Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I would like to note at the outset that this bill is the first of a set of bills I will introduce this morning. Taken together, they will establish the Financial Accountability Regime, extending the provisions of the existing Banking Executive Accountability Regime to the superannuation and insurance sectors, and also establish a Compensation Scheme of Last Resort, for consumers who have suffered financial losses and have received a relevant determination in their favour from the Australian Financial Complaints Authority.

Members will note that bills with these same objectives were introduced into the House last year—indeed, they were also introduced into the House under the former government—and progressed as far as a second reading in the Senate. Two material things have changed since then.

First, it became clear that the Compensation Scheme of Last Resort component, which replicated an even earlier bill introduced by the previous government in October 2021, was no longer fit for purpose.

As I will set out in introducing the Financial Services Compensation Scheme of Last Resort Levy Bill 2023, a back log of complaints that have been lodged with the Australian Financial Complaints Authority (AFCA) and that are expected to be eligible to claim on the CSLR will be funded through a one-off levy on Australia's 10 largest banking and insurance groups.

Since the original bill was introduced by the previous government, a material event occurred in the market that significantly increased the amount that would need to be paid out of that one-off levy. That, combined with the passage of time and the need to collect the levy based on the best available and most current data, led us to pause the bill, and now require minor amendments to it. Such amendments could not be moved in the Senate, on account of section 53 of the Constitution.

Second, after productive discussions with Senator David Pocock, the government decided to adopt an amendment he proposed for the Financial Accountability Regime Bill 2023, to articulate more clearly the scope of the minister's exemption power and to provide for parliamentary oversight.

The combination of these two things mean that reintroducing the bills in the way we are doing today is the neatest, lawful path to the agreed objective.

I will move now to the substance of the first bill, the Financial Accountability Regime Bill 2023.

The Financial Accountability Regime Bill 2023 establishes the Financial Accountability Regime, or FAR, which replaces and extends the existing Banking Executive Accountability Regime, following a number of recommendations from the banking royal commission, commonly known as the Hayne royal commission.

The bill underscores the government's commitment to finalise the action necessary to fully address the banking royal commission and implement measures that compel the financial services industry to act in the public's interest.

Financial services executives make decisions that impact upon the lives of ordinary Australians who have no choice other than to engage with the system that they operate. As a result, the community reasonably expects high standards of accountability and integrity of financial services directors and executives.

The banking royal commission revealed too many instances of misconduct across the sector and highlighted that industry practices often did not meet community expectations. These issues were frequently found to be systemic and part of corporate cultures that can only be improved and remedied from the top down.

The bill would establish the FAR with substantially the same design specifications originally introduced by the former government in October 2021 which lapsed with prorogation. The requests made by the former Senate Standing Committee for the Scrutiny of Bills and the Senate Economics Legislation Committee were considered and have been addressed in the explanatory memorandum accompanying the bill.

In essence, the FAR extends the existing responsibility and accountability framework to the insurance and superannuation sectors, to ensure that heightened accountability obligations are in place across the wider financial industry.

The FAR ensures that, where these community expectations are not met, appropriate consequences will follow.

I'd now like to turn to the provisions of the bill.

The FAR imposes heightened accountability obligations for prudentially regulated financial institutions, meaning banks, insurers, and superannuation entities. These institutions are referred to as accountable entities in the regime. The FAR regulates directors and the most senior and influential executives of accountable entities. These individuals are referred to under the regime as accountable persons.

The FAR imposes four core sets of obligations. Firstly, accountable entities and accountable persons must conduct their business in a proper manner, which includes: acting with honesty and integrity, and with due skill, care and diligence; dealing with Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) in an open, constructive and cooperative way; preventing adverse impact on the accountable entities' prudential standing and preventing breaches of certain specified financial services laws by their accountable entity.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operations and defer at least 40 per cent of the variable remuneration of accountable persons for a minimum period of four years. Variable remuneration will be reduced where accountability obligations are breached. Ensuring that there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions.

The FAR will be supported by the imposition of compulsory notification obligations which require accountable entities to provide APRA and ASIC with certain information, such as information relating to the responsibilities of their accountable persons or breaches of certain obligations by the accountable entities or their accountable persons.

Both APRA and ASIC will jointly administer the regime.

They will have the power to disqualify accountable persons, investigate suspected breaches of the regime, and direct entities to take remedial action and to apply to the Federal Court to impose a civil penalty on accountable entities.

The government notes the recommendations made by the Senate Economics Legislation Committee on the Financial Accountability Regime Bill 2022, the Financial Sector Reform Bill 2022, the Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022. The committee's report was tabled on 24 October 2022, and we thank the committee for its recommendation that the bills be passed. The bills that I introduce today are substantially the same as those considered by the committee, though, as previously mentioned, it now incorporates a small amendment, previously circulated by Senator David Pocock, to articulate more clearly the scope of the minister's exemption power and to provide for parliamentary oversight of the exercise of that power.

After careful consideration, the government has not adopted the Australian Greens' recommendation to introduce civil penalties for breaches of accountability obligations. I will say some more about that. The government's bill already contains effective measures to address executive failures to comply, including disqualification, loss of deferred bonuses, and individual civil penalties for assisting in an entity's contravention of its obligations. That is to say, the bill already contains instances where individual civil penalties apply. These sanctions are on top of penalties for misconduct already in place in other financial services laws.

These measures are finely balanced to improve, on the one hand, executive conduct and accountability in the financial services sector without adversely impacting the sector's efficiency. Adding individual civil penalties on top of those that are already extant within the general law and within this bill is not likely to substantially increase the level of deterrence that already exists, noting that the removal of access to deferred remuneration acts as a financial penalty on individual accountable persons under the regime. So, while it may impact on firms seeking to attract and retain the best executive talent, it would not add to the already extant penalties in a meaningful way.

The FAR will apply to the banking industry six months after royal assent and to the insurance and superannuation industries 18 months after royal assent.

Through this bill, the government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations, and that they're focused on outcomes for all Australians.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.