Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

It's a very important time for this chamber to be considering legislation on, indeed, the regulation in our financial services industry, and it's a very important and opportune time to be reflecting on the roles of our regulators and the track record of our regulators in achieving the objectives which we empower them towards. I wanted to take off where Senator Williams left off and reflect, initially, on some of his comments in his contribution to the Senate tonight about the royal commission. That's because the reason it's such an opportune time to be considering the Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill now is because of the financial services royal commission which is currently underway and, as has been stated already, is due to deliver its interim report shortly.

Senator Williams talked about the Senate inquiry into ASIC—into the Australian Securities and Investments Commission—back in 2013-14. He outlined a couple things that I wasn't aware of tonight, and that was that his journey started by asking questions in estimates around some scandals he'd heard about at Commonwealth Bank. Senator Cameron joined him in that questioning and urged Senator Williams to consider supporting a Senate inquiry into ASIC. This is where I chimed in. Senator Williams approached me on more than one occasion to join that committee. He was aware that I'd worked in the financial services industry—I was an economist and I'd been a banker—and he wanted me to be involved in that committee. So I did join that inquiry, and, of course, it was a very, very important milestone. When you look at a lot of the legislation that's gone through this place and the other place in the last four or five years, I can tell you that a lot of it stemmed from that initial inquiry.

The committee made nearly 70 recommendations after a very long inquiry—it was extended several times—and I can tell you that there was a real strong feeling in that committee that we needed to see significant structural change in our regulation of the financial services industry. There was even the concept of disbanding ASIC—that was very seriously discussed by senators when we were looking at making recommendations and delivering those. It never ended up happening. But what we saw, in fact, was that the committee's focus turned from the role of the regulator to the scandal at Commonwealth Bank, which, in the end, led to a half, I would say, recommendation or a weak recommendation into the Senate considering the potential for a royal commission into Commonwealth Bank—so not into the financial services industry but into Commonwealth Bank. Unfortunately, I think, the chair of that committee, Mr Mark Bishop, who was Senator Bishop at the time, would have liked to have made that recommendation a lot stronger. When he left the Senate, of course, he went public that he believed, because there had been a number of other scandals following his resignation, that we did need a royal commission into the financial services industry in this country.

I took that concept of a royal commission to my party room because I needed to get their support if we were going to campaign on that, and I got the support of the Greens party room. The next two years were really important. We had the FOFA debate in this place, which was a critical debate also, where we managed to claw back a weakening of financial regulation that this Liberal government had put up. We also had a number of other really big inquiries that went for nearly three years, including into the scrutiny of financial advice and, one that was near and dear to my heart, into the collapse of forestry management investment schemes.

At that point, I worked as hard as I could on getting Labor to support a royal commission into banks and financial services. Senator Williams had his heart in it, and he was consistent all the way through. He even crossed the floor to support Greens motions on this. But it took a couple of years for the Labor Party to get on board. It's a big ship and sometimes it's hard to turn, but, if it hadn't been for the Greens and our campaigning, that would never have happened. We got Labor to support the royal commission going to the double-dissolution election. I received a text from someone very senior in Labor, the day that Labor announced it, saying, 'Congratulations, Wishy, you've won.' Labor announced that afternoon that they would call for a royal commission into banks and financial services. Of course, they didn't get elected. The Turnbull government were re-elected. We realised we had no chance of getting a royal commission in that term of government. The Greens built a legislative instrument—I suppose you could describe it as building it—but I like to think it was more of a Trojan Horse, a parliamentary commission of inquiry—in other words, a royal commission that reported to the executive. It had only been done once in this place and, I must say, if it hadn't been for the advice of the previous Clerk, Rosemary Lang, we probably would never have got it to the chamber. She gave us some preliminary advice that, while it would be very difficult and it would face many obstacles, it was possible. That was questioned by some constitutional lawyers in this country and it was supported by others. Nevertheless, that bill was a Trojan Horse. It got through the Senate with support from the full crossbench and, of course, the Labor Party, and it bounced around in the other place for some time like a piece of polonium that nobody wanted to touch. Eventually, with us working across all parties, including especially with the National senators, we got a lot of support for it in the other place. It wasn't until Senator O'Sullivan took our parliamentary commission of inquiry and virtually identical terms of reference and handed it to the Prime Minister that the Prime Minister faced a no-confidence motion and he called a royal commission.

That's the very short version of what will be a long-and-winding-road story told one day. If a good journalist doesn't get on it, research it and go back over the various steps, I'll probably write it myself. I think it's very important not to lose that corporate knowledge in this place. It started with an investigation into ASIC, and here tonight we find ourselves, once again, reviewing legislation and regulations around the powers, the performance and the functions of the Australian Securities and Investment Commission.

I have two sets of amendments tonight to this bill. The first are second reading amendments, which I will move in a second, and I have committee-of-the-whole amendments to oppose schedule 1 of this bill, which effectively gives ASIC a competition mandate. Labor has made it clear that they won't support the Green's amendments in committee or the second reading amendments because they want to wait for the outcomes of the royal commission. I strongly suspect this will be looked at very seriously by the royal commission—these kinds of structural reform recommendations. But I would say to the chamber that, by giving ASIC these powers, you can say it came from the Murray financial services inquiry. It is doing exactly the same thing. Why are we considering this now if the royal commission hasn't released their recommendations and we're going to use them to inform our future legislation? We believe very strongly that, when ASIC was set up, we got it wrong. We're not the only ones who are saying that. I'll get to that in a minute. I would like the chamber, when we go in committee, to consider in a bit of detail the Greens' amendments.

I move:

At the end of the motion, add, "but the Senate—

(1) notes:

(a) the Productivity Commission Inquiry Report into Competition in the Australian Financial System recommended that to "address gaps in the regulatory architecture related to lack of effective consideration of competitive outcomes in financial markets, the ACCC should be given a mandate by the Australian Government to champion competition in the financial system";

(b) clause (g) of the terms of reference of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry requires it to "consider the effectiveness and ability of regulators of financial services entities to identify and address misconduct by those entities", and that;

(i) the Royal Commission will submit an interim report by 30 September 2018 identifying policy related issues arising from the first four rounds of hearings,

(ii) the closing submissions of the Royal Commission to the fifth round of hearings on superannuation:

(A) identify policy issues related to superannuation,

(B) submit that "the case studies suggest that the approach of neither APRA nor ASIC to regulation of superannuation entities is sufficient to achieve specific or general deterrence," and

(C) cite two examples of ASIC's approach "which raise questions as to whether it has struggled to date to act as an effective conduct regulator"; and

(2) calls upon the government to:

(a) give in principle support for the recommendation of the Productivity Commission that the ACCC be appointed 'competition champion'; and

(b) await the interim report of the Royal Commission, which is due on 30 September 2018, before seeking to make any changes to the regulatory structure for banking, superannuation and financial services."

These amendments respond to what has become apparent through the royal commission. They respond to what some wise heads, who have been watching this space very closely, have known for some time and respond to what the Productivity Commission concluded about regulations in the financial sector. It interests me that Senator Smith just quoted their draft report. That's actually what I'm basing this on. They very clearly want to see an increased mandate for the ACCC, hence us moving on this.

The response is pretty simple and, unfortunately, it's that the Australian Securities and Investments Commission is not up to the job. In fact, in the words of the royal commission, 'There appears to be a collapse of ASIC's regulatory authority.' That's a powerful conclusion in what appears to be a fairly straight-shooting commissioner and it's why the Senate should not support this bill. For those who were following the royal commission, it made me laugh listening to Senator Williams saying he was in his hospital bed and on his recovery bed at home watching the royal commission in its detail. A lot of Australians aren't necessarily watching it in that kind of detail. We read in the papers about some terrible scandals—some of the kinds of things that we have been listening to as senators when we fronted the numerous inquiries with the witnesses of financial crime. It's actually the stuff that you read between the lines that's really important for me in the royal commission and the kinds of comments that are made by the commissioners and the QCs. They make some very perceptive comments about future regulatory directions.

The issue that I have with ASIC is fundamentally this—and I want to say that I've always been a supporter of ASIC. This is a decision that's taken me a while to get to; it's taken me nearly five years to get to this point. ASIC's problem is that they have in inherently conflicted mandate, which, interestingly enough, Senator Smith also quoted tonight. Their problems stem beyond mere performance and funding—something that I've fought very hard for in this place, as have a number of senators, because they have been under resourced and they haven't had the powers they've needed. Nevertheless, I don't believe their culture has been one of prosecuting the bad guys, to put it simply. Through a number of failed high-profile court cases previous to the 2013 Senate inquiry, I felt they became very timid in their pursuit of white-collar crime. I initiated another Senate inquiry, which a number of senators participated in. It looked at white-collar crime and what kinds of penalties would be needed to change behaviour and change culture.

I believe that ASIC's structure is fundamentally flawed. It's something that the royal commission has also pointed out. To give you an idea, the objects of the ASIC Act are to provide for ASIC's functions and powers in business, which in other words is enforcing laws, including those to protect consumers. The second part of the act says:

In performing its functions and exercising its powers, ASIC must strive to:

(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy …

In other words, to once again use some fairly simple language, they have a clear trade-off in their mandate between going after bad guys—and spanking them really hard—and not rocking the boat too much.

Mr James Shipton, the new head of ASIC, in answering a question that I asked Mr Peter Kell at the last Senate estimates, said:

Our aim when we're exercising … discretion … is to get to a point whereby Australians have confidence in the integrity, the efficiency, the strength and the fairness of the financial system …

When we are presented with the misconduct that we're seeing very clearly through the prism of the royal commission … we are exercising professional regulatory judgement in relation to the particular cases and the particular circumstances, again with the ultimate goal of that efficient, fair and strong financial system.

I asked Mr Shipton why he's not throwing more white-collar criminals in jail, why the average Australian goes, 'Why aren't these guys getting thrown in the slammer?' They're ripping people off for not just thousands of dollars but tens of millions of dollars. Why aren't they going to jail? If I hack into someone's account, steal a thousand bucks and do it a couple times, I'll go to jail. Why are we seeing this kind of systemic misconduct and fraud but no-one is being jailed? That was Mr Shipton's answer—he basically said: 'I have a conflicted mandate. I have trade-offs I have to take into account in my job.' That's the way it is, and I don't hold that against him, nor do I hold it against the previous chair of ASIC, Mr Greg Medcraft, who I have a lot of time for, as I do for all the people at ASIC. I think they're good people. I think they've been under a lot of pressure. They've been under resourced. They have had powers, but they haven't wanted to use them—or so it seems from the royal commission.

Don't just take my word for this. For example, the royal commission's closing submissions on superannuation clinically dissected ASIC's performance. This was only a few weeks ago. The commission starts by submitting:

… the case studies suggest that the approach of neither APRA nor ASIC to regulation of superannuation entities is sufficient to achieve specific or general deterrence.

It then goes on:

Two examples of ASIC’s approach raise questions as to whether it has struggled to date to act as an effective conduct regulator.

First, the refusal of NAB over a lengthy period of time … to undertake a proper review of whether it had provided contracted services in exchange for the fees it had collected from customers suggests a lack of respect for the regulator and a lack of authority on the part of ASIC. ASIC has not commenced any civil penalty proceedings in respect of fees for no service.

No action taken on fees for service—incredible! The commission explains just why this is a problem:

A fundamental purpose of the imposition of a civil penalty is, "the punishment must … not … be regarded by that offender or others as an acceptable cost of doing business …

In other words, ASIC have failed to take action that the banks would consider to be anything other than the cost of doing business. Secondly:

… the approach of ASIC to dealing with ANZ and CBA in relation to their conduct … suggests an approach that is not conducive to the development of an industry-wide compliance culture.

Specifically, in relation to CBA:

… it might be thought that if the largest company in Australia … is negotiating with ASIC on the premise that it could seek to persuade ASIC to issue a media release rather than insisting upon an enforceable undertaking, after ASIC has provided a document outlining the contraventions that ASIC believed CBA had engaged in, that suggests the collapse of ASIC’s regulatory authority.

And, again, in relation to ANZ:

… it might be thought that if ASIC has drafted a document in support an originating process required to commence a Federal Court proceeding, said in unequivocal terms to ANZ that it will commence that proceeding on a particular date and invited admissions, and then refrained from commencing a proceeding after a polite email asking for the opportunity to discuss was received from the general counsel of ANZ, that reinforces an absence of regulatory authority. It may also send a message to the regulated population that ASIC lacks authority.

These are the words of the commissioner.

The commissioner then asked some salient questions: 'Is the present allocation of regulatory roles appropriate?' 'Are either of the regulators best placed to carry the responsibility to protect consumers?' Most relevantly to this bill, the commissioner said:

Treasury has observed that '[o]ver the past twenty years the remit of ASIC has expanded considerably … That may suggest that it would be preferable that another regulator be tasked with ensuring good consumer outcomes in superannuation by enforcing compliance.

In other words, the commission is openly questioning whether ASIC should remain the conduct regulator, let alone be given any more powers. I believe the commissioner when the commissioner is suggesting that ASIC's failed, but we'll get their draft report soon.

Who else has waded into this debate? None other than Mr Allan Fels. Again, don't take it from me—here's Allan Fels on ABC radio last month:

This issue about ASIC ineffectiveness has been going for twenty five years and it's got no better over time, and the latest revelations just confirm that we have to do something more fundamental.

It's not feared, unlike the ACCC. It has a culture, it's had a long running culture of not vigorous, without fear or favour law enforcement.

On the ACCC becoming the conduct regulator, he said:

This was very seriously considered in the late nineties after the Wallis inquiry, and it was only because of fierce lobbying by the financial services sector that the ACCC did not get given coverage—

of the financial services industry. In other words, ASIC was a creature that the financial services industry wanted constructed. Mr Fels continued:

Even at that point, it was obvious that ASIC was not up to the job and nothing has changed.

Alex Erskine, the former chief economist at ASIC is saying similar things: 'Put the ACCC in charge.' Even Mr Ian Harper, a member of the 1998 Wallis inquiry, which recommended the construction of ASIC, and now a member of the Board of the Reserve Bank, is questioning the wisdom of taking conduct responsibilities off the ACCC and giving them to ASIC. In fact, he said: 'We got it wrong. We thought we were doing the right thing, but, even back when we took those powers off the ACCC and constructed ASIC, we were concerned about regulatory capture'—concerned about regulatory capture all the way back then. That is what the royal commission is showing clear as daylight. You can read Mr Harper's comments, but he said:

I have already said that with the benefit of hindsight we were wrong about several things. We placed too much faith in the efficient market hypothesis and in light touch regulation …

Senator Smith probably wouldn't be too happy with that, coming from such a well-known economist—light touch regulation has failed the financial services industry. Anyway, there's plenty more on record from people who are coming out and suggesting that we need to not only restructure our financial services companies by breaking up the banks—something the Greens have recently suggested in policy—but also look at regulators.

Lastly, I've already mentioned the Productivity Commission, but you might want to consider the findings of the commission who this month released their draft report, Competition in the Australian financial systemwhich is the very subject of this bill. They concluded:

To address gaps in the regulatory architecture related to lack of effective consideration of competitive outcomes in financial markets, the ACCC should be given a mandate by the Australian Government to champion competition in the financial system, including in decisions taken by regulators that have or may have the outcome of restricting competition.

The conclusions are simple, Senators. The royal commission is saying that ASIC has flunked it. Allan Fels is saying that ASIC has flunked it. And the Productivity Commission, which looked into the very specific issue of competition in the financial sector, is saying the ACCC should be the competition regulator for consumer outcomes. So what's the point of the inquiries if we are not going to listen? Why should this Senate feel so compelled to pass this bill today when we haven't actually got the final report for the Productivity Commission? For those fans of ASIC in this place, just remember what has been suggested here is that consumer outcomes be have taken off ASIC. It will still have a very big mandate around institutional markets and around professional markets, an enormous mandate in fact. Leave the consumer outcomes, competition outcomes to the regulator that is named the Australian Competition and Consumer Commission.