Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Hansard source

Mr Deputy Speaker, thank you for this opportunity to outline Labor's position on the Financial System Legislation Amendment (Resilience and Collateral Protection) Bill. In a week that will be dominated by some fairly willing and high-profile debates on economic policy, the very technical changes in this bill are unlikely to attract the same attention, but that does not mean that they are not very important for the stability of our financial system. Though we may find much to disagree on in this place and beyond in the next week over the budget and indeed over the next 61 days, I think it is important to mark that, when it comes to this bill and when it comes to financial resilience and living up to our international obligations, both sides of the House do agree in this instance.

The bill makes changes to the regulation of over-the-counter derivatives that come out of international agreements made after the global financial crisis. Clearly the GFC made us rethink a whole host of regulatory measures in our financial system. The legislation being discussed today relating to OTC derivatives is one such example.

Labor has always played a productive role in supporting the development and improvement of Australia's financial regulation. The floating of the dollar, the sale of the Commonwealth Bank, deregulating the banking system, ending centralised wage fixing and the beginnings of Reserve Bank independence: all were key features of the legacy of the Hawke and Keating governments. Of course the last Labor government took decisive action to keep Australia on the path of growth during the last financial crisis. It is extraordinary that we have had a quarter century of uninterrupted economic growth in this country when you consider that within that period there was the sharpest synchronised downturn in the global economy since the Great Depression in the 1930s. This is something we should all be proud of.

Our decisive action during the global financial crisis included being instrumental in the development and elevation of the G20, which was key to the international response to the crisis. I did get to work on some of these issues in a former role here. I think the part played by Australia is, as I said, something that all Australians should be proud of. Certainly both sides of the parliament, the business community and every Australian have cause to be proud of what Australians achieved together during the global financial crisis, including the role that we played in the big international forums and principally the G20. We are pleased now to be supporting this bill, which comes out of one of those international agreements—in this case, the one on margining requirements for derivatives. It was part of a process kicked off by the G20.

The effect of this bill will be to improve the stability of the financial system and to bring Australia's derivative-trading sector into line with internationally agreed standards. It is expected that these measures will ease the financial burden of compliance with international standards by $3.9 million annually.

This bill implements the agreement between the Basel Committee on Banking Supervision and the board of the International Organization of Securities Commissions on margin requirements, which are being phased in internationally from 1 September this year. The agreement came out of several major pieces of work by the G20. It goes back to about 2009. With input from the then Treasurer, the member for Lilley, the G20 committed to improving transparency, mitigating system risk and protecting against market abuse in derivatives markets. By 2011, it was recognised that not all derivatives are suitable for central clearing, so the G20 called for uniform margin requirements for OTC derivatives. Australia has already indicated its support for this international agreement, and that is a good thing. In November 2015 our own Council of Financial Regulators announced its intention to implement the Basel-IOSCO framework for margining and in February this year APRA released its proposed margining requirements, which will become effective by 1 September 2016 and be phased in over several years.

Participants in non-cleared derivatives markets have traditionally transferred margin, otherwise described as collateral or credit support, by way of absolute transfer rather than by way of security. The new requirements will likely mean most participants transfer margin by way of security instead.

APRA's margin requirements will only apply to institutions with significant activity in OTC derivatives, where the institution or the group it is a part of has average month-end notional outstanding OTC derivatives of greater than A$3 billion. The Council of Financial Regulators has indicated it will consider the approach for non-APRA regulated institutions this year. Several other developed countries, including the UK and EU members, have enacted similar legislation to clarify their own securities laws.

Labor supports measures to improve the stability of the financial system, noting the negative impact that unsecured derivative contracts had on the deepening of the global financial crisis. That is why we support this bill and why we support responsible steps to bring our derivative-trading sector into line with internationally agreed standards.

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