Monday, 9 August 2021
Financial Sector Reform (Hayne Royal Commission Response — Better Advice) Bill 2021; Second Reading
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 implements a recommendation of the Hayne royal commission as well as a recommendation of the Tax Practitioners Board review final report. Specifically, the bill deals with recommendation 2.10 of the Hayne royal commission, which stated:
The law should be amended to establish a new disciplinary system for financial advisers that:
We support the implementation of this recommendation, but we should also recognise the history of how we got here. This recommendation comes from a government that never wanted a royal commission into the financial services sector. It had previous form in tending to water down the protections from the Future of Financial Advice reforms, or FOFA, under the guise of red-tape reduction. Then it voted 26 times against establishing the royal commission, even after all the heartbreaking stories and the countless examples of bad behaviour. Of course, we saw more of this as hearings actually took place and when the government was forced to establish a royal commission and when Commissioner Hayne released, firstly, the interim report and then the final report in 2019.
This bill expands the role of the Financial Services and Credit Panel within ASIC so that it can take on the functions of a single disciplinary body for financial advisers. This panel will be able to take a series of administrative actions against advisers, including warnings or reprimands; directions to undertake specific training, supervision, counselling or reporting; and orders suspending or cancelling an adviser's registration. The adviser can also be given an infringement notice or can be subject to a civil penalty handed down by a court.
The bill also establishes a two-stage registration process for financial advisers and winds up the Financial Adviser Standards and Ethics Authority, FASEA, with the standard-setting functions transferred to the Treasury and remaining elements, including the administration of the adviser exam, transferred to ASIC. FASEA was established in 2017 by the then Treasurer, now Prime Minister. Labor has always been supportive of reforms and initiatives that support a professional consumer focused financial advice and services industry, but FASEA stands out as an abject failure in public policy and in administration. They went through three CEOs in their first 18 months. They failed to produce standards that were in any way timely or done in an adequate fashion. Advisers were subjected to changes and complications to the exam process. When it comes to these advisers, and I had the opportunity to speak to a few of them recently, it's astounding how the government has been treating them, particularly in the design and implementation of professional standards and how this will potentially impact on experienced advisers who may be forced out of the industry, taking away their many years of knowledge about how best to serve their clients. As my colleague the member for Whitlam said in the other place, Labor will work with industry for solutions to these issues. That's why the member for Whitlam has written to the Treasurer to demand that he review ASIC's industry funding model and to call for a greater recognition of specialisations and experience in the educational and exam standards for the many callings across the financial advice industry.
This is important. The pandemic has changed many things, including restructuring business and household finances. It's caused retirees and those planning for retirement to consider financial strategies. So financial advice is important, and we want the government to get the regime that is in place right.
The bill also deals with recommendation 7.1 of the Tax Practitioners Board review by introducing a single registration and disciplinary system for tax advisers. Labor supports the implementation of this recommendation.
I move the second reading amendment that's been circulated in my name:
At the end of the motion, add ", but the Senate notes the Government has:
(a) failed to effectively deliver professional standards reform in the financial advice sector;
(b) been too slow to implement the findings of the Hayne Royal Commission;
(c) established and then shut down the failed Financial Adviser Standards and Ethics Authority;
(d) failed to adequately protect consumers; and
(e) caused uncertainty and unnecessary costs for thousands of financial advisers across Australia".
But, before I conclude, I would like to address another second reading amendment that's been circulated, or will be, to this bill from Senator Patrick. It would have the effect of deferring debate on this bill until we actually see the regulations that implement the precise details of the legislation before us and there is the chance for them to be scrutinised before a Senate committee. This government has made a real habit of delegating complex elements of Treasury legislation to regulations which are rarely made available to Senate committees when scrutinising legislation. The Senate Standing Committee for the Scrutiny of Delegated Legislation and its government chair, Senator Fierravanti-Wells, have consistently criticised the government for their lack of transparency in this regard. While Labor strongly supports the objectives of this bill, the bill suffers from the same issue. Senator Patrick is right to want to scrutinise the regulations being made under this bill. They will have a significant impact on the financial advice industry. It's unfortunate the government has not been able to produce draft regulations in time for the Senate to scrutinise them along with this bill.
I would note that late on Friday the government released a policy paper seeking feedback on two matters that will be covered by the regulations, and this feedback is meant to inform the development of regulations—so perhaps they haven't even started drafting them yet! But I would note that, at the same time, the government said they won't be releasing regulations and, to be clear, they'd just be exposure draft regulations until later this year. It's only right that advisers, industry bodies and consumer groups should have the chance to provide feedback on the regulations that will implement this legislation, and therefore Labor will be supporting Senator Patrick's second reading amendment, which perhaps is why this bill isn't listed for debate in the Senate tomorrow.
Senator Gallagher, I was hoping you were going to go for another six minutes and then we would all go and have some rest! But I'll jump to my feet and speak—
Senator Gallagher interjecting—
Oh, my best six minutes! Alright. I'll start where you finished, Senator Gallagher, and address Senator Patrick's second reading amendment. Particularly those opposite who claim to be the opposition party of government, the alternative government, actually have to think through how legislation and regulation work together and how the primacy of this place makes what Senator Patrick has asked for almost impossible, particularly at the moment and into the foreseeable future where we will have a Senate with a crossbench. If you have to produce what you are effectively asking for, which is final regulations with every piece of legislation, then you're not actually going to have regulations. You may as well put them all in the bill.
Senator McKim interjecting—
No, not exactly, because that's not the way our system of government functions. I'll take the interjection, Senator McKim. It's not the way our system of government functions. Regulations have a legitimate place. I would possibly agree with you, Senator McKim, that regulations, as a percentage of the total body of law, have become significantly larger over the years, and that's a fault of all sides of government. I think it is something the political process needs to attempt to rein in. But the idea that you can have final regulations prior to a bill being discussed in this place would be, in practice, impossible to manage. You need to have final legislation passed before you can finalise regulations. That goes without saying, if you think about the way the law operates for just a little while. Can you have exposure drafts of regulations? Absolutely. Obviously, that was discussed in Senator Gallagher's contribution. But the idea that you can somehow have final drafts of regulations before legislation is passed completely ignores the deliberative role of this place in actually amending primary legislation. How could you do that? How could you have final regulation which is subsidiary if you are presenting that before the legislation has gone through this place? It would be impossible.
I go to the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill. It implements recommendations from the Hayne royal commission. As I have stood up and said before in this place, royal commissions are effectively reports to government, reports to society. They are not tablets handed down from on high in stone. They need to be considered. They need to be considered in the light of the existing regulatory framework. They need to be considered in the light of practicality. They need to be considered in the light of regulatory burden that's already placed on a particular industry in the interim. So it's very important that we take our deliberative role in this place and the role of executive government seriously and actually consider what's coming out of royal commissions—the way the recommendations should be implemented to make them work in practice—and recognise the reality of industries as they operate on the ground.
It is very important to say that the vast majority of people working in the various parts of the financial advice industry did not act in a way that the many egregious ones did. There were many examples of egregious behaviour at the Hayne royal commission, but that does not reflect the behaviour of the vast majority of participants in the financial advice industry. In fact, I personally want to see, and I know many others want to see, a strong financial advice industry so that working Australians, Australians planning for their future, and Australians who aspire to a higher standard of living later in their lives or for their children, should have the ability to seek out that high-quality professional advice and be able to plan their affairs in a way that enables them to achieve those aspirations. I think that is a really important and fundamental goal that we set for this industry. In the main, the vast majority of financial advisers operating within the framework acted in that way at that time.
However, there is a need to simplify the regulatory system, and this bill does that by increasing regulatory alignment. In particular, this bill includes creating a single disciplinary model, moving the standard-setting functions to the government, introducing annual registration requirements and removing duplicate regulation for tax advisers. The Financial Services and Credit Panel within ASIC will take on the role of the single disciplinary body and will be given new sanction powers. Where the panel concludes that a breach occurs, the panel can take a range of actions, including issuing an infringement notice, imposing an administrative sanction or recommending ASIC seek a civil penalty.