Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

Firstly, I thank all the members who have contributed to this debate. I'll refer to some of them in my summing-up comments. It's been a useful and enlightening discussion in the House. Together, the Financial Accountability Regime Bill 2022, the Financial Sector Reform Bill 2022, the Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 implement the Financial Accountability Regime, the compensation scheme of last resort, and small-amount credit contracts and consumer lease reform. Through these bills, the government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations and shifting their focus from profit at all costs to outcomes for all Australians.

The Financial Accountability Regime delivers on the government's commitment to finalise the implementation of five recommendations from the banking royal commission. The FAR will increase the accountability of financial institutions in the banking, insurance and superannuation industries and of their most senior executives and directors, restoring trust and confidence in a sector that plays an integral role in the wellbeing of Australians and our economy as a whole.

The FAR imposes four core sets of obligations on accountable entities and accountable persons. First, accountable entities and accountable persons must conduct their business in a proper manner, which includes acting with honesty and integrity and with due skill and diligence; dealing with the Australian Prudential Regulation Authority, hereafter APRA, and the Australian Securities and Investments Commission, hereafter ASIC, in an open, constructive and cooperative way; preventing adverse impacts on the accountable entities' prudential standing; and, finally, preventing breaches of certain specified financial services laws by the accountable entity. An important point to make is that through this regime not only will the entity be responsible but certain named individuals within that entity will also have responsibilities.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operations and must 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. That is the sting in the tail.

The FAR will be supported by the imposition of notification obligations, which require accountable entities to provide APRA and ASIC with information on the responsibilities of their accountable persons and, secondly and importantly, information on breaches of those obligations. APRA and ASIC will jointly administer the FAR. They will have the power to disqualify accountable persons, to investigate suspected breaches of the FAR and direct entities to take remedial action, and to apply to the Federal Court to impose a civil penalty on accountable entities. There's been quite some discussion about the Compensation Scheme of Last Resort, and I'd like to reiterate and clarify a few matters that have come up in the course of the debate. The government continues to build trust in Australia's financial system's external dispute resolution framework and remains committed to improving consumer outcomes. Establishing, for first time, the Compensation Scheme of Last Resort, or the CSLR, implements recommendation 7.1 of the banking royal commission. In doing so, it delivers on one of the key outstanding recommendations of the banking royal commission but also, as the member for Curtin alluded to in her address, the earlier Ramsay review under the former government.

The Compensation Scheme of Last Resort will provide compensation of up to $150,000 to consumers. Importantly, those consumers must have received a favourable Australian Financial Complaints Authority determination that remains unpaid. Obviously, it remains unpaid because, in the overwhelming number of circumstances, the entity has gone into administration or is in liquidation, or the funds just aren't there. The scheme will apply to personal advice on relevant financial products to retail clients, credit intermediation, securities dealings for a retail client and credit provisions, and it will be paid for by industry, reflecting their obligations to their rights and wrongs. The scheme will be operated by a subsidiary of the Australian Financial Complaints Authority. The Compensation Scheme of Last Resort will ensure that eligible consumers can have their case heard and be confident that, where they are owed compensation, it will be paid.

In putting together the CSLR, particularly in relation to the compensation caps, we think we've got the balance right. I know that not everybody agrees with this, but we think we have got the balance right. There has been some discussion, including in the contribution from the member for Forde, about the scope of the CSLR. I know there are many who have been pushing the government—and people can look at my speeches on this in previous parliaments and elsewhere—to look at the inclusion of managed investment schemes into the CSLR from the beginning of the operation of this scheme. I've considered their submissions, the government has considered their submissions, and Treasury has provided advice. On the overwhelming balance of all of that advice and all of those submissions, we have decided, at this stage, to exclude managed investment schemes from the scope of the CSLR.

That is not to suggest that there is not a job of work that needs to be done within the managed investment scheme sector, in particular looking at the risks and regulations within that sector—there is. There are questions to be asked about regulation within that sector, and this is something that the government is actively considering. But it would not be appropriate to move MISs into the scope of the CSLR until that job of work has been done. It would be unfair to the existing participants, and particularly those on whom a levy will be imposed, to include the much riskier MIS sector into the scope of the scheme at this stage.

Can I say something about small-amount credit contracts. The SACCs and consumer leases reform deliver on the government's commitment to ensure safe and well-regulated consumer markets for credit products such as small-amount credit contracts, also known as payday loans, and consumer leases. Safe and well-regulated markets for consumer credit products are necessary to protect vulnerable consumers from predatory lending. Credit markets safety is essential for credit market efficiency, which also benefits lenders, merchants and the broader economy.

The reforms will strengthen the consumer protection framework for consumers of small-amount credit contracts and consumer leases through the introduction of new obligations for these providers. The measures include enhanced and extended caps on the amount of net income a consumer can spend on a SACC or consumer lease. This will be known as the protected earnings amount. There will be a cap on the total amount of payments that can be made under a consumer lease. SACCs will be required to have equal repayments and equal repayment intervals over the life of the loan. The new law will prohibit licensees from charging monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early. It will prevent certain undesirable, unsolicited marketing practices for payday loans and consumer leases. It will improve the information that must be taken into account in according a lender's assessment of affordability of payday loans and consumer leases. It will improve disclosures to consumers and recordkeeping, and it will enhance penalties and sanctions for breaches of credit laws. There will be broad anti-avoidance measures to ensure that payday lenders and consumer lease providers cannot circumvent the law, and providers of consumer leases with indefinite terms will be regulated.

I'll say something, finally, about buy now pay later, as the member for Curtin raised that in her contribution. I thank her for bringing to the attention of the House the examples of her constituents who have been affected by the behaviour of certain BNPL providers. There is a separate job of work going on inside government and there are actually deep consultations going on inside the sector about the appropriate regulation within the credit laws of the buy-now pay-later sector. So I say to all members of the House, and I invite the member for Curtin to feed this back to her constituents, that the government is onto this. The government believes that BNPL should be treated as credit products. We aren't interested in having an argument about whether cleverly drafted contracts fall inside or outside the credit laws; we want to have a conversation with the industry about the appropriate type of regulation so that this product can be offered safely to consumers and that there is a level playing field in the operation of the credit market.

The government is committed to ensuring providers do not take advantage of financially vulnerable consumers. Once again, I thank all members for their contribution to this debate and I commend the bills to the House.

Question agreed to.

Bill read a second time.

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