Jodie Campbell (Bass, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. Will the minister outline to the House how the Financial Claims Scheme announced by the Treasurer yesterday will work?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

Yesterday the Treasurer announced that the Rudd government intends to introduce legislation to establish a Financial Claims Scheme that will ensure that most depositors and insurance policyholders will have quick access to their money in the very unlikely event that a financial institution fails. The FCS follows through on advice that has been received variously from the Council of Financial Regulators—which includes APRA, ASIC, the Treasury and the Reserve Bank—dating back as far as 2005, the recommendations from the HIH royal commission of 2003, and advice from the global Financial Stability Forum earlier this year.

Until now, Australia has been one of only two OECD nations with no scheme of this kind designed to protect depositors and policyholders in the unlikely event of an institution failing. Early access to money is very important, obviously, for Australian families and working people in order to ensure that they can continue to conduct their ordinary life business. When an institution fails, immediately its existing funds and assets are frozen. In some cases, it can take a very long period before all of the matters associated with its failure are resolved, the disputes settled and money freed up.

This will ensure that up to $20,000 in the case of each depositor will be made available by the government, we expect within a week of any such event occurring. That will ensure that individuals and families are not disadvantaged in the short term and that their existence and activities of their normal life are not disrupted unduly by any such failure. It is a very important protection to ensure that we do not again see some of the events that have occurred in the past. There have been one or two instances in recent times, HIH being the most recent, where issues of this kind have emerged. It is very important to ensure that the knock-on effects of such occurrences are minimised. Also, it is desirable to avoid totally relying on ad hoc, post facto arrangements were such events to occur.

The government is also accepting recommendations of the Council of Financial Regulators that a number of changes should be made to the regulatory framework to allow better management by the regulatory bodies in the event of any institution failing. These measures will enable the regulators to act comprehensively and decisively in dealing with that situation. They will add to their capacity to recapitalise a distressed bank, credit union or building society, whatever institution may be involved.

I should emphasise that Australia’s financial system and regulatory regime is sound. We have rarely seen instances in this country’s history of losses as a result of financial institution failure, but eternal vigilance is essential in this area. These enhanced arrangements to deal with such a crisis are going to be very important in the unlikely event that something of that kind does occur to provide even greater security and comfort to ordinary Australians when and if such an event occurs.