Alan Tudge (Aston, Liberal Party, Minister for Education and Youth) Share this | Hansard source

I move:

That this bill be now read a second time.

This Financial Accountability Regime Bill 2021 establishes the Financial Accountability Regime, which replaces and extends the Banking Executive Accountability Regime following a number of recommendations from the financial services royal commission.

The bill underscores the government's commitment to take action in response to the royal commission, which uncovered too many instances of misconduct across the financial sector, and highlighted that industry practices were too often not meeting community expectations.

The new Financial Accountability Regime extends the existing banking sector responsibility and accountability framework to the insurance and superannuation sectors.

The regime ensures that where misconduct occurs and financial institutions act below community expectations appropriate consequences will follow.

I would now like to turn to the provisions of the bill.

The regime imposes heightened accountability obligations for prudentially regulated financial institutions; meaning banks, insurers, and superannuation entities. These institutions are referred to as accountable entities in the regime.

The regime also regulates directors and the most senior and influential executives of accountable entities, referred to as accountable persons in the regime.

The regime imposes four core sets of obligations. Firstly, accountable entities and accountable persons must conduct their business in a proper manner, which includes acting with honesty and integrity, and with due skill, care and diligence; dealing with Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) in an open, constructive and cooperative way, preventing adverse impact on the accountable entities' prudential standing and preventing breaches of certain specified financial services laws by the accountable entity.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operations, and defer at least 40 per cent of the variable remuneration of accountable persons for a minimum period of four years. Variable remuneration will be reduced where accountability obligations are breached. Ensuring there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions.

The regime will be supported by the imposition of notification obligations which require accountable entities to provide APRA and ASIC with certain information such as information relating to the responsibilities of their accountable persons or breaches of certain obligations by the accountable entities or their accountable persons.

Both APRA and ASIC will jointly administer the regime. They will have the power to disqualify accountable persons, investigate suspected breaches of the regime, direct entities to take remedial action and apply to the Federal Court to impose a civil penalty on accountable entities.

The regime will commence from 1 July 2022 for banks, and from 1 July 2023 for superannuation entities and insurers.

Through this bill, the government is taking action to ensure that financial institutions operate in a manner that is consistent with community expectations.

Full details of the measure are contained in the explanatory memorandum.

I commend this bill to the House.

Debate adjourned.

I move:

That this bill be now read a second time.

The Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021 is part of a package that delivers on two of the remaining key commitments made by the government in response to the financial services royal commission.

Schedules 1 and 2 to the bill make minor and consequential amendments to various Commonwealth laws, including the Australian Prudential Regulation Authority Act 1998, Australian Securities and Investments Commission Act 2001 and other industry Acts administered by APRA, to support the new Financial Accountability Regime, and provide transitional arrangements relating to the repeal of the Banking Executive Accountability Regime, known as BEAR, under the Banking Act 1959.

Schedule 3 to the bill establishes a financial services compensation scheme of last resort to compensate consumers where the Australian Financial Complaints Authority (AFCA) has made a determination in their favour that remains unpaid. This bill is part of a package of three bills to establish and fund the compensation scheme of last resort, the CSLR.

The 2017 Ramsay review of the financial system external dispute resolution framework noted that existing redress arrangements are inadequate to ensure all consumers and small businesses are compensated for losses. The Ramsay review recommended the establishment of an industry funded and forward looking CSLR that targets the areas of the financial sector with the greatest evidence of need. This was supported by recommendation 7.1 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The bill establishes a CSLR consistent with the recommendations of the Ramsay review and extending the scheme beyond personal advice failures.

In particular, the scheme will pay compensation to claimants with an unpaid AFCA determination relating to the following four financial products or services: personal advice on relevant financial products to retail clients, credit intermediation, securities dealing and credit provision, up to a cap of $150,000, which is consistent with the caps in operation under similar schemes in other jurisdictions.

The $150,000 compensation cap also balances the provision of compensation to claimants with scheme sustainability for those firms that are not responsible for the misconduct giving rise to the compensation being claimed but are nonetheless being required to pay for it.

Under the scheme, after a claimant has notified AFCA that their determination remains unpaid, AFCA will be required where appropriate to take steps to ensure the AFCA member pays the compensation owed. A defining element of the CSLR is that it would only provide compensation as a last resort where no other schemes are available to do so. The operator of the scheme will confirm that no other statutory arrangement, including a relevant state or territory statutory arrangement,is able to pay all or part of the determination.

If the CSLR compensates a claimant in relation to an eligible unpaid AFCA determination, ASIC will be required to cancel the financial firm's Australian financial service licence and/or Australian credit licence. This will incentivise licensees to meet their obligations in relation to AFCA determinations. It will also deter licensees from seeing the CSLR as an opportunity to avoid meeting those obligations. The operator of the CSLR will be a subsidiary of AFCA, limited by guarantee and operate on a not-for-profit basis. The scheme operator must administer the scheme in accordance with primary legislation and regulations and will be overseen by a board with an independent chair appointed by the minister, the AFCA Chair and an actuary with at least five-years experience in actuarial analysis.

Finally, the Legislative and Governance Forum for Corporations was notified in relation to the bill as required under the Corporations Agreement 2002.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.

I move:

That this bill be now read a second time.

The Financial Services Compensation Scheme of Last Resort Levy Bill 2021 is one of two bills which form the levy framework for the financial services Compensation Scheme of Last Resort (CSLR).

The framework imposes a levy on relevant industry entities to fund the CSLR on an ongoing basis.

An annual levy, to be first issued in January 2022, will raise the funds needed to operate the CSLR in advance of the financial year in which claims are to be paid.

The annual levy will be payable by entities who are members of a sub-sector that provides financial services that are within the scope of the CSLR.

The annual levy will cover the costs of administering the CSLR, including compensation amounts payable to applicants, associated Australian Financial Complaints Authority (AFCA) complaint handling fees and ongoing administrative costs for the CSLR operator and the Australian Securities and Investments Commission (ASIC).

The method to determine the exact amount of annual levy payable by relevant industry entities who are members of a sub-sector will be prescribed in regulations and will be proportional to their size and draw on concepts already in place for similar calculations in the ASIC industry funding model.

Amounts to be paid by sub-sectors under the levy framework will be subject to caps. A cap of $10 million will apply for individual subsectors and is designed to provide assurance to relevant financial market sectors about the maximum amount expected to be levied. The overall scheme cap, which is the total amount that can be levied across industry in a single year, is $250 million. This amount is designed to allow the scheme to respond to significant and unforeseen 'black swan' events, such as the failure of a large financial firm, if they arise.

In addition to the annual levy, the levy framework provides for a one-off levy to be imposed in the 2022-23 financial year to fund compensation and costs expected to be payable for complaints lodged with AFCA by the date the bills were introduced into the House of Representatives. The one-off levy will be payable by the ten largest financial sector entities, excluding private health insurers and superannuation trustees.

More broadly, the levy framework provides the minister with flexibility to respond to higher than expected outlays, including 'black swan' events, by issuing special levies to in-scope and out-of-scope firms.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.

See this speech in context