Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I present the explanatory memorandum to the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006, and I move:

That this bill be now read a second time.

The government is committed to building on the CER (Closer Economic Relations) agreement between Australia and New Zealand to develop a single economic market based on common regulatory frameworks. This bill represents a significant step towards this commitment in the area of banking supervision.

The Australian and New Zealand banking markets are among the most highly integrated in the world. Australian banks have a combined market share of more than 85 per cent of the New Zealand banking market, and New Zealand assets comprise around 15 per cent of Australian banks’ total assets. Moreover, the same four banks are the major banks in both countries.

Given the high level of commercial integration, there is benefit in moving towards seamless regulation of banks to minimise compliance costs and promote efficiency. It is also important that the banking supervisors are able to more closely cooperate with respect to promoting financial system stability in each country given the interdependence of both financial systems.

In 2005, the Trans-Tasman Council on Banking Supervision was established by the Treasurer and the New Zealand Minister of Finance. The council is to promote a joint approach to trans-Tasman banking supervision that delivers a seamless regulatory environment for banking services as the first step towards a single economic market in banking.

Both the Australian and New Zealand governments agreed to implement legislative changes recommended by the council. They did this to ensure that the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) can support each other in meeting their statutory responsibilities.

This bill implements the council’s recommendations. It also contains some small complementary proposals relating to secondments and financial system stability, to ensure that the council’s recommendations work effectively.

New Zealand is progressing reciprocal legislative amendments through its parliament.

In Australia, the amendments will require APRA to do a number of things. First, APRA will be obliged to support the RBNZ in performing its statutory responsibilities relating to prudential regulation and financial system stability. Second, APRA must consider the implications of its actions for financial system stability in New Zealand. And, lastly, APRA must consult the RBNZ on these matters.

An administrator or statutory manager—which may be appointed by APRA to a bank in severe financial distress—is also required to consider the implications of a proposed action on financial system stability in New Zealand. In addition, the bill includes specific amendments aimed at ameliorating the risk that APRA could be required to interfere with the provision of outsourced services from an APRA regulated entity to a New Zealand bank.

As a result of these amendments, banks should be allowed greater flexibility with respect to the trans-Tasman location of their systems and functions than can be afforded under the current regulatory regimes of both countries. Importantly, this can be achieved without compromising the ability of regulators to meet their existing statutory objectives. This will bring compliance cost and efficiency benefits to banks with trans-Tasman operations, which should have flow-on benefits for customers (including depositors) and shareholders.

In developing these proposals it was taken into account that Australian banks operate across borders and need to be competitive in an increasingly global financial system. Many large international banks are able to centralise systems and functions to secure cost savings that contribute to their competitiveness. These amendments should create a regulatory environment under which impediments are reduced to banks choosing the location of systems and functions within the trans-Tasman market.

To complement these proposals, this bill amends the legislation to clarify that APRA can second staff from the RBNZ. This will contribute to cooperation between APRA and the RBNZ by simplifying the arrangements for such secondments.

In addition, this bill clarifies that one of APRA’s objectives is to promote financial system stability in Australia. This has always been one of APRA’s roles, but has not been explicitly noted in legislation. Inserting this objective into legislation now will assist in the implementation of reciprocal legislative amendments in New Zealand legislation. These amendments will also mean that Australia’s legislation is more consistent in the way it refers to financial system stability in Australia and New Zealand.

The amendments in this bill promote a joint approach to trans-Tasman banking supervision and a seamless regulatory environment for banking services. This is consistent with the high level of commercial integration of the Australian and New Zealand banking markets and the interdependence of both countries’ financial systems.

They enhance the framework for ensuring that trans-Tasman banks and financial systems remain sound while providing benefits to business.

The government considers that these proposals are not only imperative in making progress towards the Australia-New Zealand single economic market objective but also path-breaking internationally in the regulation of business with cross-border operations and activities. I commend the bill to the House.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

I rise to speak on the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006. The Australian and New Zealand banking markets are amongst the most highly integrated in the world. Australian banks have a combined market share of more than 85 per cent of the New Zealand banking market. New Zealand assets comprise around 15 per cent equity in Australian banks. The dominance of the trans-Tasman financial system is very much one way. Foreign ownership remains an issue in New Zealand. As I mentioned, the New Zealand banking industry is more than 85 per cent owned by the Australian big four, but New Zealand banking is 98 per cent foreign owned. Therefore, if a bank is not owned by Australian interests it is most likely to be owned by other foreign interests.

Given the high level of commercial integration, there is benefit in moving towards seamless regulation of banks to reduce compliance costs and promote efficiencies. It is also important that the banking supervisors are able to cooperate in promoting financial system stability in each country, given the interdependence of both financial systems. Early in 2004 a working party of Australian and New Zealand officials began discussions to look at options for integrating the banking and finance regulatory regimes in both countries. The New Zealand government published in early 2005 a report entitled Review of the regulation and performance of New Zealand’s major financial institutions.

Also in 2005 the Trans-Tasman Council on Banking Supervision was established by the Treasurer and the New Zealand Minister of Finance to promote a joint approach to trans-Tasman banking supervision that delivers a seamless regulatory environment for banking services as the first step towards a single economic market in banking. This bill implements legislative changes recommended by the council to ensure that the Australian Prudential Regulation Authority and the Reserve Bank of New Zealand can support one another.

The issue of trans-Tasman financial supervision has received little attention in Australia. However, the issue is quite important in New Zealand for obvious reasons. The big four Australian banks—ANZ, the Commonwealth, the National Australia Bank and Westpac—control 89 per cent of the assets of the New Zealand banking system. By contrast, an inspection of APRA’s statistics reveals no Australian presence of any identifiable New Zealand bank. At 89 per cent of New Zealand’s banking system, the big four Australian banks control more of the New Zealand market than of the Australian market, where they account for around two-thirds of the Australian banking industry. That is if it measured by share of assets. Hence, the regulation of the New Zealand banking system in practice means little more than regulating the subsidiaries and branches of the big four Australian banks.

The legislative changes aim to allow banks with operations in Australia and New Zealand greater flexibility with respect to the trans-Tasman jurisdictional location of their systems and functions than can be afforded under the current regulatory regimes of the two countries. This will have compliance costs and efficiency benefits for banks, which would flow on to consumers—at least, that is our hope. Also, promoting economies of both Australia and New Zealand.

This bill will amend the Australian Prudential Regulation Authority Act 1998, the Banking Act 1959 and the Financial Sector (Transfers of Business) Act 1999. The bill requires APRA to support the Reserve Bank of New Zealand in performing its statutory responsibilities in New Zealand relating to prudential regulation and financial systems stability. It also requires APRA to consider the implications of its actions on financial systems stability in New Zealand. This is achieved by giving APRA a new objective which is required to be balanced with but not override APRA’s existing domestic objectives. An administrator or statutory manager is also required to consider the implications of a proposed action on financial systems stability in New Zealand. APRA is obliged to consult the Reserve Bank of New Zealand before it or any administrator takes an action that may have a detrimental effect on financial systems stability in New Zealand.

As a result of these obligations, the risk that APRA could be required to interfere with the provision of outsourced services from an APRA regulated entity to a New Zealand bank is ameliorated. Therefore, this bill should result in reduced impediments to banks in choosing the location of their systems and functions within the trans-Tasman market. In addition, this bill will clarify that one of APRA’s objectives is to promote financial systems stability in Australia and that APRA can second staff from the Reserve Bank of New Zealand.

The bill should not have any financial impact for the Commonwealth, because APRA is self-funded through financial sector levies and will not require additional resources to implement these amendments. Reciprocal legislation is currently being progressed through the New Zealand parliament. Delaying the legislation will be of detriment to the good working relationship between our two great nations. The bill implements announced agreements between Australia and New Zealand ministers made on 22 February 2006. Labor supports the bill, and I now move the second reading amendment that has been circulated in my name:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House:

(1)

notes that in both Australia and New Zealand there has been a significant increase in the number of low documentation loans approved in recent years and the role of mortgage brokers in securing these loans; and

(2)

calls for uniform regulation of mortgage brokers”.

Labor is disappointed that negotiations towards uniform legislation at state and territory levels appear to have broken down. There is clearly a need for stronger regulation in this area to protect consumers. I believe my colleague the member for Canberra will raise the significance of these issues when I complete my contribution, but I want to say that obviously, as interest rates rise—contrary to some very firm commitments we got from the government during the last election campaign—families are struggling, particularly in mortgage belts. It is an unfortunate truth that the system has delivered low-doc loans which are potentially beyond the sustainability of those young families. As interest rates rise it is not a surprise to any of us that the chickens will be coming home to roost for many of those families. I think it is most appropriate that that matter be debated in the House this evening as we consider this banking bill.

I have spoken to the member for Canberra personally on a number of occasions about this issue. I know she is passionate about it. She represents one of the great mortgage belts of this country—sometimes known as ‘nappy valley’, if I remember correctly—and I am sure she will have a substantial contribution to make on that issue. Labor will be revisiting this issue, and policy announcements will be made in the lead-up to the 2007 election. We see this as a very significant issue, as we see credit issues are, generally speaking, for small business.

I have been very disappointed that the Hunter region seems to have become the capital of defaults and I refer here to the failure of large companies to make good their payments to small business and contractors. We have had some very high-profile cases of late, the most interesting of them being that relating to a group of companies known as the Bay group of companies, Bay Building et cetera, which left in its wake after its failure a whole string of small, unsecured creditors who had done their work in good faith. The more recent one is a group of companies that come under the banner of Hightrade which has not collapsed, fortunately, but is not paying its small business contractors. I make a commitment in this place that I will pursue Hightrade on these matters. I do understand that they are a sustainable company and there are no excuses for not paying their unsecured creditors. If they do not lift their game in that regard, they can expect to see me pursuing them in this place, as I have often been keen to do. With that additional point, I just repeat that Labor will support the government’s bill. We think it is a good step forward, but I recommend to the House the second reading amendment that I have moved.

Barry Haase (Kalgoorlie, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Annette Ellis (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

I second the amendment.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Hunter has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Annette Ellis (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak on the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006. This bill implements legislative amendments to promote a joint approach to trans-Tasman banking supervision as a step towards a seamless regulatory environment for banking services in Australia and New Zealand. Labor supports this bill, but I strongly support the amendment moved by my colleague the member for Hunter which:

(1)

notes that in both Australia and New Zealand there has been a significant increase in the number of low documentation loans approved in recent years and the role of mortgage brokers in securing these loans; and

(2)

calls for uniform regulation of mortgage brokers”.

It is unfortunate that there is a need to move this amendment but I feel compelled to speak about this subject because it affects so many people in my electorate and, in fact, throughout Australia. The Consumer Law Centre of the ACT investigated house repossessions in the ACT Supreme Court between 2002 and 2005. They published their findings in the report entitled They want to take our house. The report found that there was a 39 per cent increase in the number of house repossessions in 2005 from the prior average. Unfortunately, data suggests that there has been an even greater increase in 2006. This dramatic increase in the number of house repossessions is of great concern to me and to those of us on this side of the chamber. People’s lives, peace of mind and happiness are at risk here. The increasing pressures on families with rising interest rates and increasing living costs makes this situation even more difficult.

The Consumer Law Centre of the ACT report shows a link between home repossessions and non-bank lenders. For example, of the repossessions between 2002 and 2005, an overwhelming 68 per cent of actions were taken by non-bank lenders. In 2005 this percentage increased to 73 per cent. I have several concerns about the practices of non-bank lenders. Firstly, their customers are often very confused about exactly who is giving them the loan. Earlier this year I had a visit from a constituent who had been to one company for a home loan—in fact, it was a mortgage broker that he had seen—only to discover later that he had taken a loan with a completely different organisation. There may be some who would guffaw or laugh at this and say, ‘Didn’t he know what was going on?’ but his confusion was probably exacerbated by the fact that English was far from his first language and he was obviously not very experienced in the practice of obtaining loans or in business practice generally. I wonder how many other people find themselves confused during this process.

Another concern is that most non-bank lenders use ‘no-doc’ or ‘low-doc’ loans. With these loans, the requirements for the lender to verify a borrower’s income are significantly weaker than for banks. The lenders depend on the mortgage broker for correct information about the financial status of the borrower—and, unfortunately, that does not always occur. I am sure many people do not realise that non-bank lenders do not have to meet the same regulations as banks.

The Consumer Law Centre report also found that people with loans from non-bank lenders are charged higher fees and that they pay higher interest rates than for loans from banks or credit unions. It is no surprise that people find themselves sliding into debt levels they cannot handle. I should mention that it is not only non-bank lenders that now use these low-doc loans. According to the Reserve Bank of Australia, the share of low-doc lending in the home mortgage market has grown from less than one per cent in 1996 to nine per cent in 2006. The Market Intelligence Strategy Centre predicts that the proportion of low-doc loans in the housing market will grow to 22 per cent by 2008. I find these statistics to be very worrying under the current regime.

That is why I strongly support the amendment moved by the member for Hunter which calls for uniform regulation of mortgage brokers. Obviously, this will not resolve all our concerns about house repossessions, but at least it will place the same regulatory obligations on non-bank lenders as those placed on banks and credit unions. The hope is that people will be better informed about the risks when they take out these low-doc loans. This is supported by various organisations which have examined the issues surrounding home repossessions. The Consumer Law Centre of the ACT report recommended:

National regulation of mortgage and finance brokers should be introduced as soon as possible. Prudential regulation of non-bank lenders should be a priority for the Commonwealth.

Mr David Tennant, Chairperson of the Australian Financial Counselling and Credit Reform Association, recently made the following statement during a keynote presentation in Perth:

In the context of the growing problems in the lo doc market, effective regulation of finance brokers is a matter of the most urgent priority.

Mr Tennant then went on to describe a nationally publicised case study of a client of the ACT Consumer Law Centre, Mr AJ Biega. Mr Tennant said:

AJ Beiga was eighteen years old when he inherited $180,000. He thought buying a house would be a sound investment for the inheritance and secure his future. AJ approached a broker who lined up a $355,000 home loan with a non-bank lender.

Remember that this is for an 18-year-old. Mr Tennant continued:

The monthly repayments were around $3000. AJ told the broker he was a self employed artist. In fact, he was receiving a Centrelink benefit and according to AJ, had been living on the street for much of his teenage years. Not surprisingly, when the inheritance ran out, AJ could not keep up payments.  The broker helpfully organised a refinance.

The federal government’s response to the tragic rising trend of home repossession is that, in a less regulated environment, people should be more conscious of those risks. The government cannot continue to abrogate its responsibility in this area. Therefore, I strongly support the amendment moved by the member for Hunter which calls for uniform regulation of mortgage brokers.

In concluding, I would like to highlight that it is absolutely vital that people facing financial pressure with their home loans or other credit seek advice immediately, before they get into any further serious financial trouble. With Christmas coming soon, some people are going to find themselves under additional financial stress. The ACT Consumer Law Centre provides legal assistance and advice to people on low to moderate incomes who are facing financial difficulties in relation to credit and some other areas. I would hope that people within the ACT take advantage of that and contact the ACT Consumer Law Centre and that people in any other part of the country contact a similar, appropriate organisation.

But I want to finish by repeating this call. It is all very well for all of us to expect that people should know what they are doing when they walk into a mortgage broker or a financial institution and seek to get a loan granted to them, but we cannot rely on the hope that they know what they are doing. We need some protection. In the case of the mortgage broking industry, as I have said and as I have quoted from some experts, we really need some regulation to make certain that they know what they are doing, that they act according to some rules and that the people who walk in their doors have the protection that I believe we get when we go into banks and credit unions. If it is good enough for them to have those regulations, I cannot understand why it is good enough for the mortgage broking industry not to be treated the same way. I would like to think that the government is in a position to seriously consider the amendments that the member for Hunter has moved.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

in reply—I start by thanking the member for Hunter and in particular the member for Canberra for their respective contributions to this debate on the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006. While I accept that the comments from the member for Canberra are sincere, I point out to her that the states and territories are the ones charged with responsibility for regulation in areas such as mortgage broking. If this is not a political stunt by the member for Hunter, he would be well advised to be in contact with the member for Canberra and then ask to get in contact with their Labor colleagues at a state and territory level, because they are the ones charged with regulation on the issues that the member for Canberra has raised.

The Australian and New Zealand banking markets are among the most highly integrated in the world. Australian banks have a combined market share of more than 85 per cent of the New Zealand banking market, and New Zealand assets comprise around 15 per cent of Australian bank total assets. This bill is an important step towards creating a seamless regulatory environment for banks with operations in both Australia and New Zealand. It will allow banks greater flexibility in how they structure their businesses. This will bring compliance cost and efficiency benefits, which should flow to consumers. It will also contribute to the competitiveness of Australian banks in an increasingly global financial system. Importantly, the bill will also ensure that the banking supervisors in both countries are able to cooperate in promoting financial system stability in each country.

This bill makes important progress to the Australia-New Zealand single economic market objective. It enhances the framework for ensuring that trans-Tasman banks and financial systems remain sound while providing benefits to banks, their customers and the economy more broadly. Therefore, I commend this bill to the House.

Barry Haase (Kalgoorlie, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Hunter has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.

Ordered that the bill be reported to the House without amendment.