Senate debates

Tuesday, 25 October 2022

Bills

Financial Accountability Regime Bill 2022, Financial Sector Reform Bill 2022, Financial Services Compensation Scheme of Last Resort Levy Bill 2022, Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022; Second Reading

5:32 pm

Photo of Jenny McAllisterJenny McAllister (NSW, Australian Labor Party, Assistant Minister for Climate Change and Energy) Share this | | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

FINANCIAL ACCOUNTABILITY REGIME BILL 2022

SECOND READING SPEECH

This Financial Accountability Regime Bill 2022 establishes the Financial Accountability Regime, or FAR, which replaces and extends the Banking Executive Accountability Regime following a number of recommendations from the Banking Royal Commission.

The Bill underscores the Government's commitment to finalise the action necessary to fully address the Banking Royal Commission and implement measures that compel the financial services industry to act in the public's interest.

Financial services executives make decisions that impact upon the lives of ordinary Australians who have no choice other than to engage with the system that they operate. As a result, the community reasonably expects high standards of accountability and integrity of financial services directors and executives.

The Banking Royal Commission revealed too many instances of misconduct across the sector and highlighted that industry practices often did not meet community expectations. These issues were frequently found to be systemic and part of corporate cultures that can only be improved and remedied from the top-down.

The Bill would establish the FAR with the same design specifications proposed by legislation introduced in October 2021 which lapsed when Parliament was dissolved. The requests made by the former Senate Standing Committee for the Scrutiny of Bills and the Senate Economics Legislation Committee were considered and have been addressed in the Explanatory Memorandum accompanying the Bill.

The FAR would extend the existing responsibility and accountability framework to the insurance and superannuation sectors, to ensure that heightened accountability obligations are in place across the wider financial industry.

The FAR ensures that where these community expectations are not met, appropriate consequences will follow.

I would now like to turn to the provisions of the Bill.

The FAR imposes heightened accountability obligations for prudentially regulated financial institutions; meaning banks, insurers, and superannuation entities. These institutions are referred to as accountable entities in the regime. The FAR regulates directors and the most senior and influential executives of accountable entities. These individuals are referred to as accountable persons in the regime.

The FAR imposes four core sets of obligations. Firstly, accountable entities and accountable persons must conduct their business in a proper manner, which includes acting with honesty and integrity, and with due skill, care and diligence; dealing with Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) in an open, constructive and cooperative way, preventing adverse impact on the accountable entities' prudential standing and preventing breaches of certain specified financial services laws by their accountable entity.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operations, and defer at least 40 per cent of the variable remuneration of accountable persons for a minimum period of 4 years. Variable remuneration will be reduced where accountability obligations are breached. Ensuring there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions.

The FAR will be supported by the imposition of notification obligations which require accountable entities to provide APRA and ASIC with certain information such as information relating to the responsibilities of their accountable persons or breaches of certain obligations by the accountable entities or their accountable persons.

Both APRA and ASIC will jointly administer the regime.

They will have the power to disqualify accountable persons, investigate suspected breaches of the regime, and direct entities to take remedial action and to apply to the Federal Court to impose a civil penalty on accountable entities.

The FAR will apply to the banking industry six months after Royal Assent and to the insurance and superannuation industries eighteen months after Royal Assent.

Through this Bill, the Government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations, and shifting their focus from profit at all costs to outcomes for all Australians.

Full details of the measure are contained in the Explanatory Memorandum.

FINANCIAL SECTOR REFORM BILL 2022

SECOND READING SPEECH

The Financial Sector Reform Bill 2022 is part of a package of Bills that finalises a number of remaining recommendations from the Banking Royal Commission. It also delivers on the Government's commitment to ensure safe and well-regulated consumer markets for credit products, such as small amount credit contracts (also known as payday loans) and consumer leases.

It is disappointing that I have to introduce these measures here today. These measures all should have been implemented and introduced by the previous Government.

In February 2019, the former Treasurer promised to deliver his response to the Banking Royal Commission within two years. Even with Labor's full support, the Coalition chose not to prioritise the measures contained within this Bill that implement the response to the Banking Royal Commission.

The measures relating to small amount credit contracts date back even further—back to a 2016 report that laid out a clear path for the Government to act on payday lending. For nearly six years, the Turnbull-Morrison Government failed to act on this report.

These failures reflect the Coalition's continued unwillingness to stand with Australians against misconduct in the financial service sector. This is a Coalition that voted against the Banking Royal Commission 26 times before finally acceding to it.

Nevertheless, I hope that we will secure the Parliament and the Opposition's support to the sensible measures I am introducing today. Schedules 1 and 2 to the Bill make minor and consequential amendments to various Commonwealth laws to support the Financial Accountability Regime and provide transitional arrangements relating to the repeal of the Banking Executive Accountability Regime (BEAR).

Schedule 3 to the Bill establishes a financial services Compensation Scheme of Last Resort (CSLR). The Government has committed to introducing a CSLR and today we deliver on this commitment.

This Bill is part of a package of Bills that establish and fund the CSLR.

In 2019, the Banking Royal Commission endorsed the 3 principal recommendations of the 2017 Supplementary Final Report of the Review of the financial system external dispute resolution and complaints framework (Ramsay Review) regarding the establishment of a CSLR. The Ramsay Review noted the inadequacy of existing redress measures in ensuring all consumers are compensated for losses, and recommended the establishment of an industry-funded and forward looking CSLR that targets the areas of the financial sector with the greatest evidence of need.

The CSLR is designed to provide compensation to consumers who have received a relevant determination in their favour by the Australian Financial Complaints Authority (AFCA), where that determination remains unpaid.

Claimants may receive compensation of up to $150,000 where they have an unpaid AFCA determination in their favour for the following financial services or products: personal advice on relevant financial products to retail clients, credit intermediation, securities dealing and credit provision. The cap on claims helps maintain the ongoing financial sustainability of the scheme, whilst balancing the interests of consumers.

The operator of the CSLR will be a subsidiary of AFCA, limited by guarantee and operate on a not-for-profit basis. The operator must act in line with the primary legislation and regulations, with compliance ensured by ASIC. The operator will be managed by a Board consisting of an independent Chair appointed by the Minister, a person who is a member of the board of AFCA, and an actuary who has at least 5 years of actuarial experience.

The CSLR is designed to act as a last resort mechanism. After the claimant has notified AFCA that their determination remains unpaid, AFCA will be required, where appropriate, to take steps to ensure the relevant entity pays the compensation owed. The CSLR operator will also need to confirm that no other scheme is available to pay all or part of the compensation owed, including any state or territory arrangements.

Measures have been added to reduce the inclination of financial firms from relying on the CSLR and to facilitate better compliance with AFCA determinations. For example, ASIC must cancel an AFCA member's Australian financial service licence and/or Australian credit licence if the CSLR provides compensation to a claimant.

The Government notes the recommendations made by the former Senate Economics Legislation Committee, which were tabled on 15 February 2022, on the CSLR Bills introduced by the previous Government, including the recommendation to include managed investment schemes in scope of the CSLR. There have been no changes to the scope of the CSLR and the provisions being introduced today are substantively the same as those considered by that Committee. The CSLR provisions have only been subject to minor and targeted amendments to reflect the passage of time and further stakeholder feedback. The scope of the CSLR reflects financial products that have a history of unpaid determinations and have been subject to significant regulatory reform which have reduced the risk of misconduct. The Government will continue to consider potential enhancements to the regulatory framework of managed investment schemes.

Schedule 4 to the Bill amends the National Consumer Credit Protection Act 2009 (the Credit Act) to strengthen the consumer protection framework for consumers of small amount credit contracts and consumer leases through the introduction of new obligations for providers of these credit products.

SACCs are loans of up to $2,000 where the term of the contract is between 16 days and 12 months while a consumer lease is typically a contract longer for household goods longer than four months where the consumer does not have the right or obligation to purchase the goods.

These measures give effect to the Government's response to the 2016 Review of Small Amount Credit Contract Laws which identified a number of predatory lending practices that lead to some consumers experiencing financial hardship.

Key reforms including strengthened caps on the amount of income a consumer can spend on repayments before they are ineligible to enter into certain credit products; caps on the cost of consumer leases; equal repayment intervals for small amount credit contracts; and prohibitions on certain types of unsolicited communications and referrals.

Combined with anti-avoidance provisions, these reforms will enhance the existing consumer protections, including responsible lending obligations, while making sure these credit products are more affordable and less harmful.

The Government acknowledges that most of these reforms will require some time for industry to implement, so the bulk of the proposed changes will commence 6 months following Royal Assent.

The Legislative and Governance Forum on Corporations was notified of this Bill as required under the Corporations Agreement 2002 and the National Credit Law Agreement 2009.

Full details of the measure are contained in the Explanatory Memorandum.

FINANCIAL SERVICES COMPENSATION SCHEME OF LAST RESORT LEVY BILL 2022

SECOND READING SPEECH

This Bill is one of two Bills which form the levy framework for the financial services Compensation Scheme of Last Resort (CSLR).

The CSLR levy framework is designed to establish an ongoing annual levy for entities that fall under a subsector in scope of the scheme. The framework will issue levies in advance of a financial year, based on expected claims in that upcoming financial year. The first ongoing levy is expected to be issued from January 2024 for the 2024-25 financial year.

The first year of operation (2023-24) will be partly funded by a one-off levy issued in the 2023-24 financial year, imposed on the ten largest financial sector entities (excluding private health insurers and superannuation trustees). This will fund the payment of compensation and associated costs relating to complaints lodged with AFCA, up to the date the Bills were introduced into the House of Representatives.

The ongoing levy amount in the subsequent financial years for a member of an in- scope subsector will be determined in line with the regulations. The regulations will impose levies on members consistent with the approach applied under the Australian Securities and Investments Commission (ASIC) industry funding model. The levy will factor in compensation amounts payable, associated Australian Financial Complaints Authority (AFCA) complaint handling fees, and administrative costs of the CSLR operator and ASIC.

The CSLR is designed to be financially sustainable and provide assurance to relevant financial market sectors about the maximum amount expected to be levied. The scheme applies subsector caps of $20 million and an overall scheme cap of $250 million. This limits the amount leviable within a single levy period, whilst maintaining the ability to accommodate any unexpected large-scale events or failures. The levy framework provides the Minister with the ability to issue special levies to in-scope and out-of-scope firms, in response to higher-than-expected outlays such as 'black swan' events.

Full details of the measure are contained in the Explanatory Memorandum.

FINANCIAL SERVICES COMPENSATION SCHEME OF LAST RESORT LEVY (COLLECTION) BILL 2022

SECOND READING SPEECH

This Bill is one of two Bills which form the levy framework for the financial services Compensation Scheme of Last Resort.

The one-off levy imposed for the first year of operation (2023-24) will be issued by August 2023, and the ongoing annual levy will be issued in advance of each new financial year, with the first to be issued from January 2024 for the 2024-25 financial year.

The CSLR operator will estimate compensation and AFCA complaint costs to be paid out in the upcoming financial year, as well as associated administrative costs. These estimates will then determine the total levy amount for each sub-sector to meet expected outlays in the upcoming financial year.

Levy notices will be issued by the Australian Securities and Investments Commission (ASIC). ASIC will also be responsible for the collection of levies and have the power to facilitate and enforce the payment of levies. These powers include the ability to seek information from relevant firms for the purpose of correctly calculating the firm's levy, to impose penalties for late payment and to impose a shortfall penalty where incorrect information has been provided.

Full details of the measure are contained in the Explanatory Memorandum.

Debate adjourned.