Ann Sudmalis (Gilmore, Liberal Party) Share this | Hansard source

I would like to begin this small contribution to the debate by thanking Treasury, the minister, the Hon. Scott Morrison, and staff for taking on changes to legislation to address many of the recommendations that have been derived from a number of parliamentary inquiries where there is a clear direction for government to take. Such legislative application is an example of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017. This bill amends the Banking Act to establish a Banking Executive Accountability Regime, commonly known and frequently referred to in here as 'the BEAR'.

The BEAR is a strengthened responsibility and accountability framework for the most senior and influential executives and directors in banking groups. To support the BEAR, the bill gives the Australian Prudential Regulation Authority—APRA—new and strengthened powers. Contrary to some of the arguments presented by those opposite, this bill is not directing the boards of banks about the money to be paid to their executives. It is, however, a strengthening of the accountability of those very executives, making sure they do the job we expect them to do. This is about re-establishing the confidence and faith we had in our banks as an institution of reliability and the foundation stone of the economy of our nation. Over the last decade in particular, the awareness of the financial activities of our banking institutions has been growing, and there is increased scrutiny and pressure on those organisations. This legislation is part of a suite of changes in legislation and regulation to make our banking industry better.

Working on each issue in this industry has been a thorough and important process. It has, however, been misunderstood in the general public and, to some degree, by the media. Late in 2017, it became very apparent that the public expected a royal commission into banking, rather than the rock-steady changes to regulation. While those opposite say, by throwing it in the debate constantly, that this current bill relates directly to that royal commission, that is patently untrue. This work was already underway. May I remind those opposite: you can't bring in a new bill as a result of the royal commission inquiry until that inquiry is complete. Seriously, do not confuse our public. That banking royal commission is only just beginning.

The banking sector plays an essential role in promoting economic growth and a critical role in the lives of everyday Australians. In order for it to operate in an efficient, stable and fair way, the community has to trust that sector. In Australia, a series of incidents involving poor behaviour by banks over recent years has raised the question of whether there are emerging systemic issues that are undermining trust in our banks.

For more than four years I've been involved in lobbying the government for an investigation like or equal to a royal commission, because I'm well aware of the difficulties faced by so many Australians who've been victims of banking actions and policies. Strategies that I have heard and seen evidence of include the following, one of which is referred to as the bad banking strategy. During inquiries, some statements that resulted in the examination of banking executive behaviour were confusing and seemed to be deliberate misinformation. When asked if they manipulated loans and if this was a banking activity, the response would be something along the lines of: 'Well, what I can say at a general level is, as I've said before, there is absolutely no commercial advantage, and therefore no incentive whatsoever, for this bank or that bank to put borrowers in default. Both parties lose out. There is no incentive.' I've seen conclusive evidence that that, in fact, is not the case, and yet that is part of the inquiry. Homes and businesses have been lost over manipulated loan books with loan-to-value ratios being changed, yet the payments of those mortgages were continuing. There were dozens of other stories, yet no-one in the bank was responsible. There are farmers now living in other people's homes or transitioning in sheds. They were great farmers. What is wrong with our banking industry when the interests of the shareholders are held in much greater esteem than those of the customers?

We all know that the economy has a cycle. It has elastic terms which make economic downturns difficult to predict. However, we do not have (a) adequate rescue options for smaller customers and (b) regulations in place that prevent banks taking the decisions they have done in the past, which have led to very difficult financial circumstances.

Under the BEAR, banks and their most senior executives and directors will be expected to conduct their business and responsibilities with honesty, integrity, due skill, care and diligence. They'll need to deal with APRA in an open, constructive and cooperative way and prevent matters from arising that would adversely affect the authorised deposit-taking institution's prudential reputation or standing. Where these expectations are not met, APRA will be empowered to more easily disqualify the individuals, ensuring that banks' remuneration policies result in financial consequences for individuals. In fact, people have to take responsibility for the decisions over which they are in charge. APRA will be allowed to impose substantial fines on banks. Banks will be required to register individuals with APRA before appointing them as senior executives and directors. APRA will also get additional examination powers—albeit at a cost, but it's a good investment—which will help to investigate potential breaches of the BEAR.

Personally, I'd really like to see a process where bank executives, failed or successful, are not able to be part of ASIC, APRA or the ACCC, either before or after their banking executive career position. While that is a very personal view, it is not without basis. On many occasions, it was difficult during committee inquiries to get straight answers from different representatives, and it seemed that was a result of the interrelationship between past working experiences of those different organisations. In my opinion, they need to be quite separate.

Properly designed measures, such as the BEAR, will make part of our financial system safer, and we'll feel reassured that integrity is returning to an institution that we have held very precious until the recent past.

Reckless banking practices such as dangerous lending conditions are the responsibility of the banking executive. The board and the executives sign off on any policy change and they should be held accountable. The industry itself knows that the issue is not just a few bad apples. It is a chronic cultural function. They've admitted they need to change the culture, but they have yet to do that. It is to be a process of change. These mechanisms are intended to deter poor bank behaviour and ensure the banks and individuals are held to account, which is what the Australian nation expects of them.

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