Monday, 17 September 2018
Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018; Second Reading
I rise to speak on the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. I say at the outset that Labor supports this bill. This bill will require ASIC, the Australian Securities and Investments Commission, to consider the effects that the performance of its functions and the exercise of its power will have on competition in the financial system. The ASIC Act includes specific objects that ASIC must strive towards in performing its functions and exercising its powers. These include, amongst other things, promoting the confident and informed participation of investors and consumers in the financial system; maintaining, facilitating and improving the performance of the financial system and entities within that system in the interests of commercial certainty, reducing business costs, increasing efficiency and developing the economy; taking whatever action it can take and is necessary in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.
The bill would mean that, without limiting these existing elements, ASIC must also consider the effects that the performance of its functions and the exercise of its power also have on competition in the financial system. The financial system inquiry recommended that the government consider the inclusion of competition in ASIC's mandate. This recommendation was accepted by the government, and this bill will require ASIC to take competition into account among a number of other elements in performing its functions and exercising its powers.
The bill before us today will also remove the requirement for ASIC staff to be engaged under the Public Service Act 1999. This change would align ASIC with APRA and the Reserve Bank of Australia. The change implements recommendation of the ASIC capability review. We would encourage the government and ASIC to ensure appropriate transitional arrangements are in place for existing staff. In particular, we note that ASIC has assured the Senate Economics Legislation Committee that current ASIC staff will remain in their current superannuation arrangements under the CSS and PSS schemes and will be able to remain PSSap members and that ASIC employees will retain the same entitlements to maternity leave that they currently have.
Given the shocking evidence presented to the royal commission so far, it's clear that we need strong and effective financial regulators. Yet it was this government that actually cut ASIC's funding by a staggering $120 million in the 2014 budget. At the Senate estimates after the 2014 budget, the then ASIC chairman Greg Medcraft explained how ASIC would deal with those cuts. Among other things, he said:
In particular, our proactive surveillance will substantially reduce across the sectors we regulate, and, in some cases, it will stop.
Mr Medcraft also said:
Some examples of the changes in our consumer cluster are the deposit takers, credit and insurance team. There will be reduced proactive surveillance. As a result, they will focus on activity by entities that have the greatest market impact at the expense of smaller entities that have a smaller customer basis.
The government only moved to restore funding to ASIC after Labor began calling for a royal commission in 2016. But the impact of these cuts to ASIC cannot be undone so easily. These were cuts to the capability of the corporate regulator and, in fact, they were a free pass to the financial sector misconduct.
This government has certainly been asleep at the wheel when it comes to regulating the financial sector. The change to ASIC's mandate provided for in this bill was accepted by the government in its response to the financial system inquiry back in October 2015. It was foreshadowed then to be completed by the end of 2016. Yet here we are considering this bill in September 2018—over 1½ years later than was promised. The government's response to the financial system inquiry in October 2015 also committed to updating the ASIC statement of expectations. The statement of expectations is an important document that sets out the government's expectations of how ASIC will fulfil its important mandate. Despite the significance of ASIC's role as a financial regulator, it took until 2018, this year, for the government to announce that it had finally settled on a new statement of expectations for ASIC.
Unfortunately, the government's failures in financial services don't stop there. Another change that the government has promised, but is failing to deliver on, is payday lending reform. Since 2016 the government has been promising laws to give ASIC important powers to crack down on dodgy payday lending practices and consumer-leasing rip-offs. But to date, in 2018, as we stand here, it has yet to introduce any such legislation. In February 2017, the member for Higgins said that the bill to implement payday lending reforms would be introduced into parliament 'at the earliest opportunity' and declared 'it will pass this year'. In October 2017, the member for Riverina said the government 'will introduce legislation this year'. But 2017 came and went and there was no legislation. In February 2018, Treasury officials stated that they expected legislation would be introduced 'in the autumn sittings'. It's not really a big surprise that that didn't happen either. And at Senate estimates in May this year, Treasury officials couldn't provide an answer about whether this vital legislation would be introduced, stating that much trotted-out answer, 'It was a matter for government.'
The chaos, division and dysfunction in this government have led to paralysis on this issue, and it is vulnerable consumers who are paying the price for this government's inaction. Households that resort to using payday loans face skyrocketing fees and interest rates, with some as high as 200 per cent. We all know the impact that inappropriate lending can have on vulnerable consumers, yet this government is so divided and so dysfunctional that it's only focusing on itself and its own survival, rather than protecting consumers.
In contrast, Labor has a record of standing up for consumers. In fact, it was Labor that introduced the Future of Financial Advice reforms. The FoFA reforms were to improve the quality of financial advice provided to consumers of financial services. They acted to reduce conflicts of interests and to better align the interests of the financial advisers and the consumers. Significantly, Labor's reforms included the introduction of a best interests obligation that requires financial advisers to act in the best interests of their clients when giving personal advice. That's a legal obligation for financial advisers to do the right thing by the customer. Labor's reforms also included a ban on conflicted remuneration—including commissions, volume payments and soft-dollar benefits—when financial advisers provided advice to retail clients. These changes included a requirement that providers of financial advice obtain client agreement to ongoing advice fees, and enhanced disclosure of fees in the services associated with ongoing fees.
We should never forget the government's attempts to wind back these reforms. In opposition, those opposite voted against the FoFA reforms. In government, they tried to wind it back, first by legislation and then by regulation. It was Labor and the Senate that stopped them from proceeding with this. It was also Labor that recognised the need for a royal commission. We had seen that there were far too many retirees who had their retirement savings gutted, families losing hundreds of thousands of dollars, small business owners who lost everything and life insurance policyholders just denied justice. And what did this government do? True to its nature, it defended the big end of town. Mr Morrison fought tooth and nail against a royal commission, and this government ran a protection racket for the banks for more than 600 days. Mr Morrison has previously said about having a royal commission:
… I think it is a reckless distraction that puts at risk confidence in the banking system …
Of the need for a royal commission, Mr Morrison said:
It is nothing more than a populist whinge from Bill Shorten.
Once the royal commission had commenced and we started seeing some of the shocking evidence of misconduct, Mr Morrison changed his tune and said he was 'not surprised' by what had come out. This is, frankly, a government so out of touch with Australians, so focused on supporting the big end of town, that even its new Assistant Treasurer believes that banking scandals are inevitable.
It is reported that Mr Robert has vowed to 'resist left-wing pressure to crack down on banking conduct'. Instead he is going to be backing self-regulation, which has completely failed to protect the many Australians who have come forward to the royal commission so far, with courage, to tell their stories of massive exploitation at the hands of the banks, financial advisers and insurance companies.
The royal commission has exposed appalling rorts and rip-offs right across the financial services sector. There has been evidence about the systemic cheating of customers, banks charging fees for no service—even to dead people—and lenders duping people into inappropriate loans. First Nations communities have suffered from appalling predatory conduct. Lawyers for the royal commission have even recommended that the National Australia Bank and the Commonwealth Bank face criminal charges over their treatment of superannuation customers.
That the new Assistant Treasurer believes that these kinds of scandals are inevitable is just plain appalling. Mr Morrison and this government never wanted the royal commission. They cannot be trusted to implement its recommendations. They cannot be trusted to crack down on banking misconduct. This government's priority will always be protecting the big end of town, not the victims, families and communities harmed by this atrocious misconduct. The government even believed that it should give the banks a $17 billion tax cut—that is $17 billion that could be put towards improving the education and the health of Australians. This government can't help itself. It is hopelessly divided, out of touch with Australians and just about protecting the interests of the big end of town.
Labor will continue to fight for ordinary, hardworking Australians. We will fight for fair funding for the schools that educate our kids, for fair funding for the hospitals that look after our families and for fair rules for a financial sector on which almost every Australian person and business rely. We are the party that will do the right thing by consumers. We'll stand up to the banks and the big end of town.
In conclusion, Labor supports this bill. I want to make a comment about the second reading amendment that has been circulated by Senator Whish-Wilson. Labor will not be supporting this amendment today. The roles and accountabilities of Australia's financial regulators is a serious issue and one that's worthy of proper consideration. It is possible that the royal commission will make findings in relation to the financial regulatory architecture. If so, these findings will be a critical input into any future consideration of the roles and mandates of our regulator.
I, too, rise to speak on this bill. Before I start, I will just pick up on a couple of things that Senator O'Neill said. She talked about retirees having their savings gutted in the GFC. I will point out that Labor's current policy on double taxation is to gut the retirement incomes of pensioners—self-funded retirees on very modest earnings. One particular example that comes to my mind is of a chap I know well down in Albany in Western Australia. He is a self-funded retiree—a schoolteacher all his life—with a very modest superannuation balance, and he will have his take-home income slashed by 30 per cent under Labor's double taxation policy.
When Senator O'Neill stands up and talks about retirement savings being gutted, I think she should look behind her and look to her own side on what Labor's current policy is going to do to the retirement incomes of people who have done the right thing and done exactly what society asked them to do—work and strive to put money away to fund their own retirement. They don't look to the taxpayer in terms of funding a pension. Instead, they have enabled themselves to have a very small, modest income. In the case I'm thinking of, an income of around $30,000 per annum will be slashed by $10,000 to $20,000 per annum. This is apparently the Labor Party's idea of fairness. That's a very sad reflection on those opposite.
I do rise to speak on the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. This bill builds on a very strong track record in this space by this government. The bill implements a series of enhancements to the capabilities of the Australian Securities and Investment Commission, ASIC. It enables key recommendations from the Financial System Inquiry and the ASIC capability review. It is further evidence of the government's commitment to strengthening ASIC and commitment to ensure our financial system does deliver for all Australians—delivers fair outcomes for all Australians. That's the key to what we're trying to see here. The regulators are a very important part of that, and it builds on key steps taken by this government to improve ASIC's performance. They are steps such as providing ASIC with a stronger funding base through the introduction of an industry funding model to ensure the cost of regulation is borne by those that have created the need for it rather than the Australian public, who too often bear the cost of financial sector misconduct.
Other changes by this government would be the implementation of other recommendations from the Financial System Inquiry to provide new tools and powers to ASIC, including the power to intervene in the sale and distribution of financial products where there is a risk of significant consumer detriment. A third example is reviewing the recommendations of the ASIC Enforcement Review Taskforce, established by the Liberal government in October 2016 to assess the suitability of the existing regulatory tools available to ASIC. I will later go through some of the other changes made by this government in the recent past, but firstly I'll deal with this bill.
The bill contains two schedules. Schedule 1 relates to the changes to competition in the financial system, and schedule 2 contains amendments relating to the engagement of ASIC staff. Dealing with schedule 1 first, this is related to competition in the financial system. The government considers that competition, not regulation, is the best means of ensuring consumers get value for money in the financial services. Schedule 1 of this bill amends the Australian Securities and Investment Commission Act 2001, the ASIC Act, to maintain that the Australian Securities and Investment Commission must 'consider the effects that the performance of its functions and the exercise of its powers will have on competition in the Australian financial system'.
The explicit reference to take competitions issues into account will require ASIC to consciously consider how its regulatory decisions will impact on competition in the financial system. Both consumers and financial services firms, particularly new entrants, will benefit from a more competitive financial system. This measure fulfils the government's commitment to implement recommendation 30 of the Financial System Inquiry. This recommendation stated that the government should include consideration of competition in ASIC's mandate. It is in response to the FSI that the government committed to develop legislation to introduce an explicit reference to consider competition in ASIC's mandate. This measure complements other key initiatives undertaken by the government to support competition, including tasking the Productivity Commission with a review of competition for Australia's financial system and funding to the ACCC to undertake in-depth inquiries into specific financial system competition issues.
This schedule in particular has undertaken significant consultation. The Financial System Inquiry itself received over 6,800 submissions and took hundreds of stakeholder meetings, including with financial institutions of course but also with markets, participants and the regulators themselves. The government undertook significant consultation on this measure following the receipt of the final report. Stakeholders, including people like the Financial Services Council of course but also CHOICE, the Customer Owned Banking Association and obviously the Australian Banking Association. They were all generally supportive of the stronger focus on competition in the financial system, including amending ASIC's mandate to include consideration of competition. In addition, there has obviously been significant consultation with ASIC as part of the finalisation of this amendment.
The Financial System Inquiry found that competition is generally adequate in the financial system, but there needs to be a stronger focus on competition in the financial sector. In particular, the FSI was concerned that regulators' mandates adopted an inconsistent approach to competition, with ASIC lacking an explicit competition mandate. Accordingly, the FSI did recommend that the ASIC mandate should include a specific requirement to take competition issues into account as part of its decision-making process. Particularly in light of current events coming out of the royal commission, I think it is very clear that we need to introduce more competition into our banking and financial services sector. We don't want to see any winnowing away of competition in that sector, because that will only lead to a further concentration and further potential for problems when they do arise to cause significant harm to a greater number of people. A broad and diverse financial sector is of course going to deliver the best outcome in terms of protecting the most people possible when these sorts of incidents do occur.
What outcome do we hope for from this legislative change? An explicit reference in ASIC's mandate to take competition issues into account would oblige ASIC to more consciously consider how its regulatory decisions may impact on competition in the financial system. Some of the specific aspects of competition that ASIC may have regard to include: whether a decision will create a barrier to entry, making it more difficult or impossible for new firms to enter the industry, whether the decision will create regulatory advantages for some firms over others competing in the same sector or across the whole industry; whether the decision disproportionately impacts small entities, for example by imposing obligations on them that do not appropriately scale the regulatory risk presented by such entities, and the impact that this will have on competition; and whether alternative competitive-neutral approaches can be identified. This amendment is not intended to limit the scope of ASIC's regulatory responsibility, nor expand its powers by making it a competition regulator. The ACCC would remain the competition regulator across the economy.
Once again, particularly on this side, we want a competitive, open economy. We want as many players in the economy as possible, players that are doing the right thing, playing by the rules and following the law. Having as many players as possible in the sector will protect most people by giving them as many options as possible—for our business sector and for individuals—to gain access to the financial services products they require.
The schedule 2 amendments relate to the engagement of ASIC staff. Schedule 2 of the bill amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act. Consequential amendments are also made to the Business Names Registration Act 2011, the Corporations Act 2001 and the Mutual Assistance in Business Regulation Act 1992. Removing the requirement for ASIC to employ people under the Public Service Act will promote greater operational flexibility, bringing ASIC into line with Australia's other financial regulators, the Australian Prudential Regulation Authority and the Reserve Bank of Australia. To be able to perform their roles effectively in accordance with their legislative mandate, financial regulators need to be able to attract and retain suitably skilled and experienced staff. In ASIC's case, this means recruiting 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 staff. Regulators face challenges in recruiting and retaining staff, given that regulatory staff remuneration falls short of salaries in the industry they regulate and against whom they compete for personnel.
Unlike ASIC, neither APRA nor the RBA are subject to the PSA. The objective of removing the requirement for ASIC to employ people under the Public Service Act is to achieve greater operational flexibility, bringing ASIC into line with those other two regulators. The inflexibility involved in Australian Public Service employment under the PSA can make it difficult for ASIC to shape the workforce and culture that it requires to meet the organisation's priorities. These include such things as: classification and remuneration of staff; the length of employment of temporary staff; management decisions affecting staff; and the terms and conditions of any enterprise agreement.
Removing the obligations for ASIC to engage staff under the Public Service Act means that ASIC will be able to compete more effectively for suitable staff. It will also allow ASIC to tailor management and staffing arrangements to suit its needs, ensuring it is fit for purpose to deliver effectively on its mandate. This measurement fulfils the government's commitment to implement recommendation 24 of the ASIC capability review report. This recommendation stated that the government should remove ASIC from the Public Service Act as a matter of priority to enable them to have more effective recruitment and retention strategies.
A similar finding was also found in the context of the financial systems inquiry. Again, there was significant consultation over schedule 2. It was more targeted, obviously, given the nature of the change. Targeted consultation on the exposure draft legislation occurred from December 2017 to January 2018 with the Department of Finance, the Department of Jobs and Small Business, the Department of the Prime Minister and Cabinet, the Australian Public Service Commission and, of course, ASIC itself. There are also transitional provisions. Transitional provisions are in place to ensure that existing conditions, rights and contracts continue to apply to ASIC staff as they transition out of the PSA to engagement under the ASIC Act. ASIC staff employed under a written agreement immediately prior to the commencement of the bill will continue to be employed under the written agreement. Staff employed under the PSA immediately on and from the commencement of the bill will cease to be engaged under the PSA, will be employed by ASIC under written agreement and will be employed on the same terms and conditions, with the same approved benefits, and will maintain their continuity of service with ASIC. These changes to ASIC's engagement of staff will not affect any promotions, performance management or disciplinary actions commenced before 1 July 2019 and will not give rise to any entitlements or benefits because an ASIC staff member is no longer employed under the PSA.
In conclusion, this bill ensures that Australia's financial services sector stays competitive. We believe that competition in the financial services system puts strong discipline on business to lower costs associated with the delivery of their products and services. Further, it encourages innovation and deployment of new technology and delivers more choice for consumers at lower prices. The effects of stronger competition in the financial system are felt well beyond financial markets. They flow through to all parts of the economy. A strong and effective financial system is a precursor to a strong and efficient economy. We all need to remember that as we look at the potential flow-on impacts from the royal commission.
Importantly, the bill further ensures that Australia has strong and effective regulators governing our financial system. Our financial system has done a good job in meeting the needs of Australia. Those on this side are as shocked and disappointed as anyone in some of the things that have come out at the royal commission, but we need to remember that Australia has been served well by its financial system and we do have a very robust and competitive environment, but it can be improved upon and that is very clear. The measures contained in this bill are part of that.
In the few minutes I have left, I will talk briefly about how the measures in this particular bill play into an ongoing theme of this government about the need for reform in this area and what we have delivered. A few months ago, the then minister, Kelly O'Dwyer, announced a significant package of reforms to make sure that ASIC is fit for purpose. These included such measures as $26 million to accelerate and increase the intensity of ASIC's enforcement activities and enhance its capacity to pursue actions for serious misconduct against well funded litigants through the Enforcement Special Account; $9.4 million to boost supervision of the superannuation sector by strengthening audit and enforcement action to improve transparency and outcomes for superannuation members; $8 million to implement a new supervisory approach with respect to Australia's five largest financial institutions by, for the first time, embedding dedicated staff in these institutions to monitor compliance actions; $6.8 million to establish a dedicated taskforce which will conduct a proactive, targeted and thematic review into corporate governance to identify and pursue failings in large listed companies, including deploying staff to conduct new on-site surveillance and investigations; $6.6 million to implement the government's reforms to whistleblower protection laws so that ASIC can better receive, assess, triage and address whistleblower disclosures about misconduct; and $6 million to promote Australia as a world leader in the development and adoption of regulatory technology solutions in the financial services industry. So we see that this bill under consideration today is not a standalone bill. In fact, the bill we've just passed, the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, is also clearly to do with the improvement of the regulatory framework under which all businesses must operate in this space. We have to improve the regulator and we have to improve the regulator's actions. The government has had a long-term commitment to doing that and is following through in this bill today.
The measures that were announced a few months ago build on the measures in this bill and build on the very strong series of actions undertaken by this government to ensure we have strong consumer outcomes and a strong regulatory environment. For example: $121.3 million in additional funding in 2016 to bolster ASIC's investigative and surveillance capacities; strengthening of civil and criminal penalties by increasing terms of imprisonment and fines; increasing the maximum civil penalties to be imposed by court; allowing ASIC to strip wrongdoers of profits illegally obtained, again strengthening the regulatory toolkit; improving search warrant powers and providing access to telecommunications intercepted materials, again improving the regulatory toolkit; and an industry funding model, which we talked about earlier, to ensure that those entities who create the need for further regulation actually pay for it instead of taxpayers, again a very important change undertaken by this government; undertaking consultation on a new product intervention power to enable ASIC to intervene in the sale of harmful products to retail consumers; legislating to improve the employment arrangements, which is part of this bill; and appointing a second deputy chairperson with a focus on enforcement—the person appointed brings significant enforcement experience to that role.
In conclusion, clearly this government has a strong commitment and a strong track record in bolstering ASIC's capacity to play the legitimate role it plays in the economy. This particular bill, which is aimed at improving competition, is a very important step in making sure we have the best regulatory framework possible.
Can I say first of all, Mr Acting Deputy President Whish-Wilson, that both you and I have given ASIC a bit of stick over the years in the 10 years I have been here. If you'd asked me a few years ago, 'What is the definition of frustration?' I would say, 'ASIC.' I remember when I launched an inquiry into liquidators and insolvency practitioners years ago, there were unanimous recommendations. Sadly, for years the Labor government did absolutely nothing about bringing those regulations in and changing the laws and the responsibilities of liquidators, receivers or administrators. Thankfully, we got them changed, and September last year was the finalisation of those changes.
The situation is that with a majority vote in favour of the creditors, a committee can sack a liquidator with one vote. That is a very powerful thing. Normally, prior to that, to get rid of a liquidator you'd have to go to the courts. It'd be going on and on, dragging on for years, with huge costs, et cetera, and that money would not be going to the creditors, where it should have been going. I've found that I get on very well with ASIC members these days—the boss, James Shipton, and many of the commissioners—and I work closely with them. But it is still frustrating.
For example, a Mr Cowper, whose breach was reported by NAB in 2010, just a couple of months ago was scrubbed out of the industry. He went on to AMP after being sacked by NAB, if I remember rightly. Why does it take eight years to scrub out a financial planner?
I remember well being in Senate estimates and asking Mr Kell, 'Why did it take you 16 months to respond to the whistleblowers from Commonwealth financial planning? His answer was: 'Senator, we got a great result; we got an enforceable undertaking.' I said, 'That is not the question I asked you. I asked you why it took so long.' Mr Kell went on to say: 'Well, we got a result.' Former Labor Senator Mark Bishop was the chair of the Economics Committee. I turned to the chair and I said to Senator Bishop, 'How do you get these people to answer a question?' One of Senator Cameron's staffers said to Senator Cameron, 'I think Wacka is getting a hard time up there in estimates,' and Senator Cameron came in and put some pretty powerful questions to ASIC. Senator Cameron then said to me, 'Why don't we have an inquiry into ASIC?' I said, 'What a great idea.' So we launched an inquiry into ASIC, and out of that, came the financial planning rorts, scandals et cetera—and this year ASIC banned 46 financial planners in 12 months.
Senator O'Neill talked about the funding for ASIC. Yes, it is true that years ago we cut the funding for ASIC and then it was reinstated. In this budget there's a cut of $13 million. But Senator O'Neill is missing one thing: we're putting in a system of user-pays. A couple of years ago we had the situation where ASIC would spend $30 million a year policing and investigating financial planners but would collect just $2.8 million in licensing fees. They spent $10 million a year on oversight of the insolvency practitioners industry, but collected just $40,000 in registration fees for liquidators. That is now changing, and that funding gap will be more than filled by those two industries contributing with their licences and paying a fee to ASIC to fill that gap, as they should. Why should the taxpayers of Australia pay all the costs for ASIC to do its job when it is looking at the financial planning industry and the insolvency practitioners industry? So let's hope that ASIC has the funding, the powers and the courage to go after these people who are doing the wrong thing in the corporate world and in the financial sector world and bring those who do the wrong thing to account.
The royal commission has even surprised me—even though I've asked for it for about eight years or nine years in this place, and I'm glad to see that everyone is on board now. I'm even surprised at what's coming out. But, as I said here recently, when Paul Keating introduced superannuation, there were no criminal charges or fines or laws for people stealing our superannuation. We saw through the royal commission that many are doing the absolutely wrong thing by our super. Super is there for people's retirements—wholly and solely for that. Of course, group life insurance is involved in that as well. Billions have been taken out. There have been terrible returns, with people who might have their money in cash, in super, and getting one per cent or less. You get three per cent in any of the big banks. If you wanted to put a couple of hundred thousand in for two or three years, you'd get three per cent. Why are they only getting one per cent in their super?
Legislation on this issue came into the Senate in September last year. You know how this place works, Mr Acting Deputy President: if you don't have the numbers, the legislation gets pulled. When that legislation came here to bring in criminal punishments—$420,000 and up to five years jail—for people doing the wrong thing with our superannuation, Labor and the Greens opposed it. I hope when it comes back—and I hope it comes back soon—you don't oppose it, given what the royal commission has brought forward.
I would add that I think Commissioner Hayne is wonderful. I think he is going a great job. He's very direct, and he doesn't take any prisoners in the way he asks question—along with Ms Orr, who has become a household name. When the royal commission reports—and at the end of this month we will get the interim report and at the end of February the other report—I think the regulators are going to get a bit of a touch-up. I'm seeing what is going on and I think APRA and ASIC have a lot of questions to answer. I would ask: are they big enough to do their job; do we have to treble their funding; and do we have to treble their size to see that the corporate crooks are taken out of our country? It will be very interesting to read that report from Commissioner Hayne. As I said, I think he's doing a marvellous job. I like his attitude and I like the way he asks questions—and I get a bit of a laugh. When I had a hip replaced about nine weeks ago, I had a week in hospital, and I must say I enjoyed every minute of being at home. I did some exercises the physio told me to do, but watching the royal commission was very entertaining, I can assure you, with what was coming out.
It's clear that ASIC is going to have to play a major role in the future of our whole financial sector. This bill is about competition in ASIC, as we believe that in the competition and financial sector that competition keeps prices down; monopolies don't. You often question whether that's always the case in the financial sector. Just in the last couple of weeks we saw one bank raise its interest rates slightly—I think about 14 or 15 basis points—and people said, 'Well, won't be long, and the rest will follow.' Two others did follow: Commonwealth and ANZ. Westpac led the rise. But NAB didn't—pleased to see that.
I understand the cost of funds are going up for banks. Wholesale funds from overseas are creeping up. Interest rates will creep a bit and the cost will go up a bit, so they'll pass those costs on to their customers. Being frank, they've got a fair bit of leverage in the profit they were making to perhaps give some relief. They are giving some relief, and I must make a comment here a bit off the track: I commend ANZ Bank—they are giving a one per cent discount on their interest rates to farmers in drought.
The banks have a somewhat different attitude now, because of the royal commission. Previously, when you missed a payment with the bank, you defaulted. What would happen? You'd get hit with penalty rates. You might be on seven per cent. What are penalty rates? They might go to 17 per cent. There are no penalty rates for farmers in drought, which I think's a very good thing and a good change of attitude. In fact, most of the big banks are giving holidays for making payments. They realise that the future of agriculture's very, very strong.
When you're on the land—and I'd imagine the four generations of my family preceding me did this—you use your one commodity pretty well. It might be wool, for example. When wool's good, you can bet your life cattle is bad, fat lambs aren't that flash, mutton prices are down, and wheat and barley prices are ordinary. But now we have a situation on the land where all the prices are good. The banks are seeing that. We've got record wool prices. Lamb prices are breaking records—up to $300 a head—and that's making it very expensive for the average family to have a leg of lamb these days, I can assure you. Cattle prices have come up because of the drought, but they've been very strong as well. Wheat prices are the highest I've seen in my life, because of demand and supply and the drought et cetera. The banks realise that agriculture has a great future, and I do commend them for being sympathetic towards those who are doing it tough in this drought.
Back to this bill, the government considers competition, not regulation, is the best means of ensuring consumers get value for money in the financial services. Schedule 1 of this bill amends the Australian Securities and Investment Commission Act 2001, the ASIC Act, to mandate that the Australian Securities and Investment Commission must consider the effects that the performance of its functions and the exercise of powers will have on competition in the financial system. The measures fulfil the government's commitment to implementing recommendation 30 of the Financial System Inquiry, tasking the Productivity Commission with the review of competition in Australia's financial system and funding the ACCC to undertake in-depth inquiries into specific financial systems competition issues.
Also, removing the requirements for ASIC to employ people under the Public Service Act is very important. They might need specialist people in specialist fields. However, it'll mean when they employ those people, they've got to compete with the private sector, so they may have to bid up pretty well with their wages. So, recruiting staff with the knowledge of financial markets and services, and competing against the private sector, will allow that very issue.
ASIC has a lot of powers, a lot of strength and a lot of finance put into them. But, clearly, the royal commission will show they are falling behind in many areas and have to lift their game. Of the bill's amendments relating to competition in the financial system, you might ask the question: what are the benefits of this measure? I already talked about the competition issues. So why is competition in the financial system so important? Competition in the financial system puts strong discipline on businesses to lower costs associated with the delivery of products and services. It further encourages innovation and deployment of new technology, and delivers more choice for consumers at lower prices.
The effects of stronger competition in the financial system are felt well beyond financial markets and into the other parts of the economy. Increased competition can benefit the economy as a whole by improving to productivity and economic growth. I must commend the former Labor government. I don't do this often, because I saw the mess they made of many things, but at least they did away with establishment fees and exit fees. If you have a home loan and you are not getting the best deal, you can walk, free of cost. If you go back many years, to establish a home loan for $200,000, they would say it is a $5,000 establishment fee. And then if you wished to get out of that bank and go to another institution, they may charge you a $5,000 to 10,000 exit fee. It is good to see the charges are gone and that brings real competition back to the system.
Under this bill, there are more issues. Why is the government changing ASIC's mandate to only be required to consider competition rather than promote competition? ASIC has a critical role to play as the conduct regulator of Australia's financial system. The government considers that it is important for ASIC to consider the competition impacts of its decisions. However, it is not necessary for ASIC to go beyond this and look at using its powers to proactively promote competition. This is because Australia's competition regulator, the ACCC, is best placed to promote competition in the financial system by regulating anti-competitive behaviour.
Further, the government provided the ACCC with $13.2 million as part of the 2017-18 budget for the ACCC to undertake inquiries into the financial system competition issues. The government's proposals for ASIC to consider competition is in line with the recommendation of the financial system inquiry. The FSI did not envisage that ASIC would be required to promote competition.
If you ask the question: how does this amendment relate to the Productivity Commission inquiry into competition in the financial system currently underway? The amendment is consistent with the Productivity Commission's draft report on competition in the Australian financial system. The draft report proposes that ASIC could be a competition champion in the context of giving careful consideration to the impact of regulatory decision making for competition in the financial system. Should the government wait for the completion of the royal commission and the Productivity Commission inquiry into competition into the financial systems before implementing these recommendations? My answer is no. This measure is implementing a recommendation of the FSI inquiry, consistent with the Productivity Commission's draft report.
The financial systems inquiry received over 6,800 submissions—that is a hell of a lot of submissions. It undertook hundreds of stakeholder meetings including with financial institutions, market participants and regulators. The government undertook consultation on this measure following receipt of the final report. Stakeholders the government consulted included the Financial Services Council, Choice, Customer Owned Banking Association and the Australian Bank Association. They were generally supportive of a stronger focus on competition in the financial system, including amending ASIC's mandate to include consideration of competition. In addition, there have been significant discussions with ASIC as part of the finalisation of this amendment, so it's more power to ASIC. It is encouraging competition in the financial sector, which we desperately need, not just through loans but through investments as well, through financial planning and through managed funds and superannuation.
I think one of the biggest problems we have in this country is education systems. Our education system is hugely lacking when our year 12s leave school. Many go to university. They will eventually get a job after they are qualified, hopefully. When people go out to work, do they know they have life insurance with their superannuation? Millions wouldn't. Do they know if they change jobs, if they don't change the super fund, it will dwindle away and the superannuation fund will take it? That's why we are bringing in changes for under 25s to opt in for life insurance in their super. Even though ASIC does a lot of educating through the schools, I'd like to see a couple of semesters of school devoted wholly and solely to financial management—warning them about super, where they invest their super; if they change jobs, make sure they have one fund only; warn them of the dangers of credit cards. You get a young mechanic, a rev-head like I was in my young day, and next thing they get a pretty cheap car and a credit card with a $2,000 limit. Well, in the boot goes the big speakers and the big sound system. He goes down the street, and you can hear the 'boom, boom, boom' coming down the street and you think, 'Young fella, you're going to be deaf by the time you're 40 and probably half the people on the street as well.' He's very proud of his car and his big music system, until he realises it will probably take him four or five years to pay the credit card off at a 17, 18 or 19 per cent interest rate compounding. What do we do to educate our kids about this? I think there are huge improvements that can be made in education about finance to teach our people—our youngsters—when they get out in the big wide world of work and are earning their own money: don't leave your superannuation in a fund and say, 'It'll be right, mate.' It won't be right. And, as I said, if you change funds, you'll dwindle your life savings and your retirement fund will just dwindle away.
There are many things we can do about life insurance as well. I think the royal commission has done a great job on life insurance and done a great job all up. I'll say this now: I hope the royal commission is extended, and I hope it looks at insolvencies, receivers and liquidators. I know, for the farmers who appeared at an inquiry we had last year, there were some terrible situations. I remember one case where 3,600 sheep had to be shifted 400 kilometres. Now, being an old livestock carrier, I thought: '3,600 sheep is six six-decker B-doubles. At 100 a deck, that's 600, so 6 B-doubles. Give them $6 a kilometre, and 400 kilometres is roughly $2½ thousand dollars.' For those six trucks, they should have charged about $15,000, but the receiver charged in excess of $90,000, and I question why—even for something like $20,000 to have security there the day they loaded the sheep. This is money that could go back to the creditors and to the banks. I've encouraged the banks: 'Please do not send receivers into family farms.' You can in the corporate world—with corporate farms, the management's retained.
There are many things we need to do, and education, I think, is going to play a major role in the situation. We'll be benefiting future Australians in a big way if we were to have year 10s, for example, spending half the year being trained on financial management and if we take a bit of pressure off ASIC so ASIC can do their job—going out there as a corporate cop and scrubbing the crooks out of the industry. And hopefully, with the support of Labor and the Greens when those bills come back here, those who commit criminal offences can face the proper music when they actually steal. I commend the bill to the Senate.
I, too, am delighted to be speaking on the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. I was very pleased to hear a couple of the points made there by Senator Williams with regard to educating younger Australians about financial literacy and personal responsibility, but I'll come to those a little later on.
I think everyone in this place would agree that having confidence in the integrity of our financial services sector and having faith in the capacity of our financial service regulators, like ASIC, as we're discussing in this bill, is of utmost importance for Australians. I think having faith that things are being done in accordance with the law—that people aren't being ripped off and that their best interests are being looked after—is something that Australians want us to focus on.
Competition, which is something Senator Williams and I'm sure other contributories to this debate have spoken about, is an incredibly important part of this, and enabling entities like ASIC to not only do the work that they need to do but also have further functions, as outlined in this legislation, is important when it comes to ensuring, as I say, we have that integrity, that Australians have that faith in the financial services industry—all the major players and all the smaller entities—and that we do have that competition being promoted within the sector as well.
Obviously, when confidence is undermined, and when people lose faith in the financial services sector and those who regulate it—the government entities that are designed, geared up and resourced to regulate this industry—it has far-reaching consequences. We only have to turn our mind back a very short 10 years to recall what happened in the US and then the flow-on ramifications through the global financial crisis felt here in Australia. As a consumer of financial products—I expect like nearly everyone in this place, be it a credit card, a home loan or personal loan or as someone who makes contributions to superannuation or who has life insurance—it is important that we have faith in those who are tasked with making sure that government institutions have the appropriate powers and resources in order to give effect to the laws they uphold.
As I'm sure others have noted in this legislation, the bill puts in place and sets up key recommendations from the Financial System Inquiry and the ASIC capability review. I'll have a quick look at both of these documents shortly, but it is very much about ensuring that ASIC has the capacity to do its job properly and that we deliver fair outcomes for all Australians, including young Australians, who perhaps are the least financially literate in this day and age.
It is important to note that there has been a fair degree of work that has been gone through in order to get to this point. It wasn't just a case of the government randomly coming up with a few key areas to look at with regard to ASIC's functions and roles. Indeed, it has been a lot of work. I've already mentioned the Financial System Inquiry that was undertaken, with the final report being released at the end of 2014. There was the ASIC capability review, which was done in 2015. Complementing all of that, we have the Productivity Commission's Competition in the Australian financial system report—with some interesting recommendations that we'll have a look at—which was released just a couple months ago. We could go to all of these areas of competition and how we can best set up things so that people do well out of them.
Looking firstly at the Financial System Inquiry, for which I was able to locate some of the documents online, the inquiry made 44 recommendations relating to Australia's financial system. The recommendations reflect the inquiry's judgement based on evidence received by the inquiry. The inquiries test has been of public interest—the interests of individuals, business, the economy, taxpayers and governments. It was a broad-ranging inquiry looking at a whole host of areas. It points to a number of themes within the financial services sector. They look at things like the resilience of the sector, superannuation, retirement incomes, innovation—which, of course, this bill does touch on—consumer outcomes and the regulatory system. Those last two are very important areas. In consumer outcomes, the most important part, as it states at the head of the overview to the Financial System Inquiry report, is to 'enhance confidence and trust by creating an environment in which financial firms treat customers fairly'.
As Senator Williams touched on just a little while ago, there has been a great degree of reporting around negative experiences consumers have when it comes to financial institutions, particularly with big banks. We're hearing a bit more about insurers. I echo the comments of Senator Williams that it would be great to see the royal commission extended to insolvency practitioners, administrators, liquidators and receivers. I'm sure anyone who runs an open-door electorate office gets people coming in to make complaints about people in that sector who haven't been aboveboard or fair with their consumers. That's not to say all practitioners in the field are not obeying the law, but there are certainly some, and it would be remiss of us not to ensure the royal commission included that part of the industry.
Turning to the issue of competition whilst still looking at the Financial System Inquiry final report, it said on page 5:
Although the Inquiry considers competition is generally adequate, the high concentration and increasing vertical integration in some parts of the Australian financial system has the potential to limit the benefits of competition in the future and should be proactively monitored over time.
That points to the need to be future looking, to be proactive, to ensure that the regulatory entities—in this case, ASIC—are set up and geared towards the future so that they can be dynamic and can respond to what is a fast-changing environment. There's been a lot of commentary around the way in which products are sold to consumers and the way products are set up.
The financial system inquiry's approach to encouraging competition is to seek to remove impediments to its development, the report says. It further says the inquiry has made recommendations to amend the regulatory system, including narrowing the differences in risk rates in mortgage lending, considering a competitive mechanism to allocate members to more efficient superannuation funds and ensuring regulators are more sensitive to the effects of their decisions on competition, which of course is what this bill is largely about. International competitiveness and the free flow of capital, and in particular the state of competition in the financial system, should be reviewed every three years, including assessing changes in barriers to international competition. And of course it would be silly for us to think that we are isolated here in Australia and that our economy, and indeed the sector we are talking about, is completely independent of impacts flowing from overseas.
In the area of innovation, with the emergence of new business models and products and substantial investment in areas such as mobile banking and cloud computing and payment services, there's a need to make sure that regulation and regulatory authorities are keeping up with that. In particular, the financial system inquiry recommended to facilitate innovation aiming to encourage industry and government to work together to identify innovation opportunities and emerging network benefits where governments may need to facilitate industry coordination and action. I think it's important to note that it is about industry coordination and action, because they're the ones that are in the field. They're the experts; they know what they're doing; they know what works and what doesn't. Of course government oversight is important so as to prevent bad things from happening, and we've seen outlined in the royal commission what happens when oversight isn't properly there.
The financial system inquiry also recommended to strengthen Australia's digital identity framework through the development of a national strategy for a federated style model of trusted digital identities, remove unnecessary regulatory impediments to innovation—I think that is an excellent recommendation—particularly in the payment system and in fundraising for small businesses. And in the area of innovation, it recommended to enable the development of data-driven business models through holding a Productivity Commission inquiry into the costs and benefits of increasing access and improving the use of private and public sector data.
It then goes on to look at consumer outcomes, which is all about the fair treatment of consumers. This is to make sure their rights are protected, the outcomes they receive are ones that are in their interests, and the concept that financial products and services should perform in the way that consumers expect, or at least are led to believe when they are purchasing a product, when they are signing up for something. They want to make sure they get the outcome they were told they would.
The biggest problem identified in this report related to the shortcomings in disclosure and financial advice, which meant some consumers are sold financial products that are not suited to their needs and circumstances. I think Senator Williams touched on a few of those things, and it comes down to financial literacy—people being able to understand exactly what they're signing up for. How many people know that their superannuation policy has life insurance in it, that they don't need to go and purchase another one at extreme expense? How many people know that they need to roll their super over into a new fund when they commence employment? Any regime shouldn't be expected to prevent all consumer losses. Sadly, no regime will ever be able to do that, but self-regulatory and regulatory changes are needed to strengthen financial firms' accountability, which is something we can't echo strongly enough.
Turning to the regulatory system, obviously we need to make sure that our regulatory entities are strong, are independent and are well-resourced, which is what this bill does actually go to. On that, moving to the ASIC capability review that commenced in July 2015, when the government established an expert panel to review the capabilities of ASIC, interestingly it did say in the capability review that ASIC's regulatory capabilities are 'in line with' global best practice. But it was acknowledged that additional measures were required to support ASIC in delivering on its mandate of ensuring it is fit for the future. Again, it's that point about being geared up, ready for a dynamic and changing financial environment with new entities, new ways of doing business and making sure that, most importantly, consumers are protected from any harm that may otherwise be done to them.
There were a number of recommendations made through this particular review, the capability review undertaken by the expert panel, that are being acted on today. The review went to areas like issues of ensuring we have enhanced data analysis. It highlighted the critical role that sophisticated analytics and risk assessment processes can play in identifying and mitigating conduct risk. In response, the government has already committed over $61 million to enhance ASIC's data analytics and surveillance capabilities, as well as to modernise ASIC's data management systems, which ensures ASIC will be able to take advantage of emerging analytical technologies, and, most importantly, better detect emerging financial sector misconduct.
There was also a boost to surveillance funding, with the government providing ASIC with an additional $57 million for surveillance and enforcement on an ongoing basis. That's a great piece of news with regard to what, again, we've heard coming out of the royal commission. To have extra resources available for ASIC to undertake its job is something consumers and business should have great confidence in.
There are new powers that ASIC will have and there is a commitment of an extra $9.2 million in funding for ASIC and the Treasury to consider a whole range of issues. Most importantly, though—as we've heard other say in this bill—we're turning this into a user-pays model. I think that's important, because, really, the reason ASIC and entities like it are in place is to regulate an industry that needs regulating. It's not the consumer's fault that banks or insurance providers or any other entity, for that matter, need regulating. Therefore, it's not too much to ask for these businesses, these entities and these sectors to pay for a service that regulates them. It's not the consumers' role to do so, so I'm pleased to see that we are putting the onus on industry in that respect.
Finally, I'll turn to the Productivity Commission report, Competition in the Australian financial system, which was released at the end of June this year. The report examines the market and looks specifically at the power, the market share, of the big four banks as a starting point. It also examines the role of regulators and then, importantly, how consumers can be better served and how to get there, and it makes a whole host of recommendations around that. In talking about the big four banks, interestingly—and I think it's important to put some of these things in context when we start pointing the finger at where problems are—the Productivity Commission report said:
High market concentration does not necessarily indicate that competition is weak, that community outcomes will be poor or that structural change is required. Rather, it is the way market participants gain, maintain and use their market power that may lead to poor consumer outcomes.
So, rather than it being a circumstantial thing, that we have four major banks with a whole heap of entities trading in areas like institutional banking, retail banking, insurance and wealth management et cetera, it's more a case of making sure, through our regulatory bodies, that these large entities are operating in the best interests of consumers and, of course, in accordance with the law. The report went on to say:
… reforms that alter incentives of Australia's banks, brokers, insurers, and advisers, aimed directly at bolstering consumer power in markets, and reforms to the governance of the financial system, should be the prime focus of policy action.
I'm pleased to say that what we are debating here today is exactly that.
It was interesting to note the exact breakdown of the four major banks that, of course, are looked after and regulated by ASIC. The Commonwealth Bank controls 23 per cent of the market while Westpac controls 20 per cent, ANZ controls 21 per cent and NAB controls 18 per cent. On page 7 of the report is a very interesting diagram which shows how many of these large banks are structured, which gives us a good insight into exactly how the financial services industry in Australia is working between these four major providers.
At the end of the Productivity Commission report, there are a great many recommendations—quite a few going across a whole range of areas which I think are very important. As I say, I'm pleased to see that the government has taken a lot of these things very seriously—things like data access to enable consumer choice, which is common sense; making sure that broker reporting accords with consumer choice as well; more transparency around broker commission structures; the idea of a principal integrity officer at Australian credit licensee and financial service licensee entities; and the list goes on. So, as I said, a huge amount of work has gone into the preparation of this bill and the integrity of the financial services sector. Consumers' faith in this area is incredibly important, but I think, as Senator Williams said as he finished his contribution, there is a need in this community, in this country, to ensure that young Australians in particular are educated with regard to financial literacy.
In the Productivity Commission report, it talks about a blizzard of like products and people not being able to differentiate between this product or that product. I'm not an economist—I don't have a commerce degree and I've never worked in a bank—so, when I look at a lot of these things, I can read and discern what's good and what's bad, but I think it would be helpful for our education system to help gear up people for the future. Indeed, families should take some responsibility as well, if they have the capacity to do so, to educate their children about how to save, how to manage their money and the pitfalls of taking out a credit card. There's the scary prospect of people being able to get a personal loan through their iPhone—for instance, through their CommBank app. Within a matter of 24 hours, through whatever they've done on their iPhone, they might be $50,000 richer. It's very easy to gain access to credit, and we need to make sure that if people need to do that they can, but the appropriate safeguards need to be in place that our financial institutions are doing the right thing by consumers. Education is a key part of that.
It was an absolute delight to speak on this piece of legislation this evening. I think it is a sign of the commitment by the Morrison government to ensure that the future is bright in the financial services sector. I commend the bill to the Senate.
I, like everyone else here, enjoyed Senator Duniam's contribution. It's good to hear debate in this chamber when someone actually knows what they're talking about, and Senator Duniam clearly has intimate knowledge of this bill and the work that ASIC does. These amendments that we are debating today implement a series of enhancements to the capabilities of the Australian Securities and Investments Commission. They're important. ASIC does wonderful work around Australia within the context of business and finance, and we are indeed fortunate in Australia in having a financial system and a regulatory system that assists business and assists people to operate in the corporate sector in the appropriate way. That's important because we are a nation that relies upon private industry to create the jobs that are necessary to keep Australia going, and that means providing work for Australians. We do that very well as a country, and we have for a long time. Indeed, one of the prouder things of this Liberal-National government over the last five or six years has been that we have been able to create jobs—not government created jobs, as happened under the Labor Party, but jobs created by private enterprise principally.
Mr Acting Deputy President Whish-Wilson, you will be aware that, since the Liberal-National government came to power, we have created over a million new jobs, with 400,000 in the last year. When I say 'we've created them', that's perhaps not correct; it's not we, the government, that have created them but we, the government, have provided the parameters and the background for the private industry to expand, and that means jobs are created.
This bill that we're debating today, as I say, implements a series of enhancements to the capability of the Australian Securities and Investments Commission. That commission, as senators know, is about making sure our corporate entities 'do the right thing', to perhaps put it in the vernacular. Senators know that ASIC is Australia's integrated corporate market and financial service, and a consumer credit regulator. It's an independent Commonwealth government body that was set up in 2001. Importantly, this bill enacts some key recommendations from the financial services inquiry and the ASIC capability review. It is further evidence of the government's commitment to strengthening ASIC and to ensuring that the financial system delivers fair outcomes for all Australians.
The government has been working to improve ASIC's performance, and this bill will add to that. What the government has done in the past is provide ASIC with a stronger funding base through the introduction of an industry funding model. This will ensure that the cost of regulation is borne by those who have created the need for it—and isn't that fair? That's the Australian way.
ASIC was created because there was a need. Entities did activities and actions that needed a regulator. They created the need for a regulator like ASIC, and, accordingly, those that create the need pay for it. It's important that those people who benefit from it and who caused, if one might say, the need for it pay for it rather than the Australian public. Regrettably, in Australia, it is very often the Australian public who bear the cost of financial sector misconduct. What we've done as a government means that those who have caused the need for increased regulation are paying for it.
That reminds me of, dare I mention it, the Storm Financial scandal that, I'm ashamed to say, emanated out of a business entity in the city of Townsville, where I have my base office, where many people lost a lot of money. Admittedly, they initially made a lot of money but subsequently lost a lot of money through the misconduct of those involved with the management of their money. ASIC was very involved in the investigations into the Storm Financial situation. Some of the work that ASIC did resulted in some justice for those who invested in good faith in the schemes that Storm were proposing and lost a lot of money. Whilst the work ASIC did in the Storm Financial case is not without its critics, ASIC did by and large take action that resulted in some people recovering some of the money they lost.
This bill provides new tools and powers for ASIC, including the power to intervene in the sale and distribution of financial products where there is a risk to significant consumer detriment. Previous speakers have gone into that in greater detail.
The ASIC Enforcement Review taskforce, which was established, again, by a Liberal-National government, in October 2016, made some recommendations assessing the suitability of the existing regulatory tools that were available to ASIC, and this bill has two schedules which deal with some of those recommendations. As senators who are following this debate will know, schedule 1 to the bill amends the act to mandate that ASIC must consider the effects that the performance of its function and the exercise of its powers will have on competition in the financial system. An explicit reference to take competition issues into account will require ASIC to conscientiously consider how its actions may impact on competition in the financial system.
That's in line with the government's philosophy on matters relating to business and finance. We believe that competition, not regulation, is the best means of ensuring that consumers get value for money in financial services, and we have a longstanding history of support for competition. This is not just for competition sake. We believe, and I think history has proved, that competition is the best form of regulator and that consumers get better results from a competitive situation than from governments coming in and trying to use the big stick to regulate activities of businesses in Australia.
This measure complements other key initiatives undertaken by the government to support competition, including tasking the Productivity Commission to review competition in Australia's financial system and funding the ACCC to undertake in-depth inquiries into specific financial system competition measures. This measure fulfils the government's commitment to implement recommendation 30 of the Financial System Inquiry. The recommendation stated, as senators will well know, that the government should include consideration of competition in ASIC's mandate.
I did want to go on and discuss at length schedule 2 to the bill, which amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act, and senators will know that consequential amendments are also made to the Business Names Registration Act, the Corporations Act and the Mutual Assistance in Business Regulation Act. Removing the requirement of ASIC to employ people under the Public Service Act promotes greater operational flexibility and brings ASIC into line with Australia's other financial regulators who have that flexibility. They are, as you know, the Prudential Regulation Authority and the Reserve Bank. I did want to say a few more words on that, but, unfortunately, I think time is going to beat me. Suffice to say, I think this is a good bill. It heads in the right direction and, again, I would urge my colleagues in the Senate to support this bill. I think it is good for Australia.
Sitting suspended from 18:29 to 19:30
I rise this evening to make a brief contribution to the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. The government considers that competition, not regulation, is the best means of ensuring consumers get value for money in financial services. A primary purpose of this bill is to amend the Australian Securities and Investments Commission Act 2001 to mandate that the Australian Securities and Investments Commission must consider the effects the performance of its functions and the exercise of its powers will have on competition in the Australian financial system. An explicit reference to take competition issues into account will require ASIC to consciously consider how its regulatory decisions will impact on competition in the financial system.
It's the view of the coalition government that both consumers and financial services firms, particularly new entrants, will benefit from a more competitive, more robust financial system. Importantly, this measure fulfils the coalition government's commitment to implement recommendation 30 of the financial system inquiry, or the FSI. Recommendation 30 stated the government should include consideration of competition in ASIC's mandate. The measure also complements other key initiatives undertaken by this government to support competition, including initiatives such as tasking the Productivity Commission with a review of competition in Australia's financial system and funding the ACCC to undertake in-depth inquiries into specific financial system competition issues.
In supporting this recommendation, the government is conscious this measure was consulted on quite extensively through the financial services inquiry. The Senate will recall this inquiry made recommendations on five specific themes including: strengthening the economy by making the financial system more resilient, lifting the value of the superannuation system and retirement incomes, driving economic growth and productivity through settings that promote innovation, enhancing confidence and trust by creating an environment in which financial firms treat customers fairly, and enhancing regulatory independence and accountability and hopefully minimising the need for regulation over the medium and longer terms.
The inquiry received more than 6,800 submissions and undertook hundreds of stakeholder meetings, including with financial institutions, market participants and regulators. The government undertook consultation on this measure following receipt of the final report. Stakeholders, including the Financial Services Council, CHOICE, Customer Owned Banking Association and the Australian Banking Association, are generally supportive of a stronger focus on competition in our financial system. This includes, of course, amending ASIC's mandate to include consideration of competition issues. In addition, there's been a significant discussion with ASIC as part of the finalisation of this particular amendment.
Giving legislative effect to this recommendation by way of explicit reference in ASIC's mandate to take competition issues into account would oblige ASIC to more consciously consider how its regulatory decisions may impact on competition in the financial system. Some of the specific aspects of competition that ASIC may have regard to include: whether a decision will create a barrier to entry, making it more difficult or impossible for new firms to enter the industry; whether a decision will create regulatory advantages for some firms over others, competing in the same sector or across the whole industry, and whether the decision disproportionately impacts small entities—for example, by imposing obligations that do not appropriately scale the regulatory risks presented by such entities and the impact this would have on competition; and, finally, whether alternative competitive neutral approaches can be identified. It's worth noting this amendment is not intended to limit the scope of ASIC's regulatory responsibilities, nor expand its powers by making it a competition regulator. The ACCC would remain the competition regulator across the Australian economy.
A second important element of this bill is to amend the ASIC act to remove the requirement for the ASIC to engage staff under the Public Service Act 1999. This bill also contains consequential amendments to be made to the Business Names Registration Act 2011, the Corporations Act 2001 and the Mutual Assistance in Business Regulation Act 1992. Removing the requirement for ASIC to employ people under the Public Service Act will promote greater operational flexibility, bringing ASIC into line with Australia's other financial regulators such as the Australian Prudential Regulation Authority and the Reserve Bank of Australia. To be able to perform their roles effectively in accordance with legislative mandate, financial regulators need to be able to attract and retain reliably skilled and experienced staff. In the particular case of ASIC, this means recruiting 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 and professional staff.
Removing the obligation for ASIC to engage staff under the Public Service Act means ASIC will be able to compete more effectively for suitable staff. Attracting suitable professional staff will also allow ASIC to tailor-make its staffing arrangements to suit its needs, ensuring it is fit for purpose to deliver effectively on its mandate. This measure fulfils the government's commitment to implement recommendation 24 of the ASIC capability review report. Recommendation 24 stated the government should remove ASIC from the Public Service Act as a matter of priority to support more effective recruitment and retention strategies. A similar finding was also found in the context of the financial systems inquiry. This measure has also been the subject of intensive consultation. As part of the government's own consultation, the Financial Services Council and the government's Institute of Australia have indicated support for ASIC staff to be employed outside the Public Service Act. There was also stakeholder engagement on this measure as part of the ASIC capability review, of course. This included engagement with ASIC itself, private sector businesses regulated by ASIC, peak bodies and consumer representatives. Unlike ASIC, neither APRA nor the RBA are subject to the requirements of the Public Service Act. The objective of removing the requirement for ASIC to employ people under the PSA is to achieve greater operational flexibility, bringing ASIC in line with APRA and the Reserve Bank of Australia.
The inflexibilities involved in Australia Public Service employment under the PSA can make it difficult for ASIC to shape the workforce and the culture that it requires to meet the organisation's priorities. These include classification and remuneration of staff, the length of employment of temporary staff, management decisions affecting staff and the terms and conditions of any enterprise agreement.
In conclusion, it's worth reiterating why competition in the financial sector is important. This coalition government believes competition in the financial system puts strong discipline on businesses to lower costs associated with the delivery of products and services. And the experience of competition more than adequately demonstrates that it further encourages innovation and deployment of new technologies and delivers more choices for consumers at lower prices. The effects of stronger competition in the financial system are felt well beyond financial markets and into other parts of the Australian and indeed the global economy. Increased competition can benefit the economy as a whole via improvements to productivity and economic growth. These initiatives build on a strong record of achievement by this coalition government in promoting competition in the financial system. Competition, not regulation, is the best means of ensuring consumers get value for money in our financial services system.
To support competition, the coalition's already tasked the Productivity Commission to review competition in Australia's financial system and report to the government on its findings by the middle of this year. The Productivity Commission released its draft report on the competition in Australia's financial system on 7 February 2017, making 25 draft recommendations focusing on retail banking, mortgage brokers, new entrants and innovation, general insurance and regulatory responsibilities for promoting competition. In addition to this review, the coalition's tasked the Australian Competition and Consumer Commission to undertake regular in-depth inquiries into specific financial system competition issues through a new dedicated unit. This coalition government is also mandating comprehensive credit reporting, which will open up the lending market to new players by enabling them to better assess the credit risk of customers and, at the same time, reduce their exposure to defaults. And the coalition is implementing the open-banking regime to empower Australian customers to seek out banking products better suited to their individual or business needs. This is a bill that makes a timely and important contribution to the evolution of Australia's financial system and deserves the support of the Senate.
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.
At the end of the motion, add, "but the Senate—
(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:
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.
I rise to speak in support of the Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill 2018. Responding to the recommendations of the financial system inquiry and the ASIC capability review report, this bill makes two important changes to the ASIC act that will help provide a more competitive financial system overseen by a more effective regulator. Australia has one of the best financial systems in the world, with a well-considered balance between the need for regulation but at the same time the need not to over burden the system so it negatively impacts on the ability of businesses to get on with doing their business.
The government believes that competition, not regulation, is the best means of ensuring consumers get value for money in financial services. This has always been a feature of coalition governments in Australia. When one takes it to its extreme, the ultimate form of regulation is nationalisation and, of course, this level of control has demonstrably failed everywhere it has been implemented. There needs to be a careful balance between what needs to be controlled and the freedom to get on with the enterprise that has contributed so much to Australia's success. Greater competition leads to greater innovation, and that is what grows economies, and creates jobs and wealth for its citizens. Regulatory reform is also necessary to create that balance because unmitigated competition has its downsides. In pursuing regulatory reform, care needs to be given to designing it in a manner that minimises the risk of failure and to ensure that it doesn't create suboptimal results for business and the regulators themselves.
So why is competition superior to regulation in most circumstances? Over regulation can demonstrably leave a large number of people with reduced real income and a lower living standard. Additionally, regulation can leave costs on society through its establishment and administration. It can have a distorting effect on efficiency and, potentially, a time and cost impost in the reduction of over regulation. In situations of over regulation, it can be shown that deregulation results in the reduction of costs to consumers and substantial improvement in quality and service delivery. A review in the United States into the deregulation of natural gas, long-distance communication, airlines and the trucking and rail industries reported that real prices dropped by 25 per cent and sometimes close to 50 per cent within 10 years of those industries being deregulated. How important, though, is this to an economy?
Over the longer term, it results in a growth in productivity, because competition enhances innovation, which leads to more jobs, a growth in living standards and an overall increase in GDP. Measured provision of regulation is also necessary but certainly not over regulation. Let's think about what are the benefits of measured regulation. One benefit is the provision and the prevention of market failure. Australia has demonstrated, over many years, it's capacity to provide a balanced and well-tuned business environment. Regulation is largely not only balanced to protect the public interest but more importantly to assist in the transition to a competitive market. For competition to be successful in a market, there must, of course, be competitors, and over regulation can result in monopoly like situations where entry into the market is just so difficult that it deters the entry of competitors who, by their presence, will make the market more effective and efficient.
Broadly speaking, Australia has an effective regulatory environment for business, but the absence of balance in the consideration of competition as a factor is a shortcoming that this bill is designed to correct. These sorts of results demonstrate the criticality with this bill of ensuring competition gets equal billing with regulation in any work that ASIC undertakes. That's why schedule 1 amends the ASIC Act to require ASIC to consider the impact of its actions on competition.
The financial services inquiry, or the FSI, found that competition is generally adequate in the financial system but noted that there needs to be a stronger focus on competition in the financial sector. In particular, the FSI was concerned that regulators' mandates adopted an inconsistent approach to competition, with ASIC lacking an explicit competition mandate. The FSI recommended that the ASIC mandate should 'include a specific requirement to take competition issues into account' as part of its decision-making, and that's what this bill seeks to do.
Schedule 1 of the bill amends the ASIC Act 2001 to mandate that ASIC must consider the effects that the performance of its functions and the exercise of its power will have on competition in the financial sector. This will provide ASIC with certainty by obliging it to take into account competition issues when considering the impact of its regulatory decisions. This will no doubt lead to more competition and better outcomes for consumers in the financial system. For instance, some of the specific aspects of competition that ASIC may have regard to include barriers to entry; regulatory advantages for some firms over others; and the imposition of disproportionate obligations on smaller-sized entities.
There are many measures that this government has taken to promote competition in the financial system. For instance, the government has tasked the Productivity Commission to review competition in Australia's financial system, focusing on retail banking, mortgage brokers, new entrants and innovation, general insurance and regulatory responsibilities for promoting competition. We've also tasked the ACCC to undertake regular in-depth inquiries into specific financial system competition issues, through a new and dedicated unit. The government is also mandating comprehensive credit reporting, which will open up the lending market to new players by enabling them to better assess the credit risk of customers and, at the same time, reduce their exposure to defaults. Further, the government is implementing the open banking regime, to empower Australian customers to seek out banking products better suited to their needs. In addition, the government has provided the Australian Competition and Consumer Commission with $13.2 million to undertake inquiries into financial system competition issues. Schedule 1 of this bill complements this suite of measures, which will ultimately ensure a more competitive financial system. That's good for both consumers and financial services firms, particularly new entrants.
Furthermore, the ASIC capability review report recommended that the government remove ASIC from the Public Service Act as a matter of priority to support more effective recruitment and retention strategies, and to increase operational efficiency. Schedule 2 of the bill seeks to fulfil this recommendation. Let's unpack this. Why does it need to occur? To be able to perform their roles effectively, in accordance with their legislative mandate, these regulators need to be able to attract and retain suitably skilled and experienced staff. Regulators such as ASIC face challenges in doing so, because of the inflexibilities of the Public Service Act. These inflexibilities include the classification and remuneration of staff, the length of employment of temporary staff, management decisions affecting staff, and the coverage of any enterprise agreement.
It's important that ASIC has the capability to recruit staff with in-depth knowledge of financial markets and financial services. The current inflexibilities inhibit this process and place ASIC in direct competition with the private sector, and it's difficult for them at times to compete. As such, schedule 2 of this bill amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act; thereby removing the constraints that make it difficult for them to compete with the private sector. Consequential amendments are also made to the Business Names Registration Act, the Corporations Act and the Mutual Assistance in Business Regulation Act. This measure will also bring ASIC into line with other financial regulators such as APRA and the RBA, who are also not required to engage staff pursuant to the Public Service Act. Removing the obligation for ASIC to engage staff under the Public Service Act means ASIC will be able to compete more effectively for suitable staff. It will allow ASIC to better tailor its management in staffing arrangements, ensuring that it is fit for purpose and more operationally efficient.
Both schedule 1 and schedule 2 of this bill will go a long way to providing a more competitive financial system overseen by a more effective regulator. I support the provisions of this bill, which will contribute to improving Australia's economy and the competitiveness of Australia's financial system.
I rise to make a couple of short comments on the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. I do so having been, in the past—as you'd be aware—the chair of the Parliamentary Joint Committee on Corporations and Financial Services, which oversaw ASIC, and also having been a member of the Economics References Committee inquiry into the performance of the Australian Securities and Investments Commission in 2014. Some of the issues that we're discussing tonight in this bill have been afoot for some time.
As previous speakers have said, there are a couple of areas here. One is schedule 1, looking at amendments to the system. The other is schedule 2, looking at the ability to employ people from outside the Public Service Act. Going to the first point around competition: competition is useful. We see it working at the moment in things like the electricity market where, when people recognise that they have a choice to switch between providers. When providers are required to actually disclose the basis of their pricing—and that goes to recommendation 30 from the ACCC report, which is a mechanism that the government will use to give transparency around pricing, which means people can then make their decisions about where they place their business—that has the net effect of driving pricing down. That is what the Morrison government is committed to.
We see that operating in a number of areas, including, for example, around home loans. People are given the choice to move more freely between different products. When they see that they have an opportunity to get a lower interest rate, they will move, so the pressure is there for financial services to provide a better service at a better cost. Competition definitely has a place, in terms of making sure that consumers get value for money in financial services. Schedule 1 of the bill amends the Australian Securities and Investments Commission Act 2001 to mandate that ASIC must consider the effects the performance of its functions and the exercise of its powers will have on competition in the financial system. This comes out of recommendation 30 of the Financial System Inquiry. As such, it's welcome.
There have been a range of inquiries and measures over the years to highlight what reforms we can make in the financial services sector. Indeed, I think, Mr Acting Deputy President, Senator Williams, you were on the committee with me at the time when we looked into the professional and educational standards of financial advice. What we saw there was that, as part of this providing of competition, regulation and competition actually work in tandem. We went back to James Reason's accident causation theory, which comes from my background in aviation, and we applied it to the financial services sector and we asked, 'What are the things that lead to the failures in the system that cause financial harm to the consumer?' We put in place a number of measures around the education and the professional conduct of financial advisors. That goes to things like ongoing professional development and the oversight not only of ASIC but also of professional bodies that hold it to account. It was the professionalism.
One of the keys in there was having a register whereby somebody's qualifications and any conduct or misconduct by them is freely available to the consumer, so that the consumer, at the point of choosing who they're going to entrust their financial future to, has the ability to essentially compete. They can look at somebody who has performed well and somebody who has had misdemeanours recorded against them and choose where to put their money. Competition is important, but it works hand in glove with an appropriate amount of regulation, as we saw during that inquiry and the changes that have subsequently been put in place by then Minister O'Dwyer to raise the educational and professional standards for the financial advice service. As I said, this implements recommendation 30 of the financial systems inquiry and complements other key initiatives taken by the government, including tasking the Productivity Commission with a review of competition in Australia's financial system, as well as funding the ACCC to undertake in-depth inquiries into specific financial system issues.
Schedule 2 goes to the issue around how ASIC can engage their staff. It amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act 1999, and there is a range of consequential amendments to the Business Names Registration Act, the Corporations Act 2001 and the Mutual Assistance in Business Regulation Act 1992. Removing that requirement to employ people under the Public Service Act will promote greater operational flexibility, bringing ASIC into line with Australia's other financial regulators, such as APRA and the Reserve Bank of Australia.
It notes the fact that, to the able to perform its functions properly, ASIC needs to have people who are suitably skilled and experienced. That takes me back to the 2014 report of the Economics References Committee that I was a participating member in. In the appropriate section of that, which is chapter 16, one witness noted:
… much of the work ASIC is undertaking to improve its ability to act effectively on complaints or reports of corporate wrongdoing was 'all around the mechanics and particularly the legal processes'. He understood that ASIC receives a lot of information from different sources but 'they are not joining up the dots as quickly as they should'.
Another witness backed that up, saying:
ASIC needs to credibly reconnect with professionals who are its best early warning system for the identification of domestic threats to Australia's economy.
As the chapter goes on, it highlights that ASIC needs to have:
… the right individuals, in the right positions, who are experienced and know what to do if something crosses their desk.
The next paragraph says:
Often ASIC complaint staff are inexperienced in both commercial matters and understanding evidential issues. ASIC receives thousands of complaints and generally undertakes a perfunctory assessment resulting in the sending out of a standard letter which does not address the issues.
So whether it's the complaints staff or the people who are interfacing with industry or doing the audits, the very clear message here is that regulators need to have people who are appropriately skilled and experienced, so that they don't just rely on process to deliver the result, but they use process to inform their decisions and use their life experience and experience in the sector to know where to look for the issues.
We see this in things like the CASA, for example, the Civil Aviation Safety Authority. There have been many reviews highlighting that you need appropriately skilled people who understand the industry sector they are coming from so that their regulations, their application of regulations, their decisions around that and their ability to know where to look to find the issues, are informed by appropriate and recent industry experience as opposed to just process. Process is all well and good—it's one of mankind's attempts to capture corporate knowledge and make sure we don't repeat the mistakes of the past—but, at the end of the day, process should be a decision aid and it should help experienced people gather all the information they need to make an appropriate decision; it shouldn't replace people having appropriate experience or insights into the industry that they are dealing with.
What schedule 2 seeks to do is to free up ASIC to actually employ people who have the current skill sets and experience they need to add the value in that part of their roles. It means recruiting staff with a knowledge of financial markets and financial services. If you think about the professions that that involves, those people who have that relevant experience are attractive to both the large, vertically-integrated organisations and to the smaller either family-run or partnership-type organisations that are working in the financial services sector. If ASIC is to be able to attract those people, often the remuneration they'll receive in the vertically-integrated, large organisations or the smaller ones will be more than the public service can pay.
We've seen, throughout history with government, a range of ways that governments have sought to retain experience or attract experience. Even in my own background as a military pilot, at times when the airlines were recruiting people and seeking to pay them substantially more than the Defence Force could, the Defence Force brought in schemes like specialist aircrew schemes, retention bonuses or ways to actually encourage people to remain working for the government so that the government was able to utilise the skills and experience they had, as opposed to seeing it go off to the private sector. We've had the same issues with submariners in the past during the mining boom in Western Australia and various programs designed to encourage people to work within the public service, or for the government, as opposed to going to the private sector. This change is not novel or new. It's a way of saying, 'How can we get people with the requisite skill sets and experience to work for the government?'
Specifically, the measure fulfils the government's commitment to implement recommendation 24 of the ASIC capability review report. That recommendation stated that the government should remove ASIC from the Public Service Act as a matter of priority to support more effective recruitment and retention strategies, and a similar finding was also made in the context of the Financial System Inquiry.
In conclusion, I will be supporting this bill. Having been involved since 2013-14 and onwards with committees looking at ASIC and then chairing the Parliamentary Joint Committee on Corporations and Financial Services, I'm aware that we need to be able to take measures to shape the environment to allow ASIC to be effective so that we don't see the failures that have been highlighted in the recent royal commission. These two schedules around making sure that ASIC are aware of competition and the effect that their decisions have on competition, as well as giving them the ability to recruit the staff that they need with the requisite skill sets, are just two important enablers to making ASIC the tough cop on the beat that our financial services sector needs in order to protect the legitimate interests of Australian consumers.
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.
Original question agreed to.
Bill read a second time.