John Forrest (Mallee, National Party, Shadow Parliamentary Secretary for Regional Development) Share this | Link to this | Hansard source

I am pleased to have the opportunity to speak to the report on agribusiness managed investment schemes of the Joint Standing Committee on Corporations and Financial Services. Whilst I do not serve on the committee, I have taken an active interest over the years in the outcomes of managed investment schemes. It has been a very confusing story for me, from a constituency point of view, because there are those who support the capital outcomes of managed investment schemes and there are those who do not. In fact, down in my part of the world I have one municipality pitched against the other. But I formed the view five or six years ago that the majority were dead against the concept of managed investment schemes in non-forestry agriculture. I am certainly not going to criticise the current government. It was an issue of representation through the period of the previous government. In my railing against managed investment schemes, particularly their operation in horticulture, I was told that the tax commissioner needed to take the issue back to the court.

The history of managed investment schemes, particularly their function in non-forestry, started some time ago with the court ruling of one judge who deemed it appropriate that a non-participating investor in agriculture—remote—was entitled to upfront tax concessions. The outcome of that was horrendous for regions right across rural Australia. My conventional, for-profit horticulturalists—particularly in wine grapes—railed against the operation of managed investment schemes from Great Southern and Timbercorp. This was an industry with a commodity already in oversupply. That was the last nail in the coffin in view of my position on managed investment schemes.

I wrote to Senator Nick Sherry, the responsible minister, as Minister for Superannuation and Corporate Law, way back in April. I put on the Notice Paper questions to the Treasurer on 16 March. Then we saw the collapse of Timbercorp and following in suit Great Southern. Those circumstances were perfectly predictable. In my letter in April to Senator Sherry, I asked him to please instigate an inquiry. At that stage I asked for ASIC or even the Australian tax office to instigate inquiries. I was overjoyed when he agreed to instruct the Joint Committee on Corporations and Financial Services, chaired by Mr Ripoll, to investigate this issue. That encouraged all of those in my constituency who opposed managed investment schemes. It created for them the opportunity to have their say, and they did that overwhelmingly.

Having put in all of that effort, I am just a little bit disappointed in the report, because my position for at least the last five years has been that the legislation needs to be changed. I accept that there is a proposition and reasonable argument in agroforestry that if we want Australian investors to make an investment that they have to wait 30 years to redeem—and also to encourage them in the carbon sequestration challenge—then it may be appropriate to offer an upfront tax deduction for them to achieve that, given that they have to forsake the potential for income for so long a period. Even then, in the southern regions of my constituency, the advent of agroforestry MISs is still not popular, because then you have the concept of corporations coming in purchasing huge tracts of land—just gigantic chunks of land—for agroforestry. The impact of that on small rural communities is that more and more families leave, you lose the school and it is just another step in the collapse of the social infrastructure of regional areas. But I accept that as a concept. I am not comfortable with it, but I accept it.

But I cannot accept managed investment schemes driven only by investors who want tax deductions. My argument has always been that there needed to be significant changes in the Corporations Act. This report in recommendation 2 goes to that, but it does not go far enough. It is only recommending that:

That the government amend the Corporations Act to require ASIC to appoint a temporary Responsible Entity when a registered managed investment scheme becomes externally administered or a liquidator is appointed.

That is too far after the event. There needs to be more significant definitional changes in the Corporations Act. And, of course, the Income Tax Assessment Act needs to be changed significantly. I am a little bit disappointed that the committee has not had the courage to recognise the evidence received and deemed that such strong recommendations are necessary. Ultimately, both of those pieces of legislation will need to be changed.

One thing I am encouraged about, though, is that the committee has taken evidence and had it recorded just how complex these managed investment schemes are. They are unbelievably complex. The liquidators now at Timbercorp and Great Southern are at a loss to determine the proprietorial rights of people who have investments. It is just so complicated. Every step in the process is designed to instigate a tax-deductible outcome—even the capital investment on the properties themselves. For example, if it requires a huge packing shed, that is not necessarily owned by the entity that owns the land. There is a 99-year lease arrangement and some other investor makes an investment, builds those premises—the shed or whatever it is, even pumping stations—and receives rent for it. You can see the way it is all designed to maximise the tax-deductible outcome.

The real weakness, though, in the non-agroforestry area is that it is not driven by market outcomes. Certainly for managed investment schemes to be investing in citrus, wine grapes, table grapes—all commodities currently struggling—it is just not acceptable. In my letters to Senator Sherry I asked him to investigate such things as whether the financial projections of managed investment schemes were overzealous and overoptimistic in order to ensnare investors into making investments. I asked him also would he address the issue of the proprietary rights of unit holders in those circumstances. The evidence quite clearly confirms that it is completely uncertain. In Timbercorp, for instance, the rights of the investors in the water is notable. Timbercorp has become the largest water allocation licence holder in Victoria. They reached their cap two years ago. It represents huge volumes of water.

When I saw the capital being invested from an engineering perspective—huge pumping stations on the river to pump into what we refer to in engineering parlance as a turkey’s nest dam, an elevated storage, in sandy Mallee country, that increases the pressure and causes accessions to the groundwater—I was just alarmed that engineering design was not complying with prudent principles. Then there are water storages that cover up to 30 or 40 acres of storage in an evaporation zone of at least a metre a year—not good water conservation practice. It seemed to me that, with the capital made available by willing investors receiving tax deductions, there was no responsibility about the accountability principles, even as to the purchase of water.

My irrigators will never forgive this place for allowing the circumstances to be created such that those with an unlimited purse could move into the water market and pay up to $2,000 a megalitre—far beyond the capacity of my for-profit farming community to match. That has been a real sticking point and has left a very sour taste in the mouth of Murray Valley irrigators, particularly on the Victorian side of the river, who are going short of water, and who pay for a water allocation but do not necessarily receive it. In addition to that, they have to go into the water market to purchase water to save their vines, citrus trees, stone fruit trees or whatever the commodity is that they are producing in horticulture, and even their vegetables.

So I have to declare my position: I will not rest until the legislation is changed to completely ban the concept of a managed investment scheme driven by tax deductibility and not by market outcomes, export enhancement or even import replacement, at least. But the models that I have seen rolled out in my constituency and other nearby constituencies, particularly along the Murray Valley, just need to be stopped.

It is no surprise, the final demise of Timbercorp and Great Southern—no surprise at all. It was just a lot longer coming than I was predicting four or five years ago. But I have never forgotten—I was only newly-elected, in my second term; it would have been about the mid-nineties, probably 1996—publicly calling for a moratorium on the planting of wine grapes, since blind Freddy could see we were over-planting, and getting absolutely condemned: ‘Who is this idiot representing us in Canberra?’ But that is what has ultimately happened to the wine industry.

The move by Great Southern into their wine-grape operations in South Australia—in particular one very large wine-grape operation at Lake Cullulleraine in the north-west corner of my constituency—was the final death knell on any support they might receive. There is some ongoing support in the Swan Hill Rural City Council’s municipality, associated with the soldier-settlement district of Robinvale, where this massive investment has resulted in employment and the establishment of new businesses in pump maintenance and fertiliser, and agronomy and all of the other sciences that go into producing state-of-the-art agriculture—that is true, and I accept that. But I simply say to those constituents associated with Robinvale who have been urging me to do something about saving, in some way, Timbercorp or Great Southern, that I cannot and will not. I leave the liquidators to sort out the mess, the basket-case mess, of ownership in both those entities. If someone were to come to me with a model that said, ‘I want to have this kind of concept in place to promote a better outcome in agriculture, or to grow a product that has huge potential in an export market, or that is import-replacement focused,’ then I would consider it. But my experience over the years has been such that I am diametrically opposed.

I just wish this report went further in the strength of its recommendations. Despite that, I will continue making representations so that the legislation gets changed once and for all, to give my for-profit, slightly smaller—though some of them are corporate—operations of a family-owned nature some incentives, to show that this is a parliament that believes in them and believes they have a place in the nation’s prosperity from here on. They desperately need that signal at the moment.

Janelle Saffin (Page, Australian Labor Party) Share this | Link to this | Hansard source

I would like to say to the honourable member for Mallee, whilst he is still here, that listening to his contribution I felt like he was talking for my electorate as well on this matter. All the issues that he flagged had clearly been raised since November 2007, when I became the member for Page. It has been one of those emerging issues; it has been just sort of bubbling away across a whole range of communities. There are also a lot of forestry plantations in the seat of Page. There is a lot of land under cultivation with forestry, and I will turn to some of that now. I welcome the report. The inquiry followed the collapse of Timbercorp and Great Southern, and it was like a lot of things: I wished it had been done earlier. I welcome the report because I see it as the start of the debate, not the finish of the debate. It is at that point we are able to enter into it. There are people from across the political spectrum in my community who are opposed to managed investment schemes, full stop. There are other people who say, ‘Don’t throw the baby out with the bathwater.’ They say the schemes can be good models to encourage agribusiness and that we need to rethink how we do them, so they say not to do anything too rashly. I have canvassed all of those views across the electorate.

I invited the Chair of the Parliamentary Joint Committee on Corporations and Financial Services, the honourable member for Oxley, to come to my electorate and meet with a whole lot of people who had views about MIS, and I thank him for doing that. We held an informal meeting on 6 July at Kyogle council chambers. People came from around the region, from places like Woodenbong. Three generations came from there: the grandfather, the son and the grandson. They were all conservative-background farmers who were concerned about it. It is just one of those issues that bubbles away. The Kyogle branch of the New South Wales Farmers Association had written to me saying that they wanted the tax breaks for the forestry plantations gone completely. I also had environmentalists talking about the scheme.

I will come to the heart of the scheme. I noticed the headline of an article by Andrew Main in the Weekend Australian of 13 June 2009. It read ‘Untangling MIS mess is a nightmare’. I agree it is, and I think we are at the stage now of entering that territory. But the issue is that you have international equity trusts, you have time share and you have a whole lot of products that are in that realm, and then you have agribusiness. The controls and regulations that are in place for those products, I submit, are quite different from what is needed for agribusiness with managed investment schemes. We also need federal, state and local governments working together to make sure that, if we have managed investment scheme agribusiness, it has that coordination. Local government are completely locked out of the process. There is state legislation that governs and controls how these operate. Then there is the issue of royalties; we have a lot more trucks going over the roads but no more money going into the local government area. There is also the issue of water, which the honourable member for Mallee raised. It is a big issue and a lot of people have not been aware of that. We all know that water is rather scarce.

One of the issues raised was that in my area we are using prime agricultural land and we have about 30,000 breeders now out of the market. I know we have to accept change, and that may be okay, but these are issues that were not thought through. While I welcome the recommendations in the report, because they go some way towards addressing some of the issues, we need a more forensic review to drill down further into how we manage the agribusiness component of it on a day-to-day level beyond the products.

John Forrest (Mallee, National Party, Shadow Parliamentary Secretary for Regional Development) Share this | Link to this | Hansard source

I agree.

Janelle Saffin (Page, Australian Labor Party) Share this | Link to this | Hansard source

The honourable member for Mallee agrees with what I have said. The key issues raised at the meeting included: inflation of land prices; critical farming; stock land being lost; 30,000 breeders disappearing from the area; damage to roads; damage to the social fabric of communities; and no net economic benefit to communities—that was a key issue. Managed investments are great—if we can foster more agribusiness, that is a good thing—but we also want to see some of that net economic benefit coming to communities. Yes, there are some jobs, but there are not a lot of jobs.

Other issues included monocultural practices—and I am talking about forestry plantations—causing bigger weed infestation, particularly when you are planting dunnii; no local government or local community capacity for input; no regional royalties flowing to local communities; no expertise with some schemes regarding forestry, and that is not all people involved in the business; large water use that is not compensated; schools going and the number of students down; and aerial spraying, an issue we have not had to face in our area for a long time because we thought it was not happening anymore. Aerial spraying uses simazine. Yes, this a herbicide that it is used for cropping but, with cropping, it may not be such an issue. But we have big plantation areas and, when it is used across a big area, there are some problems. I have read that the director of public health in Tasmania has stopped it from being used in a particular area. I have taken that issue up on behalf of all of the communities because aerial spraying was happening near families and where kids had to go to catch the bus. The local farmers actually came and asked me to take up that issue.

The inquiry into agribusiness managed investment schemes was able to clearly recognise that we have an issue here. It is an issue for our community and an issue for the parliament. The way agribusiness is done is an issue for the three levels of government, but local government is being locked out, which seems nonsensical, and the state has control over those areas and monitoring. It almost needs something else to happen, and some of that is clearly beyond the terms of reference of the committee. I suggest that it requires something beyond a parliamentary committee. It needs something quite different, another review to look at the whole management—and I do not mean the financial product.

I thank the committee for the good work that they did in their review of MIS and agribusiness. I welcome the recommendations. I, like the honourable member for Mallee, will continue to be seized by this issue. We will work until we get some outcomes in the way we manage these systems that are acceptable across the communities. I thank the honourable member for Oxley, the chairman of the committee, for coming to my area and having an informal roundtable with all the people across my community who were concerned with this issue. I think the Kyogle council chambers and the mayor and the councillors for hosting that for me.

Patrick Secker (Barker, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the report of the Parliamentary Joint Committee on Corporations and Financial Services inquiry into aspects of agribusiness managed investment schemes. This is something I am quite interested in. Some of the comments I make might not be liked by the member for Newcastle, who is a member of the committee, but I believe the committee really squibbed on this whole issue of MISs. I say that because they made no real decision on whether they think MISs should be there or not and whether they should be just for non-forestry or whether they should be over the whole agricultural area. It has been accepted that MISs are okay in forestry on the basis that it is often 15 years or even longer before you get a harvest, and that sort of long-term investment needs some sort of encouragement. I have seen various schemes over the years. I remember South Australian Perpetual Forests had one that you invested in and you did not pay tax on the income. That changed many, many years ago.

When it comes to MISs there is a lot of controversy on the different industries that they apply to, although probably less so with regard to the forestry industry. In my electorate, many people in the olive industry have actually welcomed MISs, on the basis that they needed to get a critical mass to make it a viable industry. Some might say that they do not need it anymore. How then does a government decide whether it is time to turn off MISs for one particular industry? It is very hard for a government to say that one industry should get MISs and another industry should not. Both the previous coalition government and this government have made the distinction between non-forestry and forestry.

Another industry which has welcomed MISs is the almond industry, again to get that critical mass. But of course the grape industry absolutely hates them. About eight per cent of the industry is MISs. Some MISs actually run a good operation where they have the latest irrigation technologies. Others have just bought run-down set-ups and really have not put the money into fixing them up. Others have gone out there and planted a whole lot more vines. In a new part of the Barossa, a big vineyard has been put in right at the death knell of MISs. When we were in government, we said that they should have ended on 30 June last year. Of course, the problem is that we have had a court case in the meantime that overturned our government’s decision and made it less certain where we are.

I will very quickly talk about recommendation 1, which I have a real problem with. If you brought in recommendation 1, you would not get any investment in MISs. No-one is going to invest in something now and wait 15 years before they are able to write off those costs. It just would not work. I note that the committee said that the government should only look at it but, frankly, it just would not work. If you wanted to get rid of MISs, that would be a perfect way of doing it: saying that you could not take a deduction before there was any income from that particular MIS.

I do not have a real problem with the second one. I cannot say I am an expert on the Corporations Act. It probably seems reasonable they have made that recommendation. I would fully support the third recommendation. I think that, any way that we can ensure that we have as close to perfect information for the consumer or the investor, the better off we are. I am very disappointed that there are only three recommendations. No. 1 will not work, No. 2 probably will and No. 3 is a recommendation I support. I just wonder why they did not come out with a strong message of whether they believe that MISs should be part of our taxation system or not.

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

It is pleasing to see people stand in this chamber and address the report of the Joint Parliamentary Committee on Corporations and Securities because it was an important report. The inquiry into aspects of agribusiness managed investment schemes related to the recent collapse of Timbercorp and Great Southern. The inquiry kicked off in a very rapid response to a very real situation, a situation of great loss. It was interesting for me to listen to the three previous speakers, who come from regional areas and who understand that these sorts of schemes had particular appeal to people living on the land. There is a characteristic of Australians to back themselves, and in a way many of these investors were backing what they do in their lives and the communities they live in, so it is very regrettable when they suffer great loss. I congratulate the three preceding speakers for their concern for their constituents.

It is estimated that Great Southern and Timbercorp had 43 per cent of all managed investment scheme business in Australia and MIS accounted for 100 per cent of their business, so we are talking about two schemes that were absolutely specialised. The two schemes collapsed in April and May of this year, taking with them over $3 billion from 60,000-plus investors. Of course, the investors were attracted by the offer of an immediate tax deduction on their investment combined with the possibility of a long-term return. Intervening factors—drought, changes to the economic environment and the natural environment together with the global financial crisis—meant that there were factors of high risk that many people had not considered, and when they came together it was quite devastating.

The parliamentary inquiry was held to determine why the collapse happened and how it could be prevented from happening again. Naturally in that inquiry we looked at the sorts of factors that influence people to invest in any product, and this is a story that relates to all investments. We looked at business models and scheme structures, taxation treatments, the conflicts of interest for board members and other directors, commissions, fees, other remuneration paid to marketers, distributors, related entities and sellers and who they were, including accountants and financial advisors and their roles. We looked at the accuracy of promotional and advertising material for MISs, particularly information relating to claim benefits and returns, including carbon offsets, the range of individuals and organisations who were involved with these schemes, including the holders of relevant Australian financial services licences and the level of consumer education and understanding of these schemes. We looked at the performance of the schemes, the factors underlying the recent scheme collapses, rejected returns and supporting information, including the assumptions that they were based on, product price and demand, the impact of MISs on other related markets and the need for any legislative or regulatory change.

I note the previous speaker’s concern that the committee perhaps did not go as far as he would have liked. I have to praise the chair, the member for Oxley, for his role in the committee and I have to praise the committee members. This was a rapid response which got off the ground very quickly and it allowed the people who were involved and who had suffered loss to have their voices heard. That is terribly important at a time when the asset values of most people in this country—whether a home, a superannuation fund or a particular investment portfolio—have all been drastically reduced, and for many people, particularly people on the land, that was their superannuation, their retirement income or their hope.

I praise the chair, Mr Bernie Ripoll, the member for Oxley, and I particularly praise the secretariat. We have worked them very hard and they have been incredibly supportive of the work of the committee. We thank Dr Shona Batge, the secretary; Mr Andrew Bomm, the principal research officer; Ms Esma Poskovic, the executive assistant; and also Toni Matulick and Clare Guest.

In this report it was revealed that the managed investment schemes encompass a variety of structures for the creation and operation of collecting investment schemes or projects. This can include anything that involves an investor acquiring something other than a security: a share, a debenture, an interest in a prudentially regulated entity such as a bank deposit et cetera. The sector includes managed funds, public unit trusts, property syndicates, service strata schemes and, in the example of Great Southern and Timbercorp, agricultural schemes. To quote from the report:

As with other MIS, investors (or growers) in an agribusiness MIS pool their funds for a common purpose, in this case to finance large scale agricultural operations. Rather than investing in the unit trust structure outlined above, though, investors gain an interest in an agricultural project on an allocated parcel of land. Fees paid by investors secure the right to have their ‘allotment’ used for a particular agricultural purpose, and a limited right to what is grown on that land by the scheme’s manager, operating under a management agreement.

Investors do not purchase a physical asset, including the land the projects occur on. In forestry MIS, the growers usually own the trees on the land, while growers in non-forestry MIS are entitled to the crop but not the trees that produces it. Investors receive a share of harvest proceeds after the scheme’s manager has been paid for plantation/crop maintenance, harvesting, land costs and selling the crop.

The main thrust of the recommendations arising from this inquiry—and I have heard some debate on the issue here in this chamber—was to curtail up-front tax breaks on agribusiness projects so that Ponziesque sales models are not allowed to develop. I will come back to that, but I think it is important to say that we are legislators—we are the people who make the legislation here—and we have to really be aware that a policy setting can absolutely shape behaviour. We know that but sometimes we do not think of the negative consequences that can arise from that. So a policy setting that gave tax concessions made something extremely attractive for people, just as a policy setting that encouraged people to salary sacrifice to superannuation made something extremely attractive to people, without some responsibility being taken for the nondisclosure of the possible risks. I know we cannot always foresee global financial crises, but it is a very real issue for people. They have confidence and trust in governments of this country, so when there is a policy setting that is very attractive we have to really take an extra level of responsibility. Unfortunately for the investors in MISs, I think we have let them down.

At its most basic, the Ponzi model pays returns to separate investors from their own money or money paid by subsequent investors rather than from any actual profit earned. While it would not be accurate to generalise across the entire agribusiness MIS sector, the MIS model can, to quote from the report:

… encourage Responsible Entities to develop business models with a ponzi-like character if external factors such as access to credit and drought intervene, necessitating extra MIS sales to inject working capital into existing schemes—

as was the case with Timbercorp and Great Southern. As the submission by ASIC to the inquiry stated, while there were not literal interpretations of a Ponzi model:

Agribusiness MIS operators have been criticised for adopting business models which rely on receipts from application fees for revenue.

ASIC indicated:

… this business model may be unstable if the flow of new MIS sales is interrupted.

Another recommendation of the report was for an amendment to be made to the Corporations Act, arising from concerns about how liquidators have managed their conflicting obligations to creditors and to investors. The committee found that ASIC should appoint a responsible entity to manage any registered MIS when it collapses. Injecting an independent person into that process, I think, would be something all of us support. We can see that when it gets to a liquidation process there seem to be a lot of fees to go to everybody else but the creditors and investors tend to lose out quite a lot.

Finally, the committee recommended that ASIC disclose the qualifications and accreditation of third parties advising on the schemes. General concerns about advisers’ remuneration and the standard of financial advice provided were also mentioned in the report, though of course these issues are still to be addressed more comprehensively in the committee’s concurrent inquiry into financial products and services.

I recommend this report to the House. The inquiry was done over a very short period of time. It certainly did not go into the depth that some members would have liked but, because the committee is also involved in the Storm and Opes Prime inquiry, I hope many of these matters are going to end up in a regulatory framework, a regulatory regime, that puts more emphasis on the consumer protection that I think many people thought was there. The consumer protection aspects of investment schemes have not really been at the forefront of anyone’s mind. ASIC will be the first to admit that their powers did not give them the support for that weighting. Their weighting was more on the market. Now that we have seen so much tragic loss, we know there is a need for a balance that was missing.

Debate (on motion by Mr Hawker) adjourned.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

Although I am not a member of the Parliamentary Joint Committee on Corporations and Financial Services, I would still like to make some comments regarding this report. I do so because there is an opportunity to talk about some important things for the electorate of Cowan and for people not just in Cowan but, I think, across the country.

With regard to the statutory oversight of the Australian Securities and Investments Commission, I will begin by saying that ASIC, as we know it, was created on 1 July 1998, with responsibilities for consumer protection in superannuation, insurance, deposit taking and, from 2002, credit. This report relates to the oversight hearing of 17 June 2009. I would like to speak on this because over the last 30 years there have been a number of failed investment schemes in Australia. I recall particularly, because it affected my family somewhat, the Estate Mortgage Trust collapse in 1990. That was one. I noticed that in the report, although it is not further commented upon at this point, there is also the very recent collapse of Storm Financial. I note that there were some 400 written submissions taken by the joint committee that relate to financial products and services, and the majority of those relate to Storm Financial. The committee will be doing another report on that particular inquiry in the future.

When you look back on the history of financial collapses and particularly these investment schemes, you see that the result of that was the former government’s interest in bringing before the House the Managed Investments Bill 1997, which was specifically designed to look at these sorts of things, particularly the fallout from the Estate Mortgage Trust collapse and the impact that that had, particularly on pensioners and other very small investors. Of course, that was also an influence on the establishment of ASIC and the changes that have come since that.

In this report there is a section which speaks of investor education and the creation of programs in schools. Obviously we all applaud that, and I would like to mention that one of my constituents, Samantha Hockaday, raised this very point with me and has raised it with me in the past. I know that there is interest from the state government in Western Australia in looking at exactly these sorts of programs, so I am very happy that we have people in Western Australia thinking these things through and thinking ahead.

The main comment I would like to make with regard to managed investment funds and the failures that have occurred over time throughout Australia is that, while there is the need for investor education, there is also the need for quite a deal of common sense to be shown as well. The buyer needs to be aware. I recall very clearly that in the late 1980s, when we had the Estate Mortgage people advertising across the country, they were talking about returns of 20 per cent a year. Of course, even with the superannuation boom that we have had in fairly recent years, 20 per cent was pretty ambitious even for some of those superannuation funds. It was clear that that sort of return from Estate Mortgage would not be able to be held up over a period of time. Nevertheless, people were drawn in by those sorts of advertisements. They were drawn in by the offer of easy cash. They wanted to see certainty. But the reality is that these sorts of things are not sustainable and you need to do your homework. I think that is as correct today as it was back in the 1980s and the 1990s. That is why the requirement for individuals to personally assess and to do quite an examination of what these organisations are offering in their investment schemes is so important. People have to take personal responsibility and to make sure that when they sign up for these schemes and invest their money they know they are taking risks. The higher the returns that are offered, the higher the risk. If your bank is offering you two per cent, there is not a whole lot of risk. But, if someone is saying that they can give you 20 per cent, they are living on the edge. That is the history of some of these failed investment schemes in Australia.

There are some people in Australia who are always looking for these sorts of quick-dollar opportunities. That is why, as surprising as it is, with these emails that we all get from someone in Africa asking you for your bank account details so they can transfer $20 million through your account and give you a 10 per cent cut, exactly those sorts of people get picked up and taken advantage of. Sadly, they are likely to be the same sorts of people who are going to be drawn to high-risk investment schemes with big returns. The reality is as it has always been. There are no guarantees in these things, the risks are always there and we should always be on our guard against them.

I have taken the opportunity today to speak on these matters as they relate to the report from the Joint Standing Committee on Corporations and Financial Services, and I appreciate the opportunity to do so. As members of parliament we should always encourage our constituents to show due care and due attention and to make sure they understand what they are getting into and that there are no guarantees for the returns that these organisations might be offering. I think that is as true for investment schemes as it is for other organisations that offer quick fixes, such as medical cures for this or that. All people should be very careful about what they sign up for and what they commit their funds to, because there are high-risk things out there. If it looks too good to be true then it certainly is too good to be true.

I will conclude by urging ASIC to continue to work hard to protect Australian consumers in superannuation, insurance, deposit taking and investments. I also encourage the Australian people to show that sense of personal responsibility and to make sure that they accept responsibility for the decisions they make with due care and attention.

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

As a member of the Parliamentary Joint Committee on Corporations and Financial Services, I rise to speak on the report Statutory oversight of the Australian Securities and Investment Commission of September 2009. Hindsight is a wonderful thing. I have to say that I am quite surprised to learn that members on the other side do not seem to understand that for 12 years when they were in government ASIC was underresourced and did not have the legislative power of enforcement and prudential regulation that people thought it had. Why did you not realise that it never had the capacity to do the things that the Australian public, including us, thought it did? I can only say that the committee deserves great praise. ASIC also deserves praise for the way it is now asserting the important role it can play. This government has recognised that and is changing the regulations and is changing ASIC’s role. ASIC is stepping up. We will be watching it very closely, as we should. That is why these hearings are terribly important.

We did undertake this last oversight hearing with ASIC within a framework of controversy—areas of loss to every one of our constituents, areas where banks did behave badly, areas where financial advisers did behave badly and areas where people who thought they could trust banks, government regulation, financial advice and accountants found that they could not and that a limited level of obligation was being fulfilled, that a limited level of disclosure was being made to them and that there was a limit to that reliability of advice. We have to remember that. We all do forget. When good times come again—and they will come—that is when things become a little unhinged. Let us hope that does not happen again.

I am not a person who supports overregulation. You do not want to stop the opportunities for people to invest and take a certain amount of risk. You just want it to be reasonable, I suppose. As I have said before, not many people take their lump sum and invest it on a horse. They know the risks are high. They think we are different. They think investment share markets, stock exchanges and all those things are different. Whether it is agribusiness or whatever, they think that the risks are lower. They had a false expectation. However, I have digressed.

Our public hearing dealt with quite a few important matters that were controversial and remain so: short selling, market integrity, recent corporate collapses, BrisConnections, mortgage fund and cash management trust redemptions, professional indemnity insurance, ASIC structure and budget, and investor education. Some interesting discussions have been held. The committee welcomes ASIC’s decision to lift the ban on covered short-selling sales of financial stocks. The committee considers that covered short selling contributes to market liquidity and price discovery and is a valid feature of the Australian market. But the committee intends to continue monitoring the performance and effective reporting arrangements for covered short sales, particularly when the arrangements to be determined by regulation replace the existing interim arrangements. The committee considers that transparency needs to be a key feature of these arrangements in order to maximise information available to the market and to assist the regulator, ASIC, in identifying false market rumours without the need to resort to future bans. With regard to market integrity, the committee questioned ASIC about the effectiveness of Project Mint, established to investigate instances of rumourtrage—that is the practice of spreading false or misleading rumours.

It is important to note that, now that ASIC will have a greater role in the Australian Stock Exchange, I think there is going to be a need for more resources, when you look at the information online and the impact that rumours et cetera can have on behaviour. They are perhaps going to have to consider electronic surveillance powers in terms of the potential to cause great damage to the stock market itself.

The committee also looked at corporate collapses. As members will know, the committee are currently involved in an inquiry into Storm Financial and Opes Prime, and my colleague the member for Parramatta has been very active in that committee inquiry as well. The stories are more than sad; they are tragic. The committee received more than 400 written submissions about those financial products and services, and the majority of those submissions related to the collapse of Storm Financial. Our report will be tabled later this year.

So we are working very closely with ASIC, and it is good to see all our regulators doing the same. They have all admitted they did not work as closely together as they should have. Now that they realise that the territorial turf is no longer as important as they thought it was, APRA, ASIC and Tax all have to work together. They cannot just operate separately, and there are signs that that is happening.

I will skip the MIS inquiry, because that report has come down today. With regard to BrisConnections, the committee welcomed ASIC’s move to ensure that the ASX obtains a signed acknowledgement from investors in partly paid shares. This is what we hope will help future investors avoid the situation that some BrisConnections shareholders found themselves in—that is, being unable to recover the liabilities of the shares they had purchased. The committee remains deeply concerned about some of the other governance and disclosure issues allegedly surrounding BrisConnections and urges ASIC to take any relevant action in a timely fashion. The committee of course will be getting regular updates on that.

In terms of mortgage fund and cash management trust redemption, we welcomed ASIC’s announcement that it has now expanded relief for hardship withdrawals from frozen funds. We really need to realise that people have been seriously caught out, often at a time in their lives when they have no other resources and nowhere to turn. So ASIC has lifted the cap on hardship withdrawals to $100,000 each calendar year, increased to four the number of hardship withdrawals that can be made each year and extended the list of recognised hardship grounds. These steps should assist individuals who were affected by the fund freezes.

We also looked at credit-rating agencies. We looked at ASIC’s structure and budget. I remain a person who says that we have to resource this properly if we expect the job to be done in the way that we want it to be done. If we want consumer protection there, we will have to resource that. We also looked at the failings of professional indemnity insurance. It does not provide much comfort to many people. People think that that insurance will help them, but that is not generally the case. It does not flow through.

Finally, we also looked at investor education and, having attended the hearing last night, I do think we have to use all the creative ability of the people within ASIC and people outside ASIC to think of ways to warn people. I have said to them that when people are looking up their superannuation fund online and seeing how much they have got, or what they should do with their lump sum or how much it is going to be, there should be a pop-up message with an ASIC brand on it that says, ‘You could lose the lot.’ When people get a payout or redundancy, there should be a mandatory requirement to provide an information sheet or whatever, or one session with an independent adviser, from a regulatory regime such as ASIC.

So I do think we have let people down and I do think we have to redress that and avoid it happening again. And the most vulnerable people are the people who do not have superannuation in retirement, like our farmers et cetera, who have been caught up in the MISs; people who take a lump sum package at retirement; and people who get a redundancy package, cash in the hand. These are the most vulnerable times for them and they should be advised more carefully—and ASIC in particular has a role to play in that. I recommend the report to the House.

Debate (on motion by Mr Hawker) adjourned.