Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Hansard source

The Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 represents one of the greatest political backflips of all time. Just 12 months ago the Treasurer, the Prime Minister and members on that side of the House were saying that there were no issues with executive remuneration in the banking industry, there was nothing to see here, there were no problems and we didn't need a royal commission into banking and financial services in Australia—everything in our banking industry was hunky-dory—despite the fact that millions of customers were being ripped off and there were scandals in wealth management, insurance and retail banking. The government chose to ignore those, and it was only when the banks agreed that they were dragged kicking and screaming to agreeing to a royal commission. This bill does represent part of that backflip on the issue of executive remuneration in the banking industry, because for many, many years now there have been cases of rip-offs of customers and scandals, particularly in wealth management and insurance, where customers have lost millions and millions of dollars, lost their homes, lost out on insurance in cases of severe illness and death, lost their jobs and lost their ability to pay the household budget, but no-one was held accountable—particularly the big banks and the Australian deposit institutions that were responsible for those activities and left those hardworking Australians in those difficult positions.

This bill seeks to implement an accountability regime for executive remuneration in our banking industry. It proposes to strengthen the responsibility and accountability framework for senior directors and executives of authorised deposit-taking institutions, or ADIs, and their subsidiaries. The banking executive accountability regime, or the BEAR as it's become known, is part of the government's more accountable and competitive banking system program, which was their response to issues in the banking and financial services industry and their claimed credible alternative to Labor's proposal for a banking royal commission in banking and financial services. It would be remiss of me not to mention the fact that the government has had to be dragged kicking and screaming to the measures contained in this bill, and that's been put forward as a way to silence calls for a royal commission into banking.

Look at all of the scandals that have occurred over the last decade or so in banking. The wealth management scandals that we saw in the Commonwealth Bank and that have subsequently been identified in all of the big four major banks—which have meant they've had to pay back money to customers in those circumstances, many of whom have been fighting for long periods of time to get recompense, and some of whom are still fighting—were uncovered over the course of the last couple of years. There have been rip-offs in insurance, particularly CommInsure but also in other insurers throughout the country. There was the scandal relating to AUSTRAC and the Commonwealth Bank not reporting transactions through their intelligent deposit machines that were meant to be reported, because they were above certain thresholds contained in our antiterrorism and financing laws. People have been ripped off. Millions of Australian customers have been ripped off. Businesses, including small businesses, have shut down because of some of these rip-offs. Jobs have been lost. The pressure and stress that this put on a number of Australians and their households and businesses was immense, and the government chose to ignore them. The Turnbull government chose to ignore them for many, many years, saying that there wasn't a need for a royal commission into banking.

It is only when the executives of the big four banks wrote to the Prime Minister and said to him, 'We want a royal commission now, because we're sick and tired of the blame game and all of the damage that it is doing to our reputations,' that the Prime Minister rolls over. It's only when the big four banks say, 'It's okay to have a royal commission,' that this Prime Minister and this government roll over and finally give the Australian public what they want.

Then, in the process of doing so, he seeks to obfuscate the issues associated with banking and tries to point the finger at the industry super funds, where there've been no examples of rip-offs and scandals to the degree associated with the big four banks. Yet it's as if the Prime Minister spat the dummy and said, 'Well, if I have to give them a royal commission, I'm going to make sure that I go after the industry super funds as well, because they've got union representatives on their boards.' It says everything about this government's approach to financial services and banking in this country and to dealing with the issues and working in the interests of small businesses, families and pensioners.

It's lamentable that the government has ignored the pleas of the Australian public for greater accountability, particularly in the big four banks. Only the coalition have had such contempt for the Australian people that they would side with the big four banks over the course of the last few years in avoiding a royal commission. It's particularly the phrase 'executive accountability' that didn't seem to exist in their lexicon up until late last year, when they capitulated to calls for a banking royal commission.

It is worth noting what the Treasurer said just a year ago about the regulation of executive remuneration. He said:

In terms of those in senior corporate positions and what they are paid, they are matters for their boards … it is up to those companies to get the balance right, in terms of how they set those arrangements with their shareholders and their overall accountability to the Australian public for the social licence that they have to operate in Australia.

That was the Treasurer less than 12 months ago saying, 'Nothing to see here—no issue with banking accountability,' in terms of what they were paying their executives, despite what had been uncovered through successive parliamentary inquiries and investigations by journalists and the regulatory bodies into what was actually going on with the management of our big four banks and executive remuneration.

Finally, they've acted, and they've acted through this bill—a bill that creates an accountability framework that ADIs must comply with, with exemptions granted by the Treasurer or where it's a foreign ADI not operating a branch in Australia, or where they may have contravened a law of a foreign country. It defines an accountable person, for the purposes of the framework that's being developed, as a person who:

… has actual or effective … responsibility:

(i) for management or control of the ADI; or

(ii) for management or control of a significant or substantial part or aspect of the operations of the ADI or the relevant group of bodies corporate that is constituted by the ADI and its subsidiaries.

The bill sets out the accountability obligations of the ADIs and accountable persons. For instance, an ADI must take reasonable steps to conduct its business with honesty and integrity, and with due care, skill and diligence. It must deal with APRA in an open, constructive and cooperative way and, in conducting its business, prevent matters from arising that would adversely affect the ADI's prudential standards or prudential reputation. The bill sets out deferred remuneration obligations of an ADI, meaning an ADI must defer a proportion of the remuneration of an accountable person for a period of four years, the proportion generally depending on the size of the ADI. It also sets out notification obligations of an ADI, with ADIs to give APRA statements detailing the roles and responsibilities of each accountable person, and accountability maps identifying the lines of responsibility through the ADI group. It sets out a civil penalty regime for ADIs where they breach obligations—up to one million penalty units, or $210 million, for large ADIs.

A number of issues have been identified with the implementation of this particular package, through a Senate inquiry, and the shadow Treasurer has outlined those. I won't go into those in detail, but they relate particularly to smaller ADIs and their ability to meet the compliance obligations under this proposal within the time frame. Labor is suggesting and the shadow Treasurer will move, in the consideration in detail stage, an amendment to that effect to give more time to some of those smaller ADIs.

In conclusion, the case for greater accountability in the banking sector has been made out repeatedly by the tragic losses and the cases of fraud and deception that have befallen many across all corners of the country. Through the House Economics Committee, which I've been privileged to be a member of, and through the banking inquiries with the big four banks, we've identified some of those issues. But, unfortunately, we were given precious little time questioning the big bank CEOs to get to the bottom of the various injustices that have been perpetrated upon banking customers. Twenty minutes simply isn't enough time to question one of those CEOs about all of the scandals and rip-offs that have been going on in the banking industry over the course of the last decade. Nonetheless, I think the committee was very effective in hearing some of the revelations that have occurred in this industry, particularly around executive remuneration, most notably: the current, soon to be former, boss of CBA, Ian Narev reminding us that 40,000 customers had been charged for financial advice that they never actually received; and CBA admitting that no executives had lost their jobs over the wealth management scandal or the CommInsure scandal or the AUSTRAC financial advice scandal. All the CEOs refused, during those inquiries, to make public the number of executives earning above $1 million. But at the end of the day, we saw that that banking inquiry was hopelessly inadequate to get to the bottom of the toxic banking culture that we've had in this country for some years now.

Labor knew from day one that the only way to shine a light on what was actually going on in this industry was through a fair dinkum royal commission: a fair dinkum royal commission that provided an independent arbiter, with the probative powers necessary to call the banks and get to the bottom of what was going on in this industry. And that's what the Australian people have wanted for some time now. They are sick of the rip-offs and the scandals; that's left a bad taste in their mouths about banking in this country and they wanted a royal commission, but the Prime Minister denied that—only agreeing once the banks had given him the okay for it to occur. For 18 months Labor has been calling for a royal commission and it has been met with only obfuscation and ridicule by the government. Rather than listen to the victims, the government stuck with their talking points slamming the idea. It was only when the banks themselves realised that the writing was on the wall that the government came around.

This is not the first time that this has occurred in financial services. We look back to the Future of Financial Advice reforms, the FoFA reforms, which introduced a 'best interests' duty—a duty that ensures that a financial adviser must act in the interests of their customer, their client: the person that they're supposed to be working for. And what did those opposite do, when Labor introduced those laws in the parliament some years ago when we were in government? They opposed them. They opposed financial advisers operating in the best interests of their customers. It says everything about the government and what they stand for. Then, when they got to government, they tried to overturn those laws. They tried to water down that best-interest duty in the parliament. They got it through this place and then they got it through the Senate. It was only when the Senate saw what was going on in banking—that there was a problem there—that they changed their minds and removed their approval for those changes to be made. The same happened with superannuation reform as a result of the Cooper review into superannuation and the establishment of MySuper accounts. Again, there was opposition from the government to those sorts of things.

Even when Labor introduced its executive accountability regime generally—the two-strikes rule, as it's known—it was again opposed by those opposite because they didn't want to shed a light on what was actually going on in Australian corporations and give shareholders a say in the management of those companies that they had a stake in and that were paying ridiculous salaries and bonuses and providing share schemes for executives who were doing the wrong thing by them. It says everything about the government's approach to banking and finance and whose side they are on. They're certainly not on the side of the customer, of the client, of the small-business person, of the family or of the pensioner when it comes to banking. It was only when the banks agreed to a royal commission that the government rolled over and changed their view. They've chosen a piecemeal approach to solving this problem of executive remuneration and the problems in banking, and it's sad that they have had to be dragged kicking and screaming to the table on this issue.

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