Clare O'Neil (Hotham, Australian Labor Party, Shadow Minister for Justice) Share this | Hansard source

I would like to make a contribution on behalf of the Labor opposition on the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018. I will start by saying that Labor's very proud of its history in making sure that consumers are properly protected in financial services and, at a level of principle, any law that would seek to strengthen protections offered to consumers is one that Labor would support.

The bill before us has a title that's probably not well understood by members of the general public, but it's very important to how financial services are designed and marketed to them. The bill before us seeks to do two main things. It seeks to impose obligations on financial service providers to comply with new design and distribution obligations, and it gives ASIC new powers to intervene where products are causing, or are likely to cause, significant consumer detriment. Just in really plain English, the bill before us would give ASIC a new power to require financial services companies to actually provide specific design requirements to ASIC to get approval for those design requirements and, importantly, to explain to ASIC who the target audience for these financial products are. That's important because one of the big issues we've had that's come out of the financial services royal commission that is related to consumer affairs is that a lot of companies have been creating financial products and marketing them hard at groups that are never going to be able to access and use those financial products—essentially, selling things like junk insurance that are not appropriate for the community of people to whom those products are being marketed. At a level of principle, this is important. ASIC has asked for design and distribution powers and product intervention powers, but we do have some issues with the way that this bill has been framed and I'll talk about those in due course.

Under the changes that are being proposed here, financial service providers would be required to specifically determine the segment of the consumer market that they'd be targeting with their service and ensure that the product is distributed in accordance with that determination. Determinations are going to be made in writing, and they'll be made publicly available. That's important for the sense of transparency and probity that surrounds this area of law. Distributors or sellers of products will be required to ensure that the sale and marketing of those products is carried out in accordance with the target market determination. If the target market determination is not complied with, ASIC will have powers to require rectification and affected consumers will have a civil cause of action to recover losses suffered as a result of breaches of the obligation.

The example that I talked about before, which is one of the ones that's come out of the royal commission that's been very high-profile, is the targeting of funeral insurance products at people who are not going to get value from those products. In this instance, it was babies and young children who were living in remote Indigenous communities in the Northern Territory. That type of misconduct in financial services is the exact target of the bill that's before the House.

The product intervention powers provide ASIC with the power to deal with financial products that are causing significant harm to consumers or are likely to cause significant harm to consumers in the future. ASIC will be able to proactively intervene by banning or preventing sale of products or making orders to require certain conduct to be avoided in relation to the product—that might be specific sales techniques, for example.

These are concepts that Labor are broadly in support of, but we do have some concerns about the detail of the bill. We bring those concerns to the table in the context of a long history and a lot of active legislating that Labor governments have previously done in the area of consumer protections. It was Labor that saw the damage that was being done to families and communities across the country through what has been revealed in Commissioner Hayne's interim report into financial services as a culture of greed. Labor advocated for a royal commission for about 600 days. We did that because the people who live in our communities, in our constituencies, were coming to us and telling us stories about the way that they were being treated by banks that were simply unacceptable. It became obvious over a period of time that this wasn't a case of a few bad apples in one bank or another but, in fact, a systemic problem that could only really be come to terms with through a royal commission.

We on the other side of the House had a very different approach, where the focus was—and always will be—on protecting the big banks and the big institutions that have caused so much harm. We had the current Prime Minister, Scott Morrison, the member for Cook, say that the royal commission was 'a populist whinge'. I have sat down and talked with victims of bank misconduct who have lost their homes, who have lost farms that have been in their family for more than 100 years, people who have suffered relationship breakdown and mental illness because of what has happened to them at the hands of the big banks. And to call that 'a populist whinge'! The Prime Minister called it 'the QC complaints desk.' I'm uncomfortable with that. With what we've seen through the royal commission, it's so obvious that this was justified and it is an important process that we're going through.

When the federal government's hand was eventually forced and the royal commission into financial services was eventually called, the commission was constructed in a way that meant a lot of the people who have been terribly hurt by financial services have not had the opportunity to share what happened to them in the royal commission. I think that's very regrettable. It is certainly not the fault of the royal commissioner, who Labor believes is doing an excellent job. But the government, having never wanted to have a royal commission into financial services, was dragged kicking and screaming into doing so, and then gave the commission just over 12 months to consider all of the misconduct across banking, across super, across insurance and across related financial services and to look at all of the regulatory systems and powers and laws that sit with the regulators. To examine all of that in just over a year is an absolutely mammoth task. Regrettably the royal commission has not been given the time that it needed to really hear the stories of Australians who've been so badly affected by this.

So that's the context in which we see the bill today. It's a bill from a government that is trying to look like it's doing all the right things and tick this box and that box, but its heart has never been in trying to address the problems that are faced by consumers of financial services—and you see a very, very different approach to this problem from our side of the parliament. The bill before us is one small part of what will be a very complex policy response to address the immense consumer harm that has been exposed in the banking royal commission.

As a result of the royal commission, we have a once-in-a-generation opportunity to reform the financial services sector for the good of the nation. It is essential that we get that reform right. It's essential that we achieve the twin objectives of protecting consumers and ensuring the continued viability and prosperity of our financial services industry. Those objectives are not mutually exclusive. If I read another article telling me that, , misconduct in financial services is somehow justifiable because we need our banks to be prudent and profitable—I'm sick of hearing that; it's not right. If there's misconduct in financial services, it's not good for the Australian economy, it's not good for consumers and, ultimately, it's not good for financial services.

Labor stands ready to do what is necessary to ensure that reforms introduced in the wake of the royal commission very significantly address the issues that have been exposed so far. I said that the general principle of giving ASIC power over design and distribution obligations and product intervention powers is one that Labor supports. That is the case. But we have very significant concerns that the bill, as it's been presented to the House, is cast too narrowly. We have referred the bill that's before the parliament now to a Senate inquiry, and we are going to be using that process to understand why it is that the exposure drafts that were provided to the public through this process were watered down, from draft to draft to draft, until we have a bill before the parliament today that does not reflect the powers that ASIC said it needed to properly address these issues.

We should be listening to ASIC right now because they're meant to be the tough cop on the beat that's helping us deal with these issues. ASIC has raised a lot of concerns about the exclusions that are provided in the bill before the House. Some of them relate to consumer-facing financial services. ASIC has asked the government to remove exclusions in the bill that prevent some services from coming within the scope, for example, of the new proposed product intervention powers.

In its submission to the exposure draft process, ASIC recommended that the government include consumer credit, covered by the National Consumer Credit Protection Act, within the scope of the design and distribution obligations. Just to put that in plain English again, the National Consumer Credit Protection Act regulates the normal financial products that you and I would probably use every day, and they're not included in this new power that we're giving to ASIC. So we can't allow any fanfare to be associated with a reform like this when the most fundamental products that guide the everyday interactions that Australians have with financial services are not even included in the scope.

ASIC was quite strident in expressing its view that consumer credit products should be covered by the design and distribution obligations. We're talking about things like credit cards. The credit card is probably the most commonly used credit product in Australia. It's the one where we're going to see significant issues around the exploitation of people who are disadvantaged and that sort of thing. Yet the government's bringing a bill before the House that doesn't even include oversight of those credit cards.

ASIC directly addressed and discredited the claim that has been made by some in the industry that existing protections were good enough already. In the submission they made, ASIC said:

… we consider that the responsible lending obligations and other consumer protections are not equivalent to, or an adequate substitute for, the proposed design and distribution obligations. We think the new obligations would provide a foundational framework for ensuring that credit providers have appropriate product governance processes and controls in place to ensure products are well designed and distributed with a view to consumers' objectives, financial situations and needs. This outcome is quite separate and distinct from the purpose of the responsible lending obligations, which is to reduce the potential for individual consumers to suffer hardship as a result of inappropriate lending.

That's sort of in ASIC-speak, but what they're really saying here is that it's great to have consumer protections which are focused on individual cases—the credit card that I might have with my bank, or the one the member for Wakefield might have with his bank—but this is about a systemic issue; this is about requiring financial institutions to say, 'This whole product set is going to be designed with a particular consumer need in mind, and we are going to market it to that particular consumer set,' and for ASIC to have some oversight of that so we can make sure that the right people are being targeted for the right products.

ASIC's proposals also included the emerging buy now, pay later sector in the scope of the bill, and it's a great opportunity for the parliament to ensure that ASIC doesn't have to keep playing catch-up with new players in financial services. ASIC has asked for buy now, pay later providers to be included, and it's pretty clear from media reports last week that a leading buy now, pay later provider, Afterpay, has actually agreed that it should be brought within the scope of this bill. So we have a situation where one of the providers of financial services who are out there trying to do something new, using a bit of technology in the way that they're going about their business, is actually saying to government, 'We want you to regulate us in this way.' And yet the government has designed a bill that specifically carves them out—specifically excludes them. Afterpay also told Fairfax newspapers that extending the bill to cover buy now, pay later providers would 'afford customers an additional layer of protection without compromising our business model'. They said that they want to come under the regulator's product intervention powers, as it would 'promote higher levels of consumer trust in newer services such as ours'. We've got a provider of financial services asking to be put within these regulatory powers, and the government is saying that they're not interested. They want to have a really narrow scope for this bill, a narrow scope for this particular oversight from ASIC.

These are just some of the examples of changes that Labor will be discussing with stakeholders through the Senate inquiry process. It's quite likely that we'll be looking at, potentially, some amendments to this bill that will make sure that the design and distribution obligations—which we believe have great merit—are actually doing the job that they should be doing, which is protecting Australians from being ripped off by financial services providers.

I want to comment briefly on one other matter of detail relating to consumer redress, where ASIC chooses to exercise its product intervention power. The use of the product intervention power will require that ASIC is satisfied that the financial product in question has resulted, or is likely to result, in significant detriment to consumers. Labor is concerned about the matter of retrospectivity of the product intervention powers. To be more specific, we're concerned for consumers who are affected by what ASIC later determines was a serious harm or detriment but might find that they are outside of recourse because of the way that this legislation has been framed.

Currently, the bill presented to the House only allows for ASIC to intervene to require changes to future conduct of regulated entities. So contracts entered into by companies that ASIC later identifies as having caused serious harm and detriment to customers are actually not within the scope of the powers. To put it another way, the customers whose experience will form the evidence base upon which ASIC decides to take action would be left behind when ASIC chooses to intervene in that product. The practical effect is that, if ASIC becomes aware that consumers are being harmed in a significant way, it won't be able to require the company to remediate customers who have already been affected by that conduct. I just note that as an area of concern. Again, that's something that we'll be exploring through the Senate inquiry. Under the bill as currently drafted, if you're a consumer who gets ripped off or exploited and your story spurs ASIC took intervene, you might be left with no recourse, and that seems to be a bit of a gap in the legislative approach that's been taken.

In conclusion, the bill before us relates to a power that ASIC has asked for, and that is a power that will enable them to require financial service providers to actually explain how they've designed a product, who that product is targeted to and how it's going to be sold, so ASIC can ensure that some of the terrible examples of misconduct that we have seen through the royal commission can't happen under Australian law. One of the most awful examples that many people listening today will remember from the royal commission is an instance where a company that was operating in the Northern Territory, in rural and remote Australia, was targeting its products to Aboriginal people—some of the most vulnerable consumers in the country—and were creating a financial product that was of no use to those people. It's an extraordinary example of misconduct. And, would you believe it, recent reports tell us that the company is still out there, still operating and still marketing these products at some of the most vulnerable consumers in the country.

We have to make changes. We have to make changes to the law and we have to make sure that the law, as it stands currently, is enforced. We are supportive of giving ASIC powers that it is telling us it needs to properly regulate financial services. But, when ASIC asks us for this power, it is not good enough for us to say, 'Thanks for the idea. Now we're going to carve out this section of the market, that section of the market and this other section of the market through the exchanges that the government is having with big business.' It's simply not good enough. This has to stop. When we talk to people about some of the issues in financial services, the issue that comes up again and again and again is the power of business—as they deal with governments like that which sits opposite me in the chamber—to get themselves carved out of oversight and out of regulation. We just can't allow that to continue to happen in this parliament.

I'll flag again that we're very worried that products that are regulated by the Consumer Credit Protection Act have been carved out of this bill. The fundamental products that all of my constituents use when they engage with a bank are not part of the oversight mechanism that's being proposed here. That's not good enough. Other organisations, like 'buy now, pay later', which is a really big issue—a big emerging area in the market—is not part of this bill. I'm very worried about that.

We're worried about some of the other aspects of the bill. We're supportive of the overall principle, but I flag that we're probably going to come into this chamber and discuss significant amendments to this so we can make sure that ASIC, who are trying to protect Australian consumers from the harm that's being done, are able to do their job properly. Thank you.

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