australia.

      The Productivity Commission's report into competition in the Australian financial sector, which was released earlier this month, contained some damning findings on the state of competition in the banking sector. The Treasurer has sat on that report for one month, only releasing it today, without a formal response. Problems like those identified in the report are the very reason that Labor fought so hard for a royal commission. Haven't we seen some shocking evidence that's come out of that royal commission about the practices that have been undertaken by the banks, in particular, the big four and several other financial service providers in Australia? The rip-offs, the scandals, the undermining of customer confidence, the lack of information, the lack of transparency and accountability have been hallmarks of this royal commission, and we certainly await the findings of the royal commissioner into what can be done to improve confidence in this very important industry in Australia.

      It should never be forgotten that those opposite vehemently opposed a royal commission in Australia. For 600 days, the Prime Minister and the Treasurer said there was no need for a royal commission, that there was nothing to see and that ASIC and other regulatory bodies had all of the powers of a royal commission to inquire into what was going on in banking and financial services, despite the fact that the government, in its first budget in 2014, cut $140 million from the budget of ASIC. That ensured that some of their employees with particular expertise and skills—skills that had been acquired over many, many years working for the regulator—were lost. It was only when Labor began to shine a light on what was actually going on in financial services and uncover some of the details—like the CommInsure scandal, the wealth management scandals at the Commonwealth Bank and fees for no services that all of the banks have been involved in—that we actually got the government to look at those cuts and partially refund some of the activities of the regulator.

      The report that was released in May from APRA was quite scathing of the Commonwealth Bank, its board and its senior management and culture. The report ran into 110 pages, which heavily criticised the bank for 'widespread complacency, overconfidence, excessive complexity and insularity'. The report explained that the CBA had a 'slow, legalistic, reactive, and at times dismissive, culture'. We all know too well the self-inflicted problems the banks have caused for themselves. The royal commission has uncovered some shocking evidence of just plain misconduct but potentially also criminal actions by many of those working in these institutions.

      The royal commission has shone a light on some of the worst aspects of culture, attitude, risk and decision-making in the industry, and it's clear we need strong, effective regulators in this industry. But it's taken the royal commission to help the Turnbull government see this a little bit more clearly, and that's a great shame. It's a great shame because we've all known for many, many years now that there was a problem in this industry. Some of the government's own senators uncovered this, through numerous inquiries that were conducted up to eight or nine years ago into what was going on in the Commonwealth Bank.

      Senator Williams is one of those who began the early calls for a royal commission, but he was hosed down by those on his side, particularly the Prime Minister, who we all know comes from a banking background. Senator Williams and others within the National Party are now claiming credit for the royal commission, but where were they when Labor was calling for a royal commission for those 600 days and the Prime Minister was saying no? They didn't raise it as an issue within their party room and take it up with the Prime Minister and actually publicly come out and say this is something that should be done for Australians that were suffering. It took the government too long and they ignored the pleas of the Labor Party on this issue, and many Australians, unfortunately, paid the price with rip-offs and scandals, with loss of income and with the absolute stress and the pain and suffering—in some cases, unfortunately, suicides—that came about as a result of the actions of the banks and the feeling that people weren't being listened to by this government.

      The history books have already been written and have shown that this is another call, another big call, that this government got wrong. They even shut down calls amongst their own backbench about this royal commission. Only after the green light from their mates in the financial sector did the Prime Minister finally agree to some form of inquiry in a royal commission. As the royal commission continues to do its good work, we're seeing just what happens when an out-of-touch government prioritises the banks ahead of the financial interests of millions of Australian customers and people who rely on solid, ethical, good advice from financial advisers and banking institutions to make ends meet, to grow successful businesses and to participate within society in accessing credit and other products that are important to everyday life.

      This was when the government gutted the core of Labor's Future of Financial Advice reforms as well. That was when the government tried to water down the catch-all provision in the best-interest test that exists in the Future of Financial Advice reforms that are now embedded in the Corporations Act. It was a Labor government, again, that saw and listened to the pleas of people in the wake of collapses like Storm Financial, Trio Capital and Timbercorp, where millions of investors lost thousands of dollars, hard-earned savings, in many cases all of their life's work—and superannuation, in the case of Trio Capital—down the gurgler because of dodgy financial advice. For some, there was no recompense, particularly when the perpetrators of the crimes took off overseas to areas without extradition treaties.

      It was because of this that Labor listened and established that big inquiry, which I was privileged to be involved in, looking at what was going on in financial services and making suggestions to the government. That was an inquiry that was chaired by a former member of parliament, Bernie Ripoll. It suggested that the best-interest duty be introduced into legislation in Australia, and Labor did that. We acted and took the advice of that committee and the Australian people.

      It was the coalition opposition at the time that opposed that. The now finance minister was on that committee and, believe it or not, he relied on the advice and the evidence of AMP in his dissenting report to argue against the introduction of a best-interest duty into the Corporations Law in Australia. That's right: the now finance minister quoted AMP in his dissenting report, saying, 'These are the reasons why we shouldn't introduce a best-interest duty into Australian law.' Well, we all now know why AMP was keen to insure that there wasn't a best-interest duty introduced into legislation in this country. We all know why: fees for no service, leaving people on legacy products in superannuation and ensuring that they don't transfer to savings products that are more in their best interests. Hopefully, the royal commission will deal with the scandalous behaviour that's come out of AMP. Shame on this finance minister and shame on this government for trying to use the evidence of their mates in organisations like AMP and the big banks to do over Australian customers and hardworking Australians by watering down or taking out that best-interest duty in the Future of Financial Advice legislation that was introduced into the parliament.

      Labor acted in government with the FoFA reforms, which were strongly opposed by the opposition—now the government—and by the financial advice industry at the time. It should never be forgotten that the Libs and the National Party opposed FoFA. The very scandalous behaviour being uncovered in the royal commission at the moment would not be illegal if the Turnbull government had their way; it would simply be a bad look for those organisations. Not only did they oppose the original FoFA legislation, but, when they got to office, they set about watering it down. They actually got it through the House of Representatives and the Senate. It was only after Labor introduced a rescission motion and some of the crossbenchers changed their minds because they saw what was going on that we were able to remove that attempt to water down the best-interest duty.

      Labor's had to fight to help retain these laws and fight the persistent efforts of members of this government and conservative MPs in this parliament to water down regulation and protections for consumers. If the government had their way, there would be no laws against what some of the big banks and AMP are doing and have done that's being uncovered in the royal commission. That is a great shame because there would be no accountability for these individuals who have perpetrated this pain and suffering for many Australians. There'd be no ultimate accountability for their actions and that would be a great shame.

      That sums up this government's approach to the regulation of financial services and leadership. When it comes to taking leadership on this issue, making some tough calls and standing up to the banks and the people who own the wealth in this country and saying, 'No, you're not going to be able to get away with it,' this government fails on every occasion. It was only the previous Labor government and now the Shorten-led opposition that have stood up to the banks and financial houses in this country in introducing FOFA legislation and in calling for a royal commission into the banking and financial services. Because of that, we're now shining a light on some of these practices. We certainly await the recommendations of the commissioner and hopefully being able to act to legislate and restore confidence to this important sector of the economy.

      7:20 pm

      Photo of Stuart RobertStuart Robert (Fadden, Liberal Party) Share this | | Hansard source

      I rise to lend some comment on the Treasury Laws Amendment (Financial Sector Regulation) Bill 2018. As I do, can I say I have had a gutful of being lectured to by the Labor Party opposite when it comes to financial sector regulation. I too have been here for 10 years. I too sat on the post-GFC banking inquiry and read every submission and went and listened to every witness at every hearing and, somehow, I find myself at odds with the honourable members opposite on how that went. This was a series of inquiries in 2008 and 2009. Labor had been in government for a number of years when the GFC went through and, of course, had achieved nothing. The post-GFC inquiry looked at something like $60 billion that was lost through MFS and through MISs, including Great Southern and of course the likes of Storm Financial. Storm Financial had brokers, many of them with master's degree qualifications, and the Labor Party wants to recommend greater education. Education wasn't the issue. The unscrupulous acts of bastardry of these people were some of the issues. That requires greater compliance to ensure that doesn't happen again. That's what this government is trying to achieve.

      I was there when now Prime Minister Turnbull, back then a backbencher, and member for Wentworth said that things were getting so serious perhaps the government should look at providing a guarantee of up to $250,000 for bank deposits—a guarantee that now exists. The then Prime Minister of the day was not to be outdone by anyone, because apparently he had the smartest intellect in the room, so he made it unlimited. I watched the market distort. I watched banks being bought out. I watched Bankwest be subsumed over a weekend when one of the big four took it up. I watched competition almost disappear overnight. So I will not sit here and be lectured by those opposite about financial sector reform and reform in this area when all I've seen is a concentration of banking power and prowess under their watch.

      That's especially so when we come to this bill, because this bill is all about making competition easier. We don't have as much competition as we need in the banking sector. We need more. Competition is a beautiful thing. I'd strongly recommend to those opposite competition in the super area as well, moving away from default funds always being industry funds. Let the light into the super industry, I say. Let's have a good, hard look at where those things sit. This bill is all about two measures designed to make it easier for financial sector ownership and to open up competition. This is a budget measure which we committed to in 2017-18. There are two measures relating to financial sector ownership and restrictions and banking licences that will work in tandem to make this sector more contestable, certainly improve choice in outcome and make it more innovative.

      It's not in isolation; we're building on substantial reforms. There is the major bank levy, which over the next few years, will raise $16 billion because this parliament, representing the people of Australia, has applied an implicit guarantee to the banks that they can't fail. That doesn't come for nothing. There is a cost, and the taxpayer expects a return. And they have it: over $16 billion. Labor jumps up and down, but they did nothing when they were in power. We are relaxing restrictions on the use of the term 'bank' and have done a whole bunch of work in terms of crowdsourcing funding to get innovation moving, especially in the areas of fin-tech and other areas of finance. And there is, of course, the introduction of open banking, which does have the potential to transform the competitive landscape of our financial sector in the way that Australians interact with our evolving banking system.

      The bill, which implements these measures, is about reducing barriers to entry. It will reduce a whole bunch of barriers. Ownership restrictions are an important way to ensure that institutions are run appropriately and have access to the resources they need to succeed. That's why ownership structures where any one shareholder owns more than 15 per cent has been subject to approval under a national interest test. It has stood the test of time, to a degree. But it is a barrier; it's a regulatory barrier and it limits competition. As a result, anything that arbitrarily limits competition can result in an unintended consequence that is poor. To address this, we're amending the ownership restrictions for financial sector companies from 15 to 20 per cent, as set out in the Financial Sector Shareholding Act 1998. It's designed to allow more players to play and more actors to enter the space. It's designed to drive competition—competition that disappeared on the day the member for Wentworth stepped outside and made a simple statement about, 'We need to guarantee deposits up to a certain amount.' And former Prime Minister Rudd could not be outdone. This is a measure that is designed to address the inadequacies and the distortions driven by the then member for Griffith's ego. It's extraordinary that it's taken a decade to overcome the damage of that one MP. Yet so much more damage is seeking to be undone.

      The bill will also create a new streamlined approval for small, domestically based financial sector companies that are seeking a licence, or that have been licensed for something like half a decade—fewer than five years. Where a company is below the relevant asset threshold, their owners will receive approval to hold more than 20 per cent of that firm, as long as they meet the fit-and-proper persons assessment, which is well understood, especially in legal sections. The bill will also support the operation of APRA's new dual-phasing licence approach, announced on 4 May this year. It contributes to the government's efforts, again, to create far more competition.

      Schedule 1 of the bill is seeking to overcome the issues that Prime Minister Rudd brought into the competitive sector. It's part of Australia's architecture and the regulator's prudent approach to managing risks relative to where we're going. The government endorses where APRA is going in this space—this is in respect of the restricted authorised deposit institution licensing framework. It's an important framework, based, in some parts, on the UK model, which since 2014 has seen more than 10 new banks commence operations—10! That's competition, compared to only one start-up in Australia in the last decade. One! It's extraordinary! This entire framework is designed to drive the competitive space and to give market operators freedom to create in the banking space.

      We desperately need more competition in this area. Start-up banks will be able to receive a restricted licence for up to two years or for a time specified by APRA as the regulator. There will be a limited suite of prudential requirements and regulations and there will be caps on the size of businesses. There will be a whole bunch of these issues to allow them to compete properly whilst keeping it in a box. And after two years they can transition to a fuller framework. This issue of addressing competition is fundamentally important. If we're to see the banking sector grow, we have to pull the shackles off it responsibly, within bounds set by APRA, and this bill seeks to do that.

      I commend the bill to the House. I commend the two measures to the House, and I look forward to reversing some of these difficult trends that we have seen over the years to get back to a fuller competitive banking system.

      Debate interrupted.