Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee’s report entitled Statutory Oversight of the Australian Securities and Investments Commission together with evidence received by the committee.

Ordered that the report be made a parliamentary paper.

I am pleased to speak to the Parliamentary Joint Committee on Corporations and Financial Services report on the statutory oversight of ASIC. I would like to, first of all, thank the secretariat for their assistance in preparing this report and ASIC officials for their continuing cooperation with the committee and their hard work as well. I would particularly like to thank former ASIC Deputy Chairman Jeremy Cooper for all his assistance to the committee over the years and wish him the best in his new role as head of the government’s recently announced review of Australia’s superannuation system.

The report covers a number of issues, including the lift on the short-selling ban; ASIC’s efforts to improve market integrity; and recent corporate collapses, including Storm Financial, Timbercorp and Great Southern. The committee also continued to seek information about mortgage fund redemptions, credit-rating agency regulation and professional indemnity insurance arrangements for the financial services industry.

The ban on covered short selling of financial stocks was lifted on 25 May, exceeding the length of similar measures in overseas jurisdictions. ASIC defended its cautious approach and suggested that a ban could be re-introduced if extreme market conditions justify it. The committee welcomes the lifting of the ban. We will monitor the effectiveness of the new reporting arrangements for covered short sales in bringing transparency to this area.

ASIC has also sought to address the market integrity issues that made short selling such a problem during the period of market volatility. Although the steps ASIC has taken to stamp out false and misleading market rumours have not generally led to successful prosecutions, they claim that their efforts had a deterrent effect. The committee expects that the resources allocated to this task through Project Mint will result in more tangible results in the near future. We also look forward to seeing more effective market surveillance now ASIC has taken responsibility for this from the ASX.

The collapses of Storm Financial and agribusiness MIS companies Timbercorp and Great Southern have led to the committee conducting two separate committee inquiries into the regulatory issues around these events. In terms of the collapses themselves, the committee strongly supports ASIC taking whatever steps it can to prosecute regulatory breaches, wherever they may have occurred. I understand that work is continuing, and we expect to see results from ASIC in those terms.

Freezes on redemptions from mortgage funds and cash management trusts continue. A number of hardship payments have been made so far, and ASIC has announced that it will extend the scope for hardship payments to assist those who remain affected by the freeze. But the task of unfreezing these funds is a difficult one—they need new funds to allow redemptions, yet such an inflow of funds is unlikely while they remain frozen. This is a real dilemma not only for the funds themselves but also the people who invest in them and the management of those funds in these difficult times. The committee welcomes the expansion of hardship payments and will continue to monitor this sector.

The new arrangements for the regulation of credit-rating agencies have been delayed until 1 January 2010. These changes will require credit rating agencies to hold an Australian Financial Services licence and report on their ratings processes and on how they manage conflicts of interest. ASIC told the committee that the delay is due to international developments. The committee reiterates ASIC’s warning that the ratings provided by these agencies should not be blindly relied on.

Finally, the phasing-in of professional indemnity insurance requirements for financial services providers is causing concern in the industry. Cover is getting more difficult to obtain, which might cause problems for smaller operators when the implementation period for compulsory cover concludes at the end of this year. The committee will continue to seek further updates on this problem as the requirement for a higher standard of cover begins. The committee would also like to see ASIC better explain the limited capacity for PI insurance to compensate investor losses. I commend the report to the House.

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

Section 243 of the Australian Securities and Investments Commission Act 2001 sets out the role of the parliamentary committee’s duties. One of them is to inquire into and report to the House on the activities of ASIC, hence the report this evening about the hearing of 17 June 2009 in the parliamentary committee’s inquiry on the role of ASIC. The legislation also requires the committee to look at the operation of the Corporations Law, or any other law of the Commonwealth or indeed states as to how it affects the operation of the corporations legislation, to examine the annual report and to inquire into any questions that may arise.

The hearing on 17 June questioned ASIC on a range of issues, including short selling, market integrity, recent corporate collapses, BrisConnections, mortgage fund and cash management trust redemptions, professional indemnity insurance, ASIC’s structure and budget, and of course investor education. I wish to make a few brief comments on some of the more salient issues that were covered. As the chair of the committee indicated, the committee welcomes the decision to lift the ban on covered short selling of financial stocks. The committee considers that covered short selling certainly contributes to market liquidity and price discovery and is certainly a valid feature of the Australian market.

Likewise central to the recent short selling of course was the issue of market integrity. ASIC is responsible under the law for identifying and prosecuting any instances of a lack of market integrity. ASIC told the committee that its efforts to improve market integrity have included expanding enforcement teams, working closely with the ASX, checking market activity and a website for people to lodge complaints. There have been no prosecutions to date, though ASIC told the committee that Project Mint was a work in progress and that it had already produced and commenced a range of deterrent works.

The last 12 months in particular have seen a range of market volatility, resulting in a range of corporate collapses. To date insolvencies have included ABC Learning, Allco, Babcock and Brown, Great Southern, Octaviar, Timbercorp and Storm Financial. Some $23 billion has been lost through those. Another $39 billion has been lost through 11 entities that have also seen their market capitalisation collapse. All in all, a figure of $73 billion, or 6.2 per cent of GDP in 2008, has been lost through a range of corporate collapses. Whilst perhaps the most spectacular was Storm Financial, where up to $4 billion of investors’ money has been lost, it is important to understand that $73 billion in value has been wiped out through a range of collapses. That is a significant amount considering that in the wake of the 1987 stock market crash around $20 billion, or 5.4 per cent of 1989 GDP, was wiped from balance sheets.

As this House would be aware, the Parliamentary Joint Committee on Corporations and Financial Services has commenced a full-blown inquiry into the collapse of Storm Financial, Opes Prime and other related entities. The committee has received more than 400 written submissions to its inquiry into financial products and services, and the majority of these relate to Storm Financial. This is an ongoing inquiry that is coming to its natural conclusion and should report, all things being equal, by the end of the year. I see the chair of the committee nodding from across the House.

Likewise, the committee tabled its report on aspects of agribusiness managed investment schemes on 7 September and made two very specific recommendations with respect to ASIC—that the government amend the Corporations Act to require ASIC to appoint a temporary responsible entity in the case of collapse and, of course, a requirement for agribusiness MISs to disclose qualifications and accreditation of third parties that provide expert opinion. The committee takes its oversight role of ASIC seriously and looks forward to continuing that oversight role to ensure that the regulatory body of ASIC, which now governs all areas of financial services with the bill going through the House to deal with margin loans and the like, continues to play that fundamental role we need it to play in our society.

Danna Vale (Hughes, Liberal Party) Share this | Link to this | Hansard source

Order! The time allotted for this debate has expired. Does the member for Oxley wish to move a motion in connection with the report to enable it to be debated on a future occasion?

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

In accordance with standing order 39, the debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.