Zed Seselja (ACT, Liberal Party, Assistant Minister for Treasury and Finance) Share this | Hansard source

First, I'd like to very much thank those senators who have contributed to this debate. Strong and effective financial regulators go hand in hand with a strong and effective financial system. We've been working hard during our term of government to strengthen ASIC to ensure it has the resources and powers it needs to combat misconduct in the financial services industry and across all corporations for the protection of Australian consumers and the ongoing health of our financial system.

The Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill continues that great work, and it's worth taking a moment to mention some of the things that we've done already. We injected a further $70.1 million into ASIC to boost its enforcement capabilities and address other regulatory priorities in addition to $121.3 million in additional funding in 2016 to bolster ASIC's investigative and surveillance capabilities. We also appointed Daniel Crennan QC as a new deputy chairperson who has a key focus on enforcement action. And we announced the strengthening of criminal and civil penalties by increasing terms of imprisonment and fines, increasing the maximum civil penalties that can be imposed by courts, and allowing ASIC to strip wrongdoers of profits illegally obtained or losses avoided from contraventions of the law. These measures have strengthened the enforcement powers of ASIC, which of course we knew needed to be done and which we acted on.

But ASIC also has a role, a very important role, in fostering a strong, overall financial system that helps Australians thrive and prosper. For this reason, since coming into power this government has commissioned two fundamental but very important reviews: first, the financial system inquiry in 2013 and, second, the capability review of the Australian Securities and Investments Commission in 2015. Both of these reviews resulted in recommendations to strengthen ASIC, the corporate markets, financial services and consumer credit regulator. This bill implements recommendations from both these reviews.

I would like to briefly reflect on these two reviews as they are important to understanding exactly where we are today and how we have gotten here. The financial system inquiry of 2013 came 16 years after the previous inquiry into the system. While the system has worked to some extent, there was no question that forces—domestic and international economic and financial crises, a substantial regulatory reform agenda, the growth in superannuation, changes in industry structure, new competitive dynamics, technology, innovation and broader macroeconomic trends—have changed the landscape and made this review absolutely vital to ensure the financial system continues to serve Australians well. After all, that is what the financial system is about. It's about supporting a vibrant economy that improves the standard of living for all Australians.

The inquiries set out three goals for the financial system if it is to be effective. Those are: that it is efficient, resilient and fair. However, the inquiry found there were two key areas where there was scope to improve the functioning of the financial system. Firstly, the core function of the Australian financial system is to facilitate the funding of sustainable economic growth and enhance productivity in the Australian economy. The inquiry identified a number of distortions that impede the efficient market allocation of financial resources, including taxation, information imbalances and unnecessary regulation. Secondly, the inquiry focused on competition and competitive markets. The inquiry took the approach that these two factors were the primary means of supporting the financial system's efficiency.

The inquiry made a number of recommendations to improve and encourage competition in the system, one of which was to strengthen the focus on competition in the financial system. Specifically, recommendation 30 said there was a need to:

Review the state of competition in the sector every three years, improve reporting of how regulators balance competition against their core objectives, identify barriers to cross-border provision of financial services and include consideration of competition in the Australian Securities and Investments Commission's mandate.

That last point there, to ensure consideration of competition is part of ASIC's mandate, is one of the key elements of this bill. Schedule 1 to this bill amends the Australian Securities and Investments Commission Act 2001 to mandate that ASIC must consider the effects of the performance of its functions and the exercise of its powers will have on competition in the financial system.

Competition in the financial system is critical to ensuring the system delivers good outcomes for Australia. Competition puts strong discipline on businesses to lower costs associated with the delivery of products and services, engenders faster innovation and deployment of new technology, and delivers more choice for consumers and lower prices. The effects of stronger competition in the financial system are felt well beyond financial markets and into other parts of the economy. Increased competition can benefit the economy as a whole via improvements to productivity and economic growth. An explicit reference to take competition issues into account will empower ASIC to more consciously consider how its actions may impact on competition in the financial system. As I said earlier, this measure fulfils the government's commitment to implement recommendation 30 of the Financial System Inquiry. This recommendation stated the government should include consideration of competition in ASIC's mandate.

Earlier I mentioned the second inquiry relevant to this bill, and I'd like to speak a little more on that. That was the capability review into ASIC, which resulted in a report to government in 2015 entitled Fit for the future. The review was required to consider how ASIC uses its current resources and powers to deliver statutory objectives and assess ASIC's ability to perform as a capable and transparent regulator. The capability review was asked to examine and make recommendations on how efficiently and effectively ASIC operates to achieve its strategic objectives.

The expert panelled chaired by Miss Karen Chester, Mr David Galbally and Mr Mark Gray consulted extensively with ASIC, private sector businesses regulated by ASIC, peak bodies, regional and consumer representatives and other stakeholders. The panel found that, while there was some good in how ASIC operated:

There are a number of changes that are needed to ensure that ASIC is sufficiently well governed, skilled, agile and responsive to meet the challenges of the future, both those that are already becoming apparent, as well as those that as yet remain unknown.

In chapter 4 of the report, the panel discussed ASIC's workforce capabilities and management. They noted:

Some ASIC staff lack sufficient professional confidence in their roles to credibly challenge regulated entities and develop and defend independent judgements The workforce also faces gaps in relation to a number of critical skill sets that will become increasingly important in the future (for example, big data, digital disruption, and behavioural economics).

In response, the panel recommended the government remove ASIC from the Public Service Act as a matter of priority to support effective recruitment and retention strategies.

Schedule 2 to this bill amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act 1999. Consequential amendments are also made to the Business Names Registrations Act 2011, the Corporations Act 2001 and the Mutual Assistance in Business Regulation Act 1992. In order to be effective, ASIC needs to recruit staff with knowledge of financial markets and financial services. ASIC is therefore often competing against the private sector as opposed to other public sector agencies when recruiting suitable staff. Removing the obligation for ASIC to engage staff under the Public Service Act means that ASIC will be able to compete more effectively for suitable staff. This measure will bring ASIC into line with the other financial regulators, APRA and the RBA, who also are not required to hire under the Public Service Act.

As I said, consistent with the findings in the Financial System Inquiry, recommendation 24 of the ASIC capability review report recommended:

Government to remove ASIC from the PSA as a matter of priority, to support more effective recruitment and retention strategies.

The government agreed with this recommendation and indicated it would remove ASIC from the Public Service Act to support ASIC to more effectively recruit and retain staff and positions requiring specialist skills. I should note that this is not a reflection on the many expert professional public servants who work at ASIC or, indeed, across government. As a Canberran, I can attest to the great work that the public service does for our nation. However, this change is about treating like with like. It is ensuring that ASIC can operate much like other bodies in the financial system and recruit accordingly.

This measure fulfils the government's commitment, and this bill as a whole forms part of our ongoing work in improving the financial system. We also have the Productivity Commission review into competition, which has just recently reported to the government in July this year, and the Australian Competition and Consumer Commission have been tasked with undertaking regular in-depth inquiries into specific financial system competition issues through a new dedicated unit. We have, of course, the royal commission into the banking sector which is ongoing and will no doubt have findings that will feed into improving our financial system in due course. It's important to note in that context that this bill has no bearing on future recommendations of the royal commission and the government will be able to consider whatever findings emerge in due course.

In conclusion, this bill will strengthen ASIC's capabilities to ensure it is an effective regulator. It builds on other key initiatives undertaken by this government to ensure ASIC has the powers it needs to promote trust and confidence in the financial system. These include providing ASIC with a stronger funding base for implementing the industry funding model; undertaking a review to assess the suitability of the existing powers and regulatory tools available to ASIC; and appointing a new ASIC chairman, James Shipton, who brings vast international experience to the role. The coalition will continue to ensure ASIC is equipped with the resources and powers it needs to effectively detect, deter and punish those who do the wrong thing to improve community confidence and outcomes for consumers and investors in the financial services and corporate sectors. This bill is a key component of that ongoing work. It clarifies ASIC's focus on competition and allows it to recruit competitively from the financial sector. I commend this bill to the Senate.

Question negatived.

Original question agreed to.

Bill read a second time.