Matt Keogh (Burt, Australian Labor Party) Share this | Hansard source

The ASIC Supervisory Cost Recovery Levy Bill and cognate bills would establish a levy on industry to recover ASIC's regulatory costs. ASIC is a regulator that I had a long-running involvement with in the past as a federal prosecutor before coming into this place. In particular, I worked in the area of prosecuting corporate crime and I worked closely with ASIC throughout that time. This legislation and this idea have had a long genesis, which I have followed quite closely. The bills implement a new industry funding model. Under that model, from the next financial year, ASIC's regulatory costs will be recovered from the corporate sector and the financial services sector instead of being borne by the taxpayer. It is anticipated that next year those costs will be in the order of $240 million.

Labor supports this legislation and the principle underpinning this legislation: that the industry that is regulated by ASIC should fund its costs. This is a principle that already applies to a number of other regulators. I know many before me have mentioned that this principle applies to APRA, which of course regulates banks and insurers and superannuation to some extent. But the principle also applies in a number of other areas, such as NOPSEMA, its predecessor NOPSA, and a number of other spaces in state government that are funded by the industries that they regulate.

Part of this is intended to establish a price signal to drive economic efficiencies in the way in which resources are allocated within ASIC and to improve its transparency and accountability to the industries that it regulates and of course to the public at large about the work that it is doing and where it is spending the money that it has. It also, I suppose, provides a bit of a price signal overall to industry, in that, if it does not need as much surveillance and enforcement maybe it will cost a little less to run.

On the basis of what is being put forward, the financial sector will contribute to some of the needs for the services and the benefits of them and it should contribute to some of the costs. That is going to be reflected in that ASIC as a corporate regulator will recover some of its costs from all companies. Different costs will be recovered from companies of different sizes. And, of course, as the regulator of financial services, financial service providers will provide other parts of those costs.

For a long time the banks, in particular, and the ABA—as their representatives—were opposed to this idea, figuring that they were already contributing too much to APRA, as their other regulator. But then suddenly we saw a shift; we saw a movement from the ABA and the Australian banks where they fully supported this concept of industry funding for ASIC. I have to say that took me a little by surprise. But it would appear that the reasoning behind that was that the Australian banking sector came to a realisation and said, 'Actually, ASIC needs our support; ASIC needs some help; ASIC needs greater funding, and we need to be able to kick that in.'

There is an interesting concept that arises here. One of the really important things about any sector that is funding its own regulator is making sure that we keep that distance between the regulator and those that they regulate. But I think the fundamental point that was being put by the banks and why they support this is that they see that this is the way in which the regulator can become better at doing its own job. I do not say that in a cynical way of better regulating the banks from the banks' point of view. What they appreciated was that ASIC, in particular, needs to not only upskill but also expand its capability in a range of complex financial areas that it regulates.

Effectively what the banks are saying is, 'We know government won't give more money to ASIC.' In fact, if we look at the history of this government we see that it took a large chunk of funding out of ASIC only to discover that that was such a bad idea that it had to put some of it back in. It put it in and then it took a very long time for ASIC to get to the point where it was able to hire more staff, fill those roles and expand its capability. But what underlies this is that they are saying, 'We'll fund this because we know there needs to be an expansion; there needs to be better capability in ASIC. We know that they need to be able to expand their cost base and pay for that, and government won't supply that.'

This brings me to one problem that I am foreseeing in this legislation. It is not a reason to oppose the legislation, but it is something that government is going to have to think through and work out on a different model. The way this works is that government will allocate a cost base to ASIC and say, 'This is what you are going to be able to spend for the year,' and then that money will be recovered through this levy at the end of each year. That means that the capacity for ASIC to say, 'We need to expand; we need to add some more capability over here; we need to increase our capacity to investigate, enforce or regulate in a particular sector,' without diminishing its capability and capacity in other parts of its role, will require additional upfront funding from government.

Even if it can recover that levy subsequently, it will still require a decision of government to fund that additional capability and capacity for ASIC. I know from speaking to other regulators that have similar models where they have to go to government to get an advance decision on being able to expand a capability or capacity that often that is not forthcoming. The idea that what sits behind is that industry has to pay where see the need to expand capability and capacity in our regulator will not actually exist unless the government makes a decision. That is different to some of the other levy models that are in place in other areas in this sector—I think the NOPSEMA model operates a little differently to the way that is being implemented here for ASIC. I flag that as something for government to be aware of. If part of the idea here is to make sure that you have a regulator that is able to respond to issues in the sectors that it is regulating, its capacity to do that is not being freed up by this legislation necessarily, and that is something that we need to be fully aware of.

As I said before, that has to be viewed from the point of view that in the 2014 budget this government actually slashed the funding for ASIC. It took money out of ASIC. Of course, it took a long time. It really took until this opposition made the strong call, which is supported so resoundingly by the Australian community, for there to be a royal commission into the banking sector and highlighted that, time and time again, ASIC as a regulator had failed to be proactive and to pick up on issues which had to be brought forward by whistleblowers coming out of the banks and coming to parliamentary committees and to other inquiries. It was not until then that the government finally tried to bite a bullet and said, 'Okay, we'll put more money back into ASIC.' They said they were putting more money into ASIC, but really all they were doing was restoring the money that had been previously taken away from ASIC by the government. So I highlight this problem with the funding model.

Which then brings me back to this: it is excellent that we have a well-functioning, well-funded, highly capable corporate regulator in this country. That is absolutely necessary. It is especially necessary in a country like Australia where we have such a high proportion of corporatisation of businesses of all sizes. It is especially important when we have such a wide variety of companies incorporated in Australia, from mum and dad businesses and the corner store all the way through to some of our biggest multinational mining companies, our retail sector and our tech sector. All of those different areas need to be regulated by ASIC and, of course, our financial services sector, which are not just regulated as corporates but are regulated for the essential services they provide to our economy.

Which brings me, then, to a royal commission into banking. When we talk about the capability and the capacity of ASIC, one thing is fundamentally true here: the regulation of our banking sector is quite diverse and separated across many different regulators. There are some clear strengths in having a separate financial services regulator, consumer regulator and prudential regulator, but what we have seen—especially what we have seen through a number of inquiries that are currently running in this parliament and that have previously run in this parliament—is that the capacity to look behind is not currently sitting in the way our financial services sector, and in particular our banking sector, is operating.

What we have not had is the great capability of being able to look at not just whether the law is being broken but also how effective we are at catching that. I can tell you right now, as someone who has worked in the corporate regulatory space, as someone who has worked as a prosecutor in corporate crime, that one of the biggest issues is actually working out whether our law is effective in making sure that these things do not happen, whether our regulators are effective at finding those things when they occur and what the unintended consequences of our law are in the way that it operates and the way that it drives behaviour. So much of the financial services sector and the way that it operates is about looking at what the unintended consequences of behaviour that is driven by the law as it operates are and what policies are put in place.

That brings me fundamentally to culture, and this is where I want to finish. The chairman of ASIC, senior people in ASIC and senior people across all of our regulators have spoken often—and in fact, every banking CEO who has was appeared in front of our banking inquiry, which I am a part of, over the course of the past 12 months has made the point—about culture. But what has fundamentally not been looked into is what the actual culture is.

One of the great missings from all of the inquiries that we have had to date in this parliament and in so many other fora has been what is happening at the board level and what is happening at the ground level. Everyone talks about culture coming from the top, and we have heard a lot of talk from the CEOs of banks about culture and the culture that they are instilling in their organisations. But the reality is that the top is above that. The top is the chairman and chairwomen of those boards and the directors of those boards. What is the culture that they are instilling in the senior executives of their banks? And what is the culture that those executives are distilling all the way down through their organisations?

The key thing here is this: the capacity of a single parliamentary inquiry, the capacity of a prudential regulator, the capacity of an ABA led inquiry or the capacity of ASIC to look deeply and to think deeply about what the fundamental causes of the problems are that we are seeing and therefore what changes are required—not just in the law and not just in our regulators but in the culture of these organisations—for what does not exist in the existing entities that we have. We need to have a full exploration of all of these issues, because we know from time and time again and from people coming before us is that there are many individuals throughout this nation who have been ripped off badly and that have had a bad experience. They have seen themselves suffer financially and therefore suffer also the mental anguish and mental health issues. In some of the worst experiences people have taken their own lives because of these sorts of activities; we need to be able to get to the bottom of that, but we also need to be able to make sure that we fix it going forward. That will only happen if we have a full exploration of all of these issues—not just the law and not just the regulator but also the culture within these organisations.

I commend this legislation. I do, as I said, think there is a problem that government needs to look out for. At the end of the day we cannot just leave all these things to ASIC; we need to have a royal commission into banking as well.

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