Senate debates

Thursday, 20 March 2014

Questions without Notice: Take Note of Answers

Financial Services

3:29 pm

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

I move:

That the Senate take note of the answer given by the Minister for Finance (Senator Cormann) to a question without notice asked by Senator Whish-Wilson today relating to the regulation of financial services.

What really puzzles me is why these FOFA reforms are being pursued by the government. I did sit in on the ASIC inquiry and it was very clear to me that most of the stakeholders—in fact, all of the stakeholders—that gave evidence in that inquiry supported the existing regulations in place in relation to financial advice. Over the decade or so that I was looking at Australian banks and was in the investment industry myself, I remember the growing trend that banks had of what was called non-interest income. Banks used to make their money out of interest margins. How do they make their money now? A big portion of their profits is made from non-interest income, and that is primarily what we call fees, on a whole range of products. In fact, bank customers are sold products from right across the range, from insurance through to superannuation advice and MISs, managed investment schemes—a whole range of different things. That is how banks make their money.

On the one hand, I can see the interest of the banks in these reforms—and they seem to be the only party supporting these FOFA reforms—and, on the other hand, I can see the broader interest of the financial services industry in a set of regulations that have been arrived at after extensive consultations that, to use Senator Cormann's own words, seem to have 'got the balance right'. However, they are being changed by an incoming government and by Senator Sinodinos, the Assistant Treasurer, and it is very clear that these reforms are designed to help the big banks make more money—and, certainly, to protect the existing non-interest income that they make from these types of products. Given that is billions of dollars, I can see their vested interest in making sure that these so-called reforms go through and are put in place.

The answer that Senator Cormann gave me, that somehow more regulation or even the regulation we have in place is not going to stop bad eggs from doing the wrong thing, is right in one respect. But what he totally ignores is that most of the regulations that we have put in place over the years—or have failed to put in place, in cases where we have had catastrophic market failure—have been systemic conflicts. Conflicts of interest are the most common thing. We talked little bit about conflicted remuneration, which is exactly the issue relating to the FOFA reforms. So I certainly dispute that, and I remind Senator Cormann that I have had some experience in these areas. When we look at the rorts that have occurred around MISs, the example I used today, or the collapse of Storm Financial and the extensive investigations of those, or more broadly what happened around the mortgage securitisation market in the US, the systemic conflicts of interest that were inherent in those structures were very obvious, yet governments failed to put in the necessary regulations. No sane or knowledgeable person on this subject could argue that these issues, such as Storm Financial, the sale of dodgy MISs or Ponzi schemes, could not have been avoided with better regulation.

Even if regulation is not going to help, the next conclusion we have to go to is that we need better policing of the so-called bad eggs that Senator Cormann referred to. It is very sad, having gone through the work that we have in the Senate on the ASIC inquiry, that we now see ASIC losing funds and losing staff. That is exactly the opposite of what we need if we are going to crack down on white-collar crime—once again, the bad eggs that Senator Cormann refers to—in this country, not to mention the avoidance of these systemic failures that we have seen.

I talked about MISs today in question time today because there has been a lot of reporting in the last few days of concerns, particularly from agricultural communities, about the proliferation of MISs. It was reported in The Weekly Times that Mr Hockey himself has promised stakeholders that MISs are up for review in the government's white paper on tax. What I really wanted was confirmation that discussions had taken place between Mr Hockey and stakeholders in this respect, because there is no doubt, looking at Tasmania, that the rollout of MISs there has been a catastrophic disaster in so many ways—for the farmers that are stuck with them on their land, for the investors in these schemes and for the communities that have seen other industries disappear because of tree farms. Certainly, in my industry, the wine industry, who has been policing the claims being made by MIS proponents?

We need more regulation. We need the right regulation, and that is in place—and we do not need to be unpicking it through these FOFA reforms. (Time expired)

Question agreed to.