Wednesday, 19 November 2014
Regulations and Determinations
Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014; Disallowance
Sam Dastyari (NSW, Australian Labor Party) Share this | Hansard source
Starting the debate, I do want to acknowledge there are different people with different views, and people in this chamber are entitled to disagree and to have different views on substantive pieces of legislation. But I want to put forward the case as to why I believe this is a disallowance that is necessary and these are regulations that need to be removed.
This first big issue I have has been the entire process that has been undertaken. The minister would be well aware that the regulations we are discussing pre-empt legislation which is currently before the parliament. Almost every substantive measure in the government's FoFA wind-back bill was put into regulations on 30 June and took effect less than 24 hours later on 1 July. Let's be clear about this: on 30 June, the day before they needed to come into effect, these were rammed through—a series of regulations that were rammed through. The changes to regulations made to the operation of part 7 of the Corporations Act were not routine and were not uncontentious. Rather, they were sweeping in their effect, and they fundamentally changed the operation of the law.
I have no issue with a minister being prepared to bring legislation into this place to change the law. As a minister of an elected government, the minister has a right to do that. But proper changes and proper process required a proper parliamentary debate where senators would have had the opportunity to move their amendments, to participate and to put forward different views. The minister's strategy was to make his changes to financial advice laws with a stroke of a pen and to then ask the parliament to fall into line, lest the industry be disrupted. It was an audacious strategy but was without principle and without respect for due process.
The Senate's own Standing Committee on Regulations and Ordinances has forensically examined the process here and found the minister himself has gone too far. The Senate's own regulations and ordinances committee found that he minister had offended scrutiny principles by making regulations which are so far removed from the law they should be done through a substantive legislative process. The committee also found that the minister even exceeded the regulation-making powers in the Corporations Act by, in effect, 'suspending the operation of duly made law'. Finally, the Senate's own regulations and ordinances committee found that allowing the regulations to stand was creating a precedent where the government of the day might seek to implement its policy agenda without the full scrutiny of parliament. Indeed, the seriousness of these matters is reflected in the fact that this disallowance we are debating today was originally actually initiated by the chair of the Senate committee himself, Senator Williams.
My second big issue in why I believe this needs to be disallowed is there has been a massive policy overreach here. Turning to the substantive details of the regulation, there can be no doubt that they constitute significant policy change, deliberately and dramatically changing the operation of the law in respect of financial advice. The regulations make substantive changes to the character and operation of the best interest duty—a duty which is at the heart of ensuring consumers' interests are always put first. The regulations gut the duty by removing the only element, the only requirement, for an adviser to exercise judgement, care and objectivity—the so-called s961B(2)(g)clause. Further, the regulations allow an adviser to agree to limit the scope of advice without even having to take into consideration the client's own best interests.
The second substantive change is that the regulations permit the payment of conflicted remuneration—or kickbacks—from products provided by financial advisers. Let's be clear what it does: the law itself says that you cannot have conflicted remuneration. Then it says that secret sales advice and kickbacks will not be treated or dealt with as conflicted remuneration.
Perhaps worst of all is the return of commissions on income stream products, despite the minister claiming repeatedly that he will not bring back commissions. I urge those senators here to track down the fantastic interview by Alan Jones of Senator Cormann on this matter—actually, I previously tried to table it in the chamber and was not given leave—where he outlined and went through the detail and the falsehoods that have been presented when it comes to these laws. I want to draw the Senate's attention to this issue of bringing back commissions. Let us be clear: while the language in the law itself says that these kinds of commissions cannot come back into being, it creates loopholes and exemptions in a manner that a system identical to a commissions structure could develop. Nothing is clearer than that. I reject the notion that a secret sales bonus and a sales commission are somehow two mind-blowingly different things. They are not. They are the same thing, structured and argued in a different way.
There is a reason why not a single consumer, advocate or representative of those out there who have suffered from financial crime supports the regulations that have been imposed on this place—not CHOICE, not National Seniors Australia, not the Council on the Ageing and not the many victims groups whose voices for too long have been silenced in this debate. Every single one of them opposes this. I note Senator Lambie is in the chamber, and I also acknowledge the work that the veterans groups have been doing in this area, noting that veterans are some of the people most susceptible, unfortunately, to being taken advantage of. Why? When they return from duty and are sitting on a small pile of money they were perhaps fortunate enough to be able to save while they were overseas representing us and in combat, they become a prime target for the sharks, the criminals and the con men who try to take advantage of such people.
Let us be clear: our point is not that the entire sector is bad; that is not the case. Most of the financial advice industry is made up of incredibly fantastic people who are trying to do the right thing. The problem is that a handful of crooks, criminals and con men have given the industry as a whole a bad name. We have a responsibility in this chamber to ensure that the highest standard is set not only to protect consumers but also to help protect those in the industry who are trying to do the right thing.
Let us be clear about who supports the government's position on this: four big banks and AMP. That is where their support in this debate rests, not with the consumers groups or the advocacy groups. In fact, repeatedly we have seen different groups within the financial planning industry themselves coming out about this. The Financial Services Council is run by John Brogden, a former state Liberal leader. He is not some kind of socialist who has been running a Labor Party line, as Senator Cormann will argue. This is a former Liberal Party leader who has put his hand up and said: 'We have massive problems in this industry. The industry is incapable of self-regulation and we need to make sure a higher standard is set.' When the industry itself is saying there are problems, it is time to sit up and listen.
There are a series of major problems in this industry. This is an industry which, unfortunately, has been tainted by the behaviour of a handful of people. I want to tell the chamber about the Holt-Norman victims, the victims we heard from during the Timbercorp collapse and what has been going on down there in Melbourne. Last week, we had a series of Senate hearings, including in Melbourne, where we heard some harrowing stories and tales about people who have been conned, cheated and ripped off. Those victims actually came here today to speak to senators to tell their stories about how bad financial advice, poor practice within the sector and industry, and pre-FoFA conditions allowed for behaviours and activities that, frankly, we as a society have gotten together and deemed as so reprehensible that they should never be allowed to happen again. What happened to most of those victims would not be allowed under the current laws as they stand. What could happen is that those same con men and cheaters could restructure how they give those victims bad advice. That could happen. That is the issue here. That is the concern that people like me have.
We are in a privileged place here in the Australian Senate. We all have a voice; we are all able to be heard. The reality is that there are a lot of people out there who do not have the privilege that we have and do not have the opportunity that we have. They, unfortunately, do not have the same access to the sorts of resources that a lot of us have about financial advice. Our responsibility is to establish the highest standards, rules and protections to make sure that people are not being hurt and abused.
Today Senator Cormann has repeatedly made reference to the fact that there are elements within the regulations, which we propose to disallow today, that those on my side of politics and other sides of politics have said in the past are reasonable compromises. That remains the case. We urge the minister: if these regulations are disallowed, come to the table, sit down and initiate a consultation process over the substantive legislative framework. Allow the senators in this place to have a debate, express their different views and discuss the different amendments that I know many senators in this place wish to put forward.
I also want to reject a falsehood that has been presented, and that is that somehow the financial advice industry is going to fall apart if these changes are made through a disallowance today. Nothing could be further from the truth. The words of the former minister responsible for this, Senator Sinodinos, were crystal clear: there is a facilitative process available to ASIC—