Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

I shall take a few minutes in the parliament this morning to make some remarks on the report from the Parliamentary Joint Committee on Corporations and Financial Services into the statutory oversight of the Australian Securities and Investments Commission, otherwise known as ASIC. I am a member of this particular committee. This recent inquiry and report covered some key issues in our financial services market. I will touch on some of those key issues this morning.

The first major issue is that of short selling. Madam Deputy Speaker Moylan, you know that this has been an ongoing and significant issue within our financial markets over recent times. I believe that short selling is a legitimate and important dynamic of Australia’s financial services market. The issue that was raised at the hearings and in the report relates to the government’s approach to short selling and, through the government, the approach of ASIC to the bans in relation to short selling it has been implementing in recent months. The bans and the approach the government has been taking culminated with the introduction and passage of the Corporations Amendment (Short Selling) Bill in December last year. At that time, I took the opportunity to raise in the parliament the very real need for the bill and the government to provide some certainty in the marketplace with regard to short selling. In that debate, I raised the issue that, regrettably, none of the regulations surrounding the issue of short selling were included in the bill.

I regret to say that here we are, almost three months later, and still the regulations surrounding short selling in our market have not been defined by the government. Only last night, I had the opportunity to have dinner with some of the key stakeholders in our financial markets, and they highlighted to me the problems caused by the fact that these regulations still have not been designed or put out for consultation. There is a great need for certainty and clarity in this regard so that our financial markets can get on and do their business. I take the opportunity to call on the government: please bring forward these regulations as a matter of haste, because all market participants require certainty in this regard.

Another issue that was brought to the attention of the committee and discussed at the hearing was that of the freeze on redemptions from mortgage funds and cash management trusts. The report says:

ASIC reported that the freeze on mortgage trust redemptions had been widespread: ‘something in the order of 52 or so mortgage trusts have frozen redemptions, which affects about $30 billion of the $32 billion of that market’.

This is a significant issue. Today, 270,000 people still have their funds frozen through these mortgage trusts. Why are their funds frozen? Because of the bungled bank guarantee approach of the government. That is what has done this. Because the government bungled that approach, it dislocated our financial and banking system and, as a result of that, these funds have been frozen. Over a quarter of a million people are unable to get their money from the funds that have been frozen. I think the most concerning thing that came out of the hearings, and which continues to be obvious in the marketplace, is that there is still no solution whatsoever from the government for this very important issue.

Another issue that was considered was the strategic review that ASIC has been undertaking. The report notes that there has been some very good progress made in this regard by ASIC. I commend ASIC for the work that they have done. I commend Tony D’Aloisio, the Chairman of ASIC. Mr D’Aloisio was, of course, appointed by the former government, and the strategic review was commenced under the former government. I think that ASIC has been doing well in that regard.

Superannuation was also discussed at the hearing. Madam Deputy Speaker, you would of course know that, right now, many Australians are finding life very difficult as a result of the decline in the markets and the impact that that has had on superannuation investments. The issue about superannuation funds being able to give members an indication of their end benefit was discussed at the hearing. The committee’s report says:

The fact that the law does not facilitate superannuation funds offering projections to individual fund members hampers the likelihood of them making informed decisions about their superannuation contributions.

And that is the key point about this: the law needs to be changed. The government needs to change the law so that superannuation funds can provide end benefit statements to their members. Again, I think this is a very important matter, particularly at these times when the markets are down and superannuation fund members need certainty and advice.

Finally, I would like to touch on the issue of financial literacy. This was also canvassed during the inquiry and it is in the report as well. The previous coalition government had a very strong commitment to financial literacy. Unfortunately, this government has changed the Financial Literacy Foundation from being a stand-alone body to being a unit within ASIC. I have no problem with ASIC—I have a great deal of respect for ASIC—but I feel strongly that the issue of financial literacy amongst all Australians, young Australians as well as older Australians, is very important. Governments have a key role to play in educating people about how to manage their finances going forward, and it is a deep shame that the Financial Literacy Foundation has been merged into ASIC and has therefore lost a lot of its emphasis, a lot of its focus, as an important stand-alone foundation. Again, I call on the government to ensure that this merger with ASIC in no way undermines any of the great work that the foundation was doing in supporting Australians of all ages to improve their understanding of finances throughout their lives.

I commend the report to the parliament and I also take the opportunity to thank all of those people in the secretariat for their fine work.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to speak briefly on the report of the Parliamentary Joint Committee on Corporations and Financial Services, Statutory oversight of the Australian Securities and Investments Commission, presented this week by the committee chair, the member for Oxley. The global economic crisis has shone new and much needed light on the behaviour of equity markets, the behaviour of those who design and promote particular products, the behaviour of corporations who are listed on the market, the behaviour of investors and traders, certainly the behaviour of the operators of the stock exchanges themselves and particularly the actions and roles of regulators such as ASIC, who have responsibilities with regard to the integrity of the financial system. Our overall finding in this report is that the committee remains satisfied that ASIC continues to carry out its functions in accordance with the provisions of the corporations legislation.

At the public hearing, we were able to further explore ASIC’s performance across its operations as well as some particular new issues which have emerged from the global economic crisis. Those included: ASIC’s decision to ban short selling to reduce market volatility; their dealings with hardship exemptions from frozen mortgage fund redemptions, which the committee registers its intention to track more closely in the future; and new licensing and reporting arrangements for credit-rating agencies. It was also noted that the government has provided ASIC with $66 million to regulate consumer credit operations.

With respect to short selling, whilst pleased with the actions of ASIC the committee considers that more transparency in disclosure and reporting is the desired outcome which should be pursued. The area that I would particularly like to focus on, though, is market regulation and the importance of consumer confidence in the integrity of our equity markets. Whilst welcoming new initiatives designed to better identify and prosecute insider trading, false rumours and market manipulation, the committee has encouraged ASIC to continue to work closely with the ASX on identifying these practices. The need for greater rigour was borne out in ASIC’s survey of the regulator’s stakeholders. Unfortunately, only 20 per cent of respondents to the survey agreed with the proposition that ASIC was good at identifying image problems. The review also indicated a lack of confidence in ASIC’s ability to identify and prosecute instances of dishonesty, misconduct, insider trading and market abuse.

Pleasingly, additional new training and other initiatives aimed at bringing about necessary cultural change have been implemented by ASIC. However, a more aggressive move towards a risk management based operation rather than a process orientated organisation is imperative if stakeholder confidence is to be maximised. Accordingly, the committee encourages ASIC to continue with these initiatives. We are pleased that the commissioner recognised this need when he acknowledged and stated the need to develop people who are much more in tune with the market and understand what is happening so that they can give a quick response.

The need for the early identification of risk was borne out in a table presented in an answer to a question taken on notice at the hearing. The table, on page 22 of the report, shows the Australian Stock Exchange’s referrals to ASIC of potential breaches of market rules over three financial years. The table shows an increase from 29 referrals in 2005-06 to 55 in 2006-07. The 2007-08 results provided are incomplete but the total for the 2008 calendar year showed a continuing high trend of referrals. What is important is that an almost doubling of referrals in 2006-07 should have certainly triggered a dramatic response from ASIC. Unfortunately, that did not seem to be the case.

The committee has praised ASIC, though, for its honest reporting of these survey and review findings and encourages it to use its external advisory panel to stay more in tune with the market. I note that since we met in November the new chair of that advisory panel, Dr Stuckey, a former partner of management consultants McKinsey and Company, has been appointed. I also note that the panel members are still to be appointed, and I encourage ASIC to attend to that as quickly as possible. The committee stressed that the external advisory body can certainly help ASIC to stay more in tune with the market realities and the external financial landscape, which they need to be scanning at all times.

Since we met with ASIC in November the collapse of Storm Financial Limited has taken place, leading to grave personal losses for many mum and dad investors. The committee will be pursuing the issues surrounding the collapse of Storm and other similar ventures in its future inquiries and hearings with ASIC. The interests of consumers—the constituents of the members of this parliament—are paramount to us and certainly need our full attention. The committee’s comments on further improving financial literacy and the adequacy of professional indemnity insurance point to the need for further investigations of these issues.

Another pleasing development commented upon extensively in the public hearing last November by the commissioner was ASIC’s participation with the international economic community in the better regulation of international markets. The very genuine leadership being shown by ASIC in this regard is most welcome. I commend this report to the House. I acknowledge the hard work of the secretariat and members of this committee, and I thank them for it.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

I also commend to the House this report of the Parliamentary Joint Committee on Corporations and Financial Services, Statutory oversight of the Australian Securities and Investments Commission. ASIC forms one of the four pillars that have kept our financial system held in such regard and such standing over the last decade. ASIC, APRA—which was pulled out of ASIC in 1998—the Reserve Bank and the ACCC have provided a sound regulatory framework that has held us in very, very good stead, as seen through the strength of our banking and financial system whilst other banks around the world continue to find themselves in significant difficulties.

The committee’s hearing with ASIC on 28 November raised a range of issues that should be raised to ensure that the regulatory function of one of those four key pillars continues to receive the proper and due parliamentary scrutiny. A number of issues were raised, including ASIC’s decision to ban short selling to reduce market volatility. Issues such as disclosure of short selling and the ownership of short sales, the transparency and reporting of short selling—both naked and covered—received due attention. The hardship exemptions for frozen mortgage fund redemptions also were considered, as were new licensing and reporting arrangements for credit-rating agencies.

A range of other issues were discussed with ASIC that have been included, or shown interest in, at previous ASIC hearings, and they may feed into further hearings within the financial services area. These include ASIC’s investigative capability—noting that the Storm Financial collapse occurred after the hearing with ASIC. But ASIC’s investigation and subsequent action surrounding the collapse of Storm and responsibility for that will be watched by the committee with some interest. Likewise, the regulation of insider trading, market manipulation and false rumours to affect a share price will receive some due attention.

The strategic review of ASIC, as well as its funding arrangements, its financial arrangements and the impact of efficiency dividends and the like, will continue to come under review, as will workload and further budgetary issues. Financial literacy, including the transition of the Financial Literacy Foundation across to ASIC and how ASIC will use its services and the literacy programs that the foundation is bringing across to it, will also continue to undergo scrutiny, as will professional indemnity insurance for financial planners. The proper parliamentary oversight of ASIC, and the four pillars that have held up our banking and financial systems so well, is proper, is due and must continue. I commend the committee for its work. I thank the secretariat for their support and I look forward to further review of ASIC and its work to help support the economy and the nation.

Debate (on motion by Mr Secker) adjourned.