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

These bills represent the second stage of the ASIC Industry Funding Model, and Labor supports their passage. On 1 July 2017, the first stage of the ASIC Industry Funding Model commenced, with the introduction of industry levies to recover the costs of ASIC's regulatory activities. This allowed ASIC to apportion and recoup its regulatory costs from each of the sectors and subsectors that it regulates.

Labor supported the bills to introduce that ASIC Supervisory Cost Recovery Levy. We're supportive of the principle that ASIC, as a regulator, recover regulatory costs that should be borne by those entities that cause the need for the activity that ASIC undertakes in regulating the industry. This is a principle that's been applied in relation to the Australian Prudential Regulation Authority, and this second stage deals with fees for services. It's based on the principle that ASIC's costs for specific regulatory activities requested by an entity should be recovered from that entity. This is to the extent that the fee directly represents the efficient costs of providing the regulatory activity or service, and it's on the basis that such services primarily benefit the entity that sought them.

Under this scheme of bills, these fees will be paid by entities for ASIC's demand-driven services. Some of the services that are intended to be captured by these new arrangements, amongst other things, are document compliance reviews, licence applications or variations by Australian financial services licensees and Australian credit licensees, and applications for registration by managed investment schemes. We understand that the fees attached to ASIC forms relating to updating the ASIC registry are not in the intended scope for this bill. ASIC has released a cost-recovery implementation statement setting out how it proposes to implement these fee-for-service elements of the industry funding model. We also understand that the fee amounts would be reviewed every three years and that these reviews will include, importantly, consultation with the industry.

The minister has assured the House, in her second reading speech, that 'The government has consulted extensively with the industry on the design of the ASIC Industry Funding Model.' But, of course, when it comes to ASIC and financial services regulation, this government, unfortunately, has a very poor record, particularly when it comes to properly funding and resourcing ASIC to do its job. We've seen a litany of scandals in the financial services and banking industry over the course of the last decade in Australia that have led to the loss of millions of dollars for many hardworking Australians and their families and, importantly, small businesses as well.

When it comes to ASIC, the recent history shows quite clearly what the Abbott and Turnbull governments tried to do in terms of gutting the regulator to undermine its ability to uncover and prosecute some of the unconscionable financial services conduct that we've seen over the last number of years. It should never be forgotten that in 2014 the Abbott government slashed ASIC's funding by $120 million. At the Senate estimates after the 2014 budget, the then ASIC chairman, Greg Medcraft, explained how ASIC would deal with that cut of $120 million to its funding model. Among other things, he said:

In particular, our proactive surveillance will substantially reduce across the sectors we regulate and, in some cases, it will stop.

That became the case, unfortunately, and now we're all ruing it and seeing the results of it in the financial services royal commission.

One need look no further than the wealth management scandal at the Commonwealth Bank. Whistleblowers attempted to contact ASIC on three or four occasions, through phone calls and through emails, about what was going on in CommBank and the dodgy financial advice that was being given to Australians and small businesses in that particular organisation. The whistleblowers had to rock up to the ASIC office, risking their livelihoods and their employment, and actually force ASIC to have a look at what was going on in the Commonwealth Bank. That, of course, led to the uncovering of the likes of the so-called dodgy Don Nguyen and the CommBank scandal where literally thousands of customers had been ripped off by poor financial advice. That may not have happened if ASIC had ignored those initial pleas from those whistleblowers, as they initially did; none of this may have been uncovered and people would have gone on losing substantial sums of money.

But Mr Medcraft didn't stop there. He went on to say:

Some examples of the changes in our consumer cluster are the deposit takers, credit and insurance team. There will be reduced proactive surveillance. As a result, they will focus on activity by entities that have the greatest market impact at the expense of smaller entities that have a smaller customer basis.

That says it all about the approach of this government to the regulation of financial services in this country. They've got the backs of big business; we see that through the corporate tax cut they're trying to get through the Senate at the moment. They want to reduce corporate taxes for the biggest businesses in this country—including the big four banks, believe it or not. But there you have it. When the Abbott government cut $120 million from the ASIC budget, where was the first area of proactive surveillance to go? It was in the smaller players; it was the small players who operate in this industry, and that predominantly affects small businesses, local farmers, families that are running businesses in all sorts of industries and, of course, mum-and-dad investors.

That's what we saw happen in the financial services royal commission—a royal commission that Labor's been calling for for many years and which was opposed by those opposite. When I spoke earlier about who they're backing and who they've got the backs of, again it's evidenced in their approach to the royal commission. They didn't want it. They wanted to protect the banks. They wanted to protect their mates in banking—where a lot of them come from, including the Prime Minister. The result of the $120 million cut in funding was, not surprisingly, a devastating loss of staff and expertise, with a significant effect on the ability of the corporate and financial services regulator to address misconduct. It was a further kick in the guts to those who'd been the victims of financial rip-offs over recent years.

Despite the depths of the cuts to ASIC and their massive impact, the government took zero action and only partially unwound the cuts when Labor began to shine a light on the industry and, typically, when these issues began to be uncovered by the media. It really took the media to uncover the scandal before the government did anything. The government ignored the representations that, no doubt, their MPs were getting from constituents about what was going on; ignored the findings of several Senate and joint committee inquiries and reports into what was going on in financial services; ignored the media reports and uncovering of these issues by several investigative reporters; and ignored the impact of collapses of companies like Trio Capital, Storm Financial, Timbercorp and the like, and the pleas of their victims, for 600 days. But, when the big four banks wrote to Malcolm Turnbull and said, 'Yes, it's okay to hold a royal commission now. We've got no choice. You're going to have to do it,' he rolled over and that's exactly what he did. That was on the back of cutting the funding to ASIC, the watchdog that was keeping an eye on these activities going on in the industry.

Millions of Australians have been let down by this government when it comes to regulation of financial services. The government only sought to backtrack on these cuts after Labor began calling for a royal commission, in 2016. But the impact on ASIC of the cuts to it cannot be undone so easily. These were cuts to the capability of the corporate regulator, and a free pass for financial services misconduct. It's consistent with the attitude of this government, which spent 601 days resisting the urgent need for a royal commission into the banking and financial services sector. Labor have been fully vindicated in our prosecution of the case for a royal commission into financial services and banks in Australia. Despite the government's claims that we were misleading the Australian people, trying to undermine trust in the financial services industry and trying to undermine the superannuation balances of Australians—the wealth creation vehicles of hardworking Australians—the hypocrisy of this government has been exposed.

In responding to the financial systems inquiry, the government promised to update the ASIC statement of expectations by mid-2016. It took until 2018 for the minister to announce a new statement, after pressure from Labor in Senate estimates. It's really only when Labor puts pressure on the government, or if the media come asking, and shines a light on what's going on in financial services that the government acts, because they don't want to act against the interests of those that they seek to represent in this place—those, indeed, from which many of them have come. The statement of expectations is an important document. It sets out the government's expectations of how ASIC will fulfil its mandate. In the meantime, they left the Abbott-era 2014 statement of expectations in place—and a lot has changed in this industry since 2014, as we've seen—which focused a lot on red-tape reduction and very little on ensuring good consumer outcomes. Again, it goes to the philosophy of this government when it comes to financial services regulation.

If you want to comprehend what I'm talking about, Mr Deputy Speaker Vasta, then you need look no further than the current government's approach to the Future of Financial Advice legislation. It should never be forgotten. The coalition's opposition to the FOFA laws and its attempts to hollow them out really were rank hypocrisy. After the high-profile collapses of schemes like Trio Capital, Westpoint and Opes Prime, the then Labor government decided those outside the industry deserved protection from unscrupulous financial advisers. The FOFA legislation gave ASIC important tools to regulate those particular industries. Those laws were introduced to help prevent the same scandalous behaviour driven by greed and distorted financial incentives that we're unfortunately still seeing today and that are the subject of a lot of evidence before the royal commission.

At the heart of FOFA was the best-interest test for clients. Believe it or not, up until Labor introduced this best-interest test in the FOFA legislation there was no legal requirement for a financial services adviser to act in the best interests of their client—and guess what? In many cases, they simply didn't. And we saw the results of that in many of the cases that I mentioned earlier. At the heart of these financial advice reforms was the best-interest test, a legal obligation for financial advisers to do the right thing by their customers. Now, it's hard to believe but prior to FOFA there was no such legal obligation for financial advisers to act in the best interests of their customers, and many didn't. FOFA also required an opt-in requirement, meaning that financial advisers and clients with ongoing fee arrangements must agree to opt in to that service on an ongoing basis, and the relationship must continue—and that happens every two years.

It must be pointed out that, in opposition, those opposite voted against these reforms. That's right, the members of the government voted against a best-interest duty, particularly the catch-all provision at the end of the duty and the opt-in provisions every two years. They came in here and spouted to the public that this was unnecessary red tape, it was overregulation and it was a financial burden on those poor banks. That poor AMP! I remember reading the inquiry report that was handed down by the joint parliamentary committee that initially looked at the FOFA legislation, and the dissenting report. The dissenting report was authored by none other than the current Minister for Finance, Senator Cormann, who, believe it or not, used the evidence of AMP in his report to say why the Future of Financial Advice reforms should not be passed. Yes, that's right: he used the advice of AMP. Have a look at what AMP have done. No wonder AMP came to the Joint Parliamentary Committee on Corporations and Financial Services and argued that FOFA shouldn't go through. We all know why now! It's been uncovered in the royal commission the reason why they didn't want FOFA to be implemented. In fact, they said it would result in the loss of 30,000 jobs in the financial services industry. Have a guess who picked it up and used it in his report? The finance minister, Senator Cormann. He quoted them and said, 'This is what will occur and we're going to back AMP on this.'

Now you see members of the government coming out and saying: 'What a shock it is, this evidence being uncovered in the royal commission. This is unacceptable and this behaviour must stop.' Guess what? If the government had their way, none of this would be illegal. It wouldn't be illegal at all, because the catch-all provision, the best-interest duty and the opt-in provision wouldn't exist and none of this behaviour that we're uncovering in the royal commission would be illegal. In fact, when they got elected to government in 2013, one of their first acts was to try to water down and undermine the best-interest duty in the Future of Financial Advice reforms. They actually got it through this parliament—so all of those opposite voted for it—and they got it through the Senate. It was only with a rescission motion that we were able to unwind that.

So, when they come in here and talk about bolstering funding for ASIC, when they come in here and talk about being tough on the banks and when they come in here and talk about supporting a royal commission, it's nothing more than rank hypocrisy, because their records speak for themselves. They opposed the royal commission all the way, they voted against the Future of Financial Advice reforms and they tried to undermine them when they came to office, and then they cut funding for ASIC in their first budget. At the time, Senator Cormann said that FOFA legislation went too far by having a legal obligation requiring the financial advisers to take reasonable steps in their clients' best interests.

In government, they tried to gut FOFA, first by legislation and then by regulation. ASIC identified FOFA requirements as being significant in helping uncover the massive fees-for-no-service scandal that we saw in the financial services industry, in which clients were charged by the big banks and AMP for advice that was never provided—and I mentioned AMP earlier. These are the people that the government sought to protect against the interests of mum-and-dad investors and small businesses. If this government had its way, there would be no laws against what the banks and the likes of AMP have been doing to hardworking Australians. It would simply be a bad look for them. Ultimately, there would be none of the accountability to the Australian people that we're getting in the royal commission at the moment

Yet we now see, of course, the same Liberal and Nationals MPs expressing outrage at the behaviour that has been uncovered by the royal commission.

It is beyond me to comprehend why anyone would want to water down laws that say that a financial adviser has to act in the best interests of their client. But that is exactly what this government tried to do when they tried to water down the FOFA requirements. The heart-wrenching stories of mum-and-dad investors losing everything in a string of financial scandals in the wake of the global financial crisis was not enough to stop the coalition removing protection for customers from dodgy financial advisers. That says everything about this government's approach to financial services regulation. The hypocrisy of this government knows no bounds when it comes to the issues of the royal commission into FOFA and, indeed, the funding of ASIC.

It was Labor that was strong on the royal commission. It was Labor that forced through the Future of Financial Advice reforms to protect people in the unregulated market, particularly when it came to superannuation. It was Labor that bolstered our superannuation laws in Australia. It's Labor that's been pushing for improved reform and additional requirements on financial advisers in this country. Importantly, it was Labor that criticised the government and pushed the government to ensure that they properly funded ASIC, although there were job losses and a loss of expertise and they haven't fully recovered all the funding that the government cut in that original 2014 budget.

This reform is something that Labor does support, because the cost-recovery model to ensure that ASIC is properly funded and can do its work, particularly, in the area of prevention of financial scandals is something that we need to see more of. It's just a shame that it took the royal commission, that it took all of the pain and suffering of many in this area—particularly mum-and-dad investors and small businesses—and that it took media interest and several inquiries for the government to work out that they'd made a mistake and did the wrong thing in cutting ASIC's funding. I commend these bills the House.

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