Wednesday, 14 November 2018
Regulations and Determinations
ASIC Corporations (Banking Code of Practice) Instrument 2018/700; Disallowance
I put this disallowance up because a most unusual situation has arisen in this chamber. Yesterday when I spoke about the GST reform I talked about Norman Lindsay's 1918 Australian classic, The Magic Pudding. To use another theatrical analogy for today's disallowance we have gone into The Twilight Zone. Normally when this Senate considers whether or not to disallow a regulatory instrument, it matters to us and is important, because normally the regulatory instrument being considered and examined would make changes to the laws of the land. These changes would matter because these laws would affect the people we represent, but today is different. I really want senators to understand this. Today we have gone into the twilight zone of regulatory instruments. We are considering whether to disallow a regulatory instrument that has no effect in law. To be very clear: this is a regulation that doesn't regulate, this is a law that has no effect in Commonwealth law and this is a code of practice that has no practical effect from a legislative or legal point of view, and that is what makes it problematic.
What is perhaps ironic and indeed bewildering is that the Senate today with this disallowance is considering a voluntary code of practice for banking in Australia written by the Australian Banking Association. To give you a little bit of background, the banking industry and the banking sector—the Australian Banking Association is the body that represents the big and the small banks—has had a voluntary code of conduct for many, many years. To provide a bit of context for senators, we have seen—and many of us in this chamber have sat through—numerous inquiries over the last decade into misconduct in the financial services industry in Australia. Many of us have asked questions of the regulators at estimates and at numerous Senate inquiries into the regulation of the banks and the financial services industry.
Eventually, after years of campaigning, we got a royal commission into the banks and the financial services industry. That royal commission is still sitting. While we've had an interim report, we haven't had a final report on the banks in this country. So the first important question we need to ask ourselves is: why is the Senate considering a voluntary code of conduct written by the banks for the banks? Commissioner Hayne has explained why this regulation doesn't matter. In his own words, he says:
Contravention of a provision of the … Code—
The banking code that we're considering—
… may be a breach of contract but otherwise it is not, and will not be, a contravention of law. The Code stands as a set of promises made by the banks enforceable only at the behest of an aggrieved customer. … The code is not subject to—
I repeat: the code is not subject to—
… the Competition and Consumer Act … The code therefore stands in sharp contrast with generally similar industry codes of practice—
We have considered many of them in this chamber. Commissioner Hayne continues:
… Codes dealt with by … the Competition and Consumer Act are called ‘applicable industry codes’ … And a contravention of an applicable industry code engages all the remedial provisions of … the Competition and Consumer Act. Further, if the relevant provision of an applicable industry code is a civil penalty provision, the regulator … may bring civil penalty proceedings … None of this applies—
I repeat: none of this applies—
to the current banking code and none of this will apply to the 2019 Code.
This is the code that the Senate, by default, is about to give its stamp of approval to, if you don't support the Greens' disallowance.
In other words, because the financial sector is not regulated under the Competition and Consumer Act, this code is not enforceable. I say again: this is a voluntary code, and it was written by the banks for the banks. By the way, senators, this is the first time that a voluntary code has been before the Senate. I will explain why in a minute, and why this is actually a critical part of the debate.
Commissioner Hayne has also explained how this code was created:
Although approved by ASIC, it is necessary to recognise that the content of the 2019 Code was also determined by those who are to be bound by its provisions: the banks themselves. It is they who decided how the definition of small business should be framed. It is the banks, therefore, who determined what reach the Code will have.
I'll say it again: the banks have written this code for themselves. It is a code written by banks for banks. It is a voluntary code.
I don't think anybody would disagree, including the banks who have put this new code forward, that their last voluntary code didn't work. It wasn't up to scratch. It wasn't up to standard. It failed the Australian people. It failed the customers of the banks and, ultimately, it failed the banks themselves. So, because the banks have written this code for themselves, by definition it's not particularly useful or helpful to anyone else.
When this version of the code was announced there was much brouhaha about how good it would be for small business, but the Australian Small Business and Family Enterprise Ombudsman, Ms Kate Carnell, has popped that bubble. Ms Carnell recently said that the code 'falls short of addressing the imbalance of power held by the banks' and that it 'will allow the continuation of the aggressive bank tactics revealed by the commission'. Similarly, Commissioner Hayne himself has raised concerns with the code and how it relates to a small business's ability to repay a loan. In fact, Commissioner Hayne has opened questions in his interim report—and I hope all senators have read that—directly regarding this issue. My office has spoken to Ms Carnell about this disallowance and about this voluntary code of conduct. By the banks' own admission, it's already out of date. But, perhaps most tellingly, the Australian Banking Association themselves are not happy with the version of the code that is before the Senate.
So let's synthesise this. The banks come up with a new voluntary code of conduct. Because of the royal commission and the shaming of the banks, they realise their voluntary code of conduct isn't working and they need a new one—one that might actually work. What do they do? They go to ASIC, the Australian Securities and Investments Commission, and they say, 'Can you have a look at this voluntary code of conduct and tell us whether you think it's okay.' After a couple of months, ASIC come out and say, 'Yes, it's okay.' So ASIC have essentially given this their formal stamp of approval. That's why it's being considered before the Senate today, because ASIC have been dragged in by the banks, or maybe easily persuaded by the banks, to review their voluntary code of conduct and give it their stamp of approval. Because ASIC is involved, the Senate and the Australian parliament are involved.
Let me frame it for you again. If this disallowance doesn't get up today and, to use a Trump term, this fake regulation goes into effect, we are essentially giving our stamp of approval, as the Australian parliament, to this voluntary code of conduct. I don't think any senator would think now is the time to be doing that, before the royal commission has even delivered its final report. I'll come back later to what I think the motivations of the banks are for putting this voluntary code of conduct through this process before the royal commission has delivered its report.
Let me just emphasise what I said about Commissioner Hayne's own concerns about this voluntary code of conduct that we have before us. Why is this code of conduct that we're considering today out of date already? It's out of date already because as new revelations became public during the royal commission, including fees for no service and charging dead people, the banks decided they'd better write that into their code of conduct as well. Guess what: the banks have already changed their code of conduct. But it is not in the regulations that are before the Senate today. The regulations before the Senate today passed through a process prior to that, so it's already out of date. By the banks' own admission, the regulation we're looking at today is already out of date. By the banks' own admission, the code of conduct that has been endorsed by ASIC is deficient. The instrument in question refers to the code published in August 2018. Yet on Wednesday, 10 October 2018, last month, the ABA, the Australian Banking Association, announced further amendments to the code to stop banks from charging fees for no service and to ensure refunds to customers. You could be cynical enough to say it was also an important PR exercise to make a public statement that they were again updating their voluntary code of conduct. One does wonder, if the royal commission continued beyond its February date, what other revelations might come to light that might change a voluntary code of conduct which, by the way—I'll say it again—we are tacitly endorsing today if we don't disallow it. Apparently the August version of the code was not sufficiently robust to stop the banks from charging fees for no service, including to dead people. That, I say again, is the code that will go into fake regulation today if we allow it to.
To be clear, the Senate is considering whether to approve ASIC's endorsement of an unenforceable code written by the banks—a voluntary code—when the banks have admitted that the version of the code that has been endorsed by ASIC isn't good enough to stop them charging fees to dead people. That's what you will be allowing today if you don't support the Greens' disallowance of this voluntary code of conduct.
This regulation is useless. It does nothing in light of the revelations of the royal commission. ASIC can't enforce the code of conduct, and it's not covered by the Competition and Consumer Act. Because it does nothing, that makes it dangerous, and I would argue that it also makes it a highly political document. This is a PR exercise for the banks. Why else would the banks be wanting to seek ASIC endorsement? From my understanding—and I stand to be corrected—this is the first time ever that the banks have sought ASIC's endorsement for a voluntary code. I suspect they did it because of the royal commission and the revelations. They wanted to get ASIC's endorsement to give the code more weight. Then, of course, they wanted to get parliament's endorsement and allow it to pass into fake regulation.
We in this place have better things to do than to sign off on window-dressing or potential brand-washing for the banks. I am happy to look at a code of conduct when the royal commission is finished and all these things have been thrashed out and the Australian public get their $60-plus million worth of deliberations by the Hayne royal commission. The royal commission has surprised just about everyone in this country, including many of its critics, and there were harsh critics, not just on the need for a royal commission but whether it would be a complete waste of money. Most of those critics have since swallowed their pride and publicly admitted that some of the revelations they've heard were shocking—much worse than they expected. I understand from speaking to Professor Stiglitz, who is in this building today, that the US is going through a very similar thing with some of the revelations they're hearing about their financial services sector. He said that the 10 years since the global financial crisis, the GFC, have revealed even more deep-seated problems, systemic failures and misconduct within the financial services industry.
Senators, this is a one-off opportunity to get real reform in place within the financial services sector. I'm proud to be part of a party that has written to the royal commission. We made a substantial submission. I want to acknowledge the work of my office and Senator Di Natale's office in preparing that submission to the royal commission. Our submission outlined 18 structural reforms that we believe the commission should consider. By the way, we were invited by the royal commission at this point in time to make submissions on policy. Commissioner Hayne said that he wanted to hear from people on policy suggestions and policy solutions, and the Greens took that opportunity.
This is a one-off opportunity for reform. This is not the time to be giving the banks a chance to window-dress and to do the media. Next week, they're in front of the royal commission. Everyone is speculating that it is going to be a very difficult couple of weeks for the CEOs, the chief executives, going to the royal commission. They can say, with their hands on their hearts: 'We have just had our code of conduct through parliament. We have just had our code of conduct endorsed by ASIC, by the regulator. We've fixed our problems. Through this code of conduct, we've fixed the systemic problems that have led to the misconduct that you've seen in the royal commission.' Yet we know that it's not even covered by our laws and it's out of date already. Do not give them the opportunity to brand-wash, to window-dress, what has been one of the most serious issues that we have managed to achieve, as a House, as a Senate and as a parliament, certainly in this term of government, if not in many terms of government.
This is a one-off opportunity to get some real reforms in the financial services sector to protect customers, to reduce systemic risk and to hold capitalism to account. If you think I'm being a little bit startling in my comments, I will quote the current Prime Minister, Mr Scott Morrison, on the day that the royal commission was announced. Remember when Mr Turnbull, the then Prime Minister, said he would be calling for a royal commission? It was because we forced him to. This parliament forced him to. Mr Scott Morrison came out and said, 'This is not capitalism on trial, unlike what some people in this building would like to believe.' They were the exact words that Mr Scott Morrison used. Well, let me tell you: this has been capitalism on trial.
From the very first week, the commissioner, after his initial deliberation, said to the banks, 'I wants you to go away and consider the proposition, how much profit is too much profit? At what point do you stop putting profit and a culture of profit before people?' In his interim statement, on the opening page, he said that 'greed' had caused the problems that he had seen through this royal commission—greed. Where do you draw the line? It's a very, very important question we have to answer. This is coming from a man that is not a leftie or a socialist trying to overthrow the capitalist system. This is a very well respected commissioner with all the resources the Australian people can give him and his commission at his disposal to get to the bottom of the problems that we've seen in this sector.
This is a critical moment in time for reform—in the next three months. It irks me that this fake regulation gives the banks a chance to say that they've actually achieved something through this royal commission—to get a jump on Commissioner Hayne, to get a jump on this parliament and to get a jump on the Australian people and even potentially their customers. The royal commission and the Ombudsman have raised concerns—and I've gone through that today—and the banks are currently redrafting it, even as it is before parliament and being considered. In the face of this widespread misconduct, the regulators and parliament should be focused on more meaningful reforms. It's the responsibility of the regulators and this parliament, not the banks, to write laws that govern this nation's banks in the public interest. It is better for there to be no regulation than for there to be unenforceable regulation. That's my proposition to you today. The days of the banks writing their own rules should be over, and we can send that message right here, right now, on behalf of the Australian people.
Labor does not support this disallowance today, but we recognise that the code of practice has been manifestly inadequate. That is an important reason—however inadequate the changes before the chamber might be today—to recognise that there are improvements in the code of practice before us and that to disallow it simply reverts to the framework, right back from 2013, in which many of these problems are embedded. The current banking code of practice, as part of the regulation of banks and financial services, has not prevented massive misconduct from occurring. We've seen very clearly that the mix of self-regulation through the code of practice and regulation through the Corporations Act, ASIC, the National Consumer Credit Protection Act and other acts of this parliament have not adequately stopped banks and other financial service providers from becoming embroiled in these terrible scandals.
It's been very clear to Labor for a long time that more needed to be done. It was clear to us that Australians needed better protections, that banks and financial service providers needed to lift their game. That is why Labor took the bold and courageous step in 2016 of calling for a banking royal commission. This decision wasn't easy. We were pilloried for it, derided by the government and we were told that a royal commission would be nothing more than a QC's complaints desk, a populist whinge and a reckless distraction. This government said that they thought that it would be a waste of time, and they did everything they could to stop it from happening. As we know, they voted against it in this parliament some 26 times. They set up parliamentary inquiries to try and head it off at the pass. They thought they could stop the scrutiny of the royal commission being applied to the banks. They have been wrong on all of these counts. The evidence within the Australian community of the impact of this misconduct is just too strong and the hurt that people have experienced is just too widespread.
Victims of financial services misconduct have come forward week after week. We've heard, through stories in the media and from members of parliament and the Australian community, about an industry that has been seen to have lost its ethical and moral compass. The government did indeed see the writing on the wall when it finally caved in to the pressure from Labor and the community and agreed to call this royal commission. That happened late last year, and now the Prime Minister, the member for Cook, has described the decision as regrettable.
It's not surprising, given that this government has been hostile to the royal commission from the outset, that they have curtailed the time available for it to do its work. The commission has barely had the opportunity to scratch the surface of the misconduct that has occurred in the financial services industry. Certainly, I would personally like to add to the calls that hearings be held in my home state of Western Australia. Labor MPs from Western Australia have all signed up to lobby for that and to say that the community of Western Australia deserves to have its own story told. As we've heard, the context of misconduct varies from community to community, from state to state and from institution to institution, so it's really important that the voices of Western Australians are heard and that those Western Australians have the opportunity to tell their own stories.
The commissioner has done an admirable job—indeed, I think, a quite extraordinary job, given the circumstances. He was given a mere 14 months to inquire into retail banking, home lending and consumer lending, including consumer credit and personal loans, as well as small business lending, farm lending, general insurance, life insurance, superannuation and financial advice. This means they've had just two weeks to spend on each of these complex subjects, some of which have touched the lives of millions of Australians and some of which relate to services used by nearly every member of the Australian community. The commission has received over 10,000 submissions from the public. Ten thousand Australians took the time to let the commission know about their experiences of bank and financial service provider misconduct. But, because of the restrictive time line, only 27 victims out of 10,000 have had the chance to tell their story in person, and I can tell you that there are things to be learned from the specific characterisation of the experiences of victims themselves.
The misconduct of the financial services sector is so widespread that it affects hundreds of thousands, if not millions, of Australians, so we've called for the time available for the royal commission to be extended to allow more victims to have the opportunity to share their stories. The government, sadly, has been stubborn in its refusal to give the commission more time. This is why the Leader of the Opposition and the shadow minister for financial services, along with some of my Labor colleagues around the country, have been holding their own roundtables with victims of banking misconduct, and we've heard from many, many victims whose voices haven't been heard through the royal commission process. These stories have been brutal and harrowing. People are hurting. Consequences of misconduct identified by the royal commission and, indeed, the consequences of other misconduct that Commissioner Hayne didn't have time to consider are being felt by families in every state and territory and in every city and town around Australia.
In the interim report were posed important questions about the future regulation of our financial services industry, and the commissioner's general observation has been of greed and the culture of the pursuit of profits above the honest and ethical conduct of the sector. This has been well reported and understood. These findings and this backdrop interim report will no doubt form the basis on which final recommendations will be framed.
The commissioner has also made specific observations about self-regulation, and this is very relevant to today's debate, particularly in relation to the case studies heard by the commission. Commissioner Hayne discussed the competition between regulation and self-regulation and considered a specific example relating to the 2019 Banking Code of Practice, the document we are considering today. The example related to non-monetary defaults, where a lender is able to accelerate a loan or demand full repayment of a loan immediately, regardless of whether the borrower is behind in their rescheduled repayments. The code imposes some new limits on non-monetary default clauses, and the commissioner poses a question, presumably to be answered, I would hope, in his final report:
Apart from existing rules prohibiting unconscionable conduct and rendering unfair contract terms void, should there be some additional rules that govern what a lender can or cannot do before it brings a loan to an end or it seeks to enforce repayment?
The commissioner goes on to discuss the provisions in the 2019 code, noting:
But the 2019 Code will set limits on the use of provisions of that kind. Assuming that the contractual terms relied on are not unenforceable under the unfair contract terms provisions of the ASIC Act, and assuming further that reliance on the terms is not affected by the 2019 Code, are there any circumstances in which termination and renewal of a loan contract should be governed except by the general law of contract?
In this context we can see that this discussion demonstrates that the 2019 Banking Code of Practice, the document we are discussing today, is part of a very real regulatory framework that the commissioner will be considering when he makes his final report in February. That should not rule out us lifting those standards here today, not disallowing the lifting of those standards by reverting to the 2013 code.
The questions of reform and improvement to regulations and laws are open to questions, regardless of the existence of the 2019 code. We acknowledge that this code is a step in the right direction, but we also acknowledge it comes nowhere close to fixing the problems identified by the royal commission so far. The commissioner has signalled that he will consider it as part of the existing regulatory environment, and he will consider whether more needs to be done to protect consumers and small business from misconduct and unfair practice and tactics.
We see this code as a small step in the right direction by industry. We know there's more to be done, and we look forward to the release of Commissioner Hayne's final report in February 2019. In the meantime, we should not—this place should not—stand in the way of the banking industry coming forward and improving, however slightly, its code of practice. We aren't going to refuse to allow banks to improve the consumer protections they voluntary commit to delivering to Australians just because we are engaged in a parallel process of policy development through the royal commission. It is possible, thankfully, for us to allow the 2019 code to come into force and at the same time consider and implement regulatory change to further improve the banking and financial services sectors in coming months.
Labor have been completely consistent on this, and we will consider recommendations from Commissioner Hayne and the recommendations coming out from the many parliamentary inquiries into financial services that are running concurrently. However, the evidence before this place shows that there are real and practical lifts in sector standards in the new 2019 code of practice, and we should not stand in the way of it being delivered. In the meantime, what we in the Labor Party are focused on is doing what is necessary to restore trust and confidence in our banks and broader parts of the finance sector and to protect consumers from unethical and dishonest behaviour.
The government does not support this motion. The government supports action by the financial services industry to provide consumers with more rights to hold institutions to account. The Australian Securities and Investments Commission's support for this code not only is an important part of rebuilding the community's trust in the financial sector but also puts pressure on other sectors to raise their standards in how they deal with consumers.
Thank you, Acting Deputy President. Why is it the role of the Australian Securities and Investments Commission to restore trust in the Australian banking sector? Why is it the regulator's role to restore trust by allowing an unenforceable code in Australian law to pass into fake regulation? How is that restoring trust? As I explained, Senator Canavan, this is not covered by the Competition and Consumer Act. I even read out the words of the royal commissioner himself. He said that, while there may be some contract law implications, it is not covered by the laws and legislation of this parliament. How is it restoring confidence to rubberstamp and give the seal of approval to the banks at this point in time, before the royal commission has even delivered its final report?
Of course the banks want to restore trust, and I genuinely hope that the Australian people's trust in the banks is restored. But let me say to senators: that's going to come from proper regulation and it's going to come from structural reform in the Australian banking sector and the financial services sector. I have outlined a number of reforms that the Greens believe need to happen, and the first thing I'd like to do is take the mandate for financial securities off ASIC and give it to the ACCC. We know the history. The ACCC had this mandate taken off them when a special regulator was set up for the financial services industry. I've read out in previous speeches that the people involved in that structural reform have now looked back and said: 'We made a mistake. It should have stayed with the ACCC.' I've got no problems with ASIC and their current resourcing or with the people at ASIC regulating the wholesale side of the market, but the retail side of financial services should be regulated by the ACCC.
There are a number of people who are supporting the Greens' call for the ACCC to regulate this industry. The ACCC have shown that they are prepared to take on companies—they have shown that. The problem with ASIC is that they have a conflicted mandate in this country. On the one hand, they have to factor into their decisions the stability, efficiency and functioning of the financial system; on the other hand, they have to protect consumers of financial services and financial products. That is why you and I, Mr Acting Deputy President Williams, have sat through countless inquiries listening to evidence about enforceable undertakings rather than strong action on white-collar crime. That's why we've had to endure that. I don't hold ASIC responsible for that; they've had a conflicted mandate from the start. Even when ASIC was set up, the point was raised that it was a specialist regulator set up for a specialist sector. Why does financial services have its own regulator? Who else does?
ACCC covers everyone else. This was set up and people said: 'If you do that, you know what the risk is? The risk is that your regulator will become captured by the industry.' This is not me saying this; this is what has come out of the royal commission—a weak regulator who has failed to do their job and who has been captured by the industry. Once again, I don't blame people at ASIC for this. They have a conflicted mandate, not to mention all of the resourcing issues they've had over the years. But it is time for structural reforms.
Senator Canavan has come in here today to say that ASIC's essential rubberstamping of this fake regulation that isn't covered by Australian law is somehow going to restore the Australian people's trust in the banks. It isn't. It is the royal commission's job now to restore trust. Yes, it is ASIC's job to step up and take real action. But I am telling you that this is not real action—a voluntary code of conduct unenforceable by Australian law. It's a code written by the banks for the banks that isn't even complete. I notice that Labor didn't even address this issue. The fake regulation that we have before us doesn't even address the updated voluntary code of conduct which has since been changed. I went through the detail a second ago. It has since been changed to make sure banks can't take fees for service from dead people. That is not even in this regulation. I would like to see Senator Canavan address that.
I will just stress one more time that this is an important juncture in history for us to make substantive change, to be bold and to make sure that we can restore trust in the banking sector, not just for customers but also for the financial system, for the banks themselves and for their shareholders and other stakeholders in this debate. There is no way this voluntary code of conduct, which is not enforceable by law, written by the banks today, is going to restore the Australian people's faith in the banks.