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

I start by saying how glad I am that we're now receiving some legislation directly from the Hayne royal commission into financial services. The Greens worked very hard over nearly five years to get that royal commission up. I understand that this government is planning to bring before both the House and the Senate up to 42 pieces of legislation that directly relate to the recommendations of the Hayne royal commission.

I also add for anyone interested in this that a large number of bills were brought before both the Senate and the House prior to the royal commission. We were aware of many problems in the financial services sector, dating back to some of the original inquiries I was involved in from 2013, and this house legislated some significant reform. I pay credit to Kelly O'Dwyer and other ministers who had been active over this time. We didn't feel like it was enough, though. We wanted a full, independent inquiry into much of what the Senate and the senators who attended the various Senate inquiries had heard. We wanted a royal commission that had investigative powers, that had resources, that had adequate time and that had broad enough terms of reference to deal with some of the structurally inherent problems in the financial services sector.

The royal commission uncovered much that shocked the nation. Senators attended the many Senate inquiries and heard from victims of financial crime. Many of the victims have been in constant contact with my office over many years, as they have been with other senators' offices. I acknowledge Senator Williams's contribution to this debate and Senator Dastyari's contribution to getting a royal commission up. This was a team effort across all political parties. In the end even Senator O'Sullivan—and I will utter his name in this chamber—played an important role in finally getting the Hayne royal commission up. It is good to see this Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019 before us today. I look forward to speaking to many bills in this place.

I will be brief in my contribution today. The terms 'best interests obligations' and 'conflicted remuneration' have been debated ad nauseam in this chamber since at least 2010. Labor brought in the future of financial advice laws, which was a very large reform, trying to stamp out conflicted remuneration. But, as we found out with the government's attempt to water down the FOFA laws, things did slip the net. One of the things that slipped the net was conflicted remuneration within the mortgage broking sector. That was focused on by the Hayne royal commission. I was very proud that the Senate was able to avoid watering down the FOFA laws that were brought in by Labor in 2012, but this was missed in the original legislation. It's high time to try and crack down on it. We want to make sure that this bill applies to all commissions received by mortgage brokers. I'll have some questions to ask on that if we go into committee stage. We want to make sure that mortgage brokers are stopped from receiving conflicted remuneration of any sort. We know that with the attempts to water down the FOFA laws there were some new catchphrases thrown in, like a checklist approach. Rather than perhaps commissions being paid or remuneration that might have been conflicted, employees were going to be remunerated in other ways from the bank. Either way, you had to look at where the incentives lined up as to whether employees would have actually been conflicted in their financial advice.

We want to know whether mortgage brokers will still be able to be paid commissions by landowners for facilitating property sales—I have just received advice from the Parliamentary Library in relation to that—and whether mortgage brokers have to disclose conflicted remuneration received from landowners facilitating property sales.

One thing that does concern me is that some mortgage brokers are still owned by banks, so they're vertically integrated within the banking structures. One thing that did disappoint me from the Hayne royal commission was that the Greens, my office, made a 96-page submission to the commissioner in the final stages of the royal commission, putting forward recommendations we would like the commission to look at, including breaking up the banks, looking at the vertically integrated business model. In the years that we were looking at this, we didn't believe it was possible to totally stamp out conflicted remuneration or some of the bad behaviour, the profit based culture that had permeated this industry and has caused so many problems, while the banks were totally vertically integrated. Interestingly enough, many have gone down the voluntary road of breaking up their vertically integrated business model, even without the government having to step in. They've decided that, for various reasons, it's too hard for them. Nevertheless there are still banks that, when a customer walks in and speaks to the teller, are happy to try and sell everything to them. That's still an ongoing issue.

In addition to the new best interests obligation, this bill requires mortgage brokers to resolve conflicts of interest in the consumer's favour. It sounds pretty logical. You would hope that that would have always been the case, but we heard many examples where it wasn't. In particular, if the mortgage broker knows or reasonably ought to know that there is a conflict between the interests of the consumer and the interests of the broker or a related party, the mortgage broker must give priority to the consumer's interest. This requirement is based on section 961J of the Corporations Act, which places an equivalent obligation on financial advisers.

That obligation, to give priority to the consumer's interests, is not limited to conflicts of interest that mortgage brokers currently know about. Mortgage brokers are expected to take active steps to identify all conflicts of interest covered by section 158LB to minimise the risk of a contravention, including obligations that can arise because of their commercial relationships with third parties. I'm not quite sure how that applies to a mortgage broker that is owned by a bank, if that is integrated within that organisation—whether they would even be classified as a third party. For example, if a mortgage broker has referral arrangements for the real estate agent, such that they are an associate, then the broker would need to consider the conflicts that could arise and ensure that they give priority to the interests of the consumer over their own interests—mostly their remuneration—or the interests of the real estate agent.

What constitutes reasonable steps will vary from case to case, according to the content of the obligation. Failure to take reasonable steps would include a failure to respond to or address identified problems that create a risk of a contravention—that is, licensees will need to act to prevent contraventions of the law and not simply respond to contraventions once they have happened. The reasonable steps are still open to interpretation.

The Greens have a very strong view that banking is an essential service. It's not a get-rich-quick scheme like it has been in this country and other nations for many, many years. Since banking has been deregulated in Australia, households have been carrying more risk. We've seen rising economic inequality, and we strongly believe that returning banking back to basics with strong government regulation and intervention to protect customers and improve stability is crucial. I think the Hayne royal commission's uncovered a shocking degree of rot within the foundations of the Australian banking and financial system. We're now one of the most heavily financialised economies in the world, with an enormous pool of money that creates enormous opportunity for fraud, for bribery, for misconduct and for pushing people into dodgy products and other systemic abuses of customers that this sector is supposed to serve. Let's have no doubt at all that the regulation that is before us today—and the other legislation coming to the Senate: the other 41 pieces of legislation, if that reporting is accurate—is designed to fix a systemic problem.

I remember asking a question of the late—sorry, I shouldn't say 'the late'; of former Senator George Brandis—