Anne Stanley (Werriwa, Australian Labor Party) Share this | Hansard source

I rise to speak on the Financial Accountability Regime Bill 2023 and accompanying bills. Australia has an incredibly robust and well-developed financial sector that has grown considerably since the 1990s. The combined total assets managed by financial intermediaries is now around $2.3 trillion, 250 per cent of Australia's GDP. With the financial sector contributing nine per cent of gross value added, it forms a large part of the economy, and a loss in trust could cause flow-on effects to both the economy and consumers. In 2008 we saw the detrimental effects that a crisis in the financial sector can have, not just for the economy but the entire world. Australia had only narrowly avoided an economic recession in 2008-09 but this was due to the economic management of the Rudd government. The uncertainty caused the level of anxiety that had not been seen the nineties recessions. We saw the effect in other countries, where people lost their homes, banks and businesses failed, unemployment rates skyrocketed and it did take years to recover.

Trust and stability are the foundation of the global economy. Entire sectors, including the financial sector, are built on those principles. We are seeing it today in the US and Europe, where a loss of trust has caused a bank run, leading to failures and stock sell-offs, creating knock-on effects across the sector. The government has a role to play in ensuring that people trust that their money is not only safe but also that they are protected from unethical and illegal behaviour.

The 2017 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established after a series of scandals in the sector that undermined trust in our financial sector. Australians interact with the sector on a daily basis, whether it is for regular tasks or for life-changing decisions, like buying a house. The misconduct that was revealed by the royal commission was found to be systemic. The reason as to why this has happened, Commissioner Hayne concluded that the answer seems to be greed, the pursuit of short-term profit at the expense of basic standards of honesty. The actions of those responsible undermined the trust of the Australian people. It should not have happened and it should not happen again.

The Australian government has responsibility to regulate, while those in the sector should be held accountable and responsible for ensuring this doesn't happen again.

Whilst the report was handed down in 2019, the Albanese government is committed to finalising the response to the recommendations. Last year legislation was introduced and passed, and today the legislation being debated is a continuation on that commitment. These bills are designed as a response to several recommendations. The first set of bills will establish the Financial Accountability Regime, the FAR, implementing five recommendations made by the royal commission. It will take a systemic change to address the issues highlighted by the royal commission, and it must be from top to bottom. The FAR is a strengthened responsibility and accountability framework for financial institutions and their directors, including the most senior and influential executives. It will apply to banks, insurers and superannuation entities. It is not enough to be reactive, because the damage in most cases will have already been done. People's lives will have already been ruined, and sometimes no amount of compensation can fix that. This is not just a financial impact. There is a devastating mental health aspect to situations that must also be considered.

Those at the top must be proactive in ensuring that their institutions comply with the laws that cover them. The FAR will require them to take reasonable steps to prevent breaches. In the event that they do not meet these requirements, regulators will be empowered to disqualify accountable persons and impose substantial fines on financial institutions. Those people who breach their accountability obligations will face serious financial consequences, with their remuneration reduced.

It is important that poor behaviour is deterred, and that's what these changes will do. But if those at the top continue to engage in bad practices then they should be dealt with appropriately. We know that these changes will need to be considered by the sector and they will have to have time to ensure that they can fully comply with the new obligations, with the FAR applying to the banking industry six months after royal assent and 18 months after royal assent for insurance and super entities. These measures will ensure, on one hand, that those at the top of these institutions are accountable and responsible and, on the other, that the sector can maintain its efficiency. Improving the trust and stability of the sector will be beneficial both for these industries and for the Australian economy.

In response to another recommendation of the Hayne royal commission, the second set of bills being debated today will introduce the compensation scheme of last resort. In the event that the Australian Financial Compliance Authority, AFCA, determines that a consumer is entitled to compensation, they should be compensated by the relevant financial institution, and in many cases they will be. But the CSLR will ensure that, if they can't, then Australians can still receive compensation of up to $150,000 for unpaid AFCA determinations in their favour for financial services or products that include personal advice on relevant financial products to retail clients, credit intermediation, securities dealing and credit provision.

This is an important measure that was recommended because of the inadequacies of other redress schemes. It's only fair that Australian consumers are compensated in the event of large financial failures. However, measures have been added to ensure that firms do not rely only on the CSLR, because it is, as the name implies, to be used only as a last resort. The government should not be responsible for a financial firm's failings, and if the CSLR provides compensation then ASIC must cancel the AFCA member's Australian Financial Services Licence and/or Australian Credit Licence.

The funding aspect of the CSLR is another crucial element of these bills. The Commonwealth, on passage of these bills, will fund the operational costs from 23 December until 30 June 2024. But, importantly, the costs from 1 July 2024 will be fully funded by an industry levy, and the backlog claims will be funded through a one-off levy on the 10 largest banking and insurance companies in Australia. Taxpayers won't be paying for it. The CSLR must be financially stable and sustainable while also ensuring that the sector can account for the levies, which is why there will be a subsector cap of $20 million and an overall cap of $250 million. However, this legislation accounts for those situations where a large financial institution fails and there are larger than expected expenses, with the minister having the power to issue special levies. The failing of a large financial institution would be detrimental, and we hope it doesn't happen, but the last few years and the 2008 financial crisis have shown us we should be prepared for all eventualities.

For the CSLR to be operational and compensating consumers from December, these bills should be passed this month. With their passing, the Albanese government will finalise the federal government's response to the Hayne royal commission. Australians deserves a financial sector that is ethical, and the Australian government will ensure that it is. The Australian people and our financial sector will be much better off for it.

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