Jenny Ware (Hughes, Liberal Party) Share this | Hansard source

I rise to speak in support of the Financial Accountability Regime Bill 2023 and related bills which have been brought to this place to implement some of the recommendations of the royal commission into the banking industry. At their highest level, the bills do two things. Firstly, they introduce the Financial Accountability Regime, which, for ease of reference, I will call the FAR. Secondly, the bills introduce a compensation scheme of last resort to provide compensation to victims of financial misconduct in certain circumstances. The other two bills are largely consequential and relate to timing of the FAR and the compensation scheme. I don't intend to speak in detail on those.

Both I and the coalition considered and supported a variation of this legislation in September last year. Indeed, the history of this proposed financial regime is that both the former Morrison government and the Albanese government have made previous attempts to establish the FAR. The bills introduced by the Morrison government lapsed at the dissolution of the 46th Parliament, and the previous bills introduced by the Albanese government in September 2022 have now been withdrawn and replaced with the current bills.

As I understand the reason for the withdrawal, the Assistant Treasurer and Minister for Financial Services, who had carriage of the bills, seemingly mismanaged the process and convinced his government to agree to amendments put forward by the Greens party. These introduced harsh individual penalties for banking executives, and the changes would have applied in the same way to credit union CEOs as CEOs of the major banks. The changes were going to cause deep uncertainty in the financial services sector. So this government, embarrassingly, had no recourse but to withdraw legislation from the Notice Paper and has now reintroduced the new financial service packages with changes. It appears now that the Assistant Treasurer and the government have indeed learned the lessons of taking advice from and negotiating financial legislation with the Greens.

By way of background, the proposed regime has arisen from the former coalition government's response to the recommendations of the banking royal commission in February 2019. While the COVID-19 pandemic saw a delay in its implementation, the bills were then introduced to the last parliament in late 2021. The bills on which I speak today are largely identical to the legislation introduced by the coalition government, and for that reason I commend this government.

The first part of the bills establish a financial accountability regime, the FAR, to increase transparency and accountability across the financial services industry. The FAR will replace the existing Banking Executive Accountability Regime, the BEAR, and imposes four core sets of obligations on authorised deposit-taking institutions, insurance companies and superannuation funds. To this end, the bill imposes four fundamental sets of obligations upon these organisations.

First, there are new accountability obligations, key personnel obligations, deferred remuneration obligations and new notification obligations. Most notably overall, these bills do reflect that chief executives of the financial services industry will now be more accountable, and that is appropriate. I will just turn briefly to accountability and its history within the financial services industry. There's been a growing perception, particularly since the 2008 global financial crisis, that senior executives of financial institutions have not been held accountable in circumstances where numerous financial scandals have harmed the community. The BEAR puts in place a strengthened accountability network for the senior executives of the authorised deposit-taking institutions. These are our banks, our credit unions and our building societies. However, the BEAR does not apply to financial institutions outside the banking sector. For example, the accountability obligations set out in the BEAR do not apply to senior executives of insurance companies or superannuation funds. Therefore, the bills propose to give effect to the government's commitment to implement that recommendation of the banking royal commission which was to extend the scope of the BEAR to all APRA regulated entities. Again, this is supported.

The second major part of the new financial regime is that the bills propose to establish a compensation scheme of last resort. This scheme will provide compensation to victims of financial misconduct who have received a determination in their favour from the AFCA, the Australian Financial Complaints Authority, but have not been paid, typically because the financial institution involved in the misconduct has become insolvent. This does not happen very often, but when it does it is very important that victims of those funds do receive compensation. Again, this was a recommendation that came out of the banking royal commission. The proposed scheme of last resort is limited in its scope, in that, firstly, it applies only to unpaid AFCA determinations. The maximum compensation for each AFCA determination is capped at $150,000. The compensation scheme will consider claims for unpaid AFCA determinations if the financial complaint was made to AFCA after 1 November 2018, which was the date that AFCA commenced its operations. Lastly, the scheme will provide compensation to unpaid consumers who've experienced financial misconduct in relation to the following four types of financial products and services: personal advice, credit intermediation, securities dealings for retail clients or credit provision. So there are limited opportunities for the scheme to be used. However, the purpose of it is to ensure the resolution of disputes within the financial system in order to safeguard consumer trust and confidence and to ensure that our financial system is meeting the needs of its users. Coming out of the royal commission was evidence that current arrangements are failing to meet this expectation for Australian consumers, with some consumers and small businesses not receiving compensation to which they should be entitled.

I should say, the majority of financial firms within our country comply with their legal obligations and compensate their clients or their customers when required. One of the other advantages of the compensation scheme is that it will be industry funded. Therefore, when victims of financial misconduct are unpaid due to a financial institution's insolvency, it is up to the rest of the financial services industry to meet the shortfall by way of an annual levy to fund the CSLR. For the first year of its implementation, the government will provide the funding. Then, from the second year onwards, it will be industry funded. To conclude, these bills, if passed, will implement recommendations of the banking royal commission into both the financial accountability regime and also the compensation scheme of last resort. Both of these recommendations were supported by the former Morrison government and by the Albanese government.

The other two bills that are referred to in the package, which are largely consequential upon the establishment of our entities, relate to timing of payment, collection of levies and the like. So for all of these reasons, it is important that we have trust in our financial services industry. Largely, most operators within our financial services industry are scrupulous; however, in order to maintain integrity and to restore Australians' faith in our system, I commend these bills to the House.

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