Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Bill 2010. This legislation is supported by the opposition. The exposure draft consultation process allowed Treasury to address small technical concerns, and the legislation is now broadly supported by stakeholders in the financial services sector. The bill amends a number of acts to improve Australia’s prudential framework by introducing a number of small measures that will improve the ability of the Australian Prudential Regulation Authority to manage Australia’s financial institutions during a crisis.

As the Minister for Financial Services, Superannuation and Corporate Law mentioned in his second reading speech, the bill contains five main areas of amendments. Firstly, the legislation will strengthen APRA’s powers to prevent prudential concerns from arising. This will be undertaken by an expansion of APRA’s preventative and correctional powers. For instance, APRA will be able to set criteria for granting authorisation to carry on business as an authorised deposit-taking institution, insurer or authorised non-operating holding company of an ADI or insurer. APRA will revoke an authorisation if the institution fails to meet these criteria. APRA may also set prudential standards in respect of corporate groups or parts of corporate groups under the Insurance Act and may set standards excluding assets from being ‘assets in Australia’ for the purposes of the Insurance Act. Importantly, APRA’s ability to give directions are expanded, clarifying that APRA is able to issue directions relating to foreign ADIs and making it an offence for an insurance company to fail to comply with a direction. These measures will allow APRA to react quicker to changes in the market by setting criteria under which prudentially regulated institutions operate and enhancing the ability of APRA to give directions to those institutions.

Secondly, the bill will amend the Financial Sector (Collection of Data) Act 2001 to allow more flexibility of the financial data collection and publishing regime of APRA. The data collection powers of APRA are important to the financial services sector because they allow standardised comparisons of prudentially regulated institutions, and published data encourages competition by furthering information availability in the market. APRA will be able to collect data to assist the minister formulate financial policy or to assist another financial sector agency perform its functions or exercise its powers. The bill clarifies that APRA will be able to collect data relating to the Financial Claims Scheme and will ensure that confidential information in reporting standards is prevented from being published where publication is likely to detrimentally affect the stability of the financial system or financial institutions.

Thirdly, the legislation amends the financial sector levies framework, which will improve the methodologies governing the determination of levies. The levy paid by a new entity will be based on that entity’s asset value on the day it became a superannuation entity and not on historic values. The bill also allows APRA the flexibility to impose a levy using an alternative valuation basis where the asset value is an inappropriate determination. Fourthly, the bill repeals five redundant acts, which relate to the validation of past financial sector levy determinations, which are made redundant by this bill.

Finally, the bill amends the Financial Claims Scheme to improve the scheme’s operation and to expand APRA’s administration of the scheme. APRA will be able to determine the rate of interest that applies to protected accounts for the purposes of determining entitlements under the Financial Claims Scheme, which is when APRA considers that the rate of interest is not certain. The bill also clarifies the operation of the Financial Claims Scheme in relation to pooled trust accounts and states that APRA is able to require a liquidator to assist in paying account holders their entitlements under the Financial Claims Scheme. The measures improve the operation of the Financial Claim Scheme, which was established by the government in October 2008, for the purposes of protecting depositors in ADIs from loss on their deposit and to give them prompt access to their deposits if their ADI becomes insolvent.

These measures have taken some time to be legislated. As I have already mentioned, Treasury went through a consultation process with its exposure draft. The amendments to financial sector levies also followed a review by Treasury in 2009, which the government cherry-picked to implement the amendments contained in this bill with regard to reforms in the financial sector levies. It is a shame that the Labor government did not take this level of consultation into its implementation of the Financial Services Scheme in the first place. The scheme implemented the government’s bank deposit guarantee in October 2008 when the financial crisis was starting to hit. A guarantee on deposits had bipartisan support but the government chose not to consult with the coalition on the details and implemented an initially bungled scheme, which hurt Australia’s financial services market.

The bill being considered today allows APRA to deliver a more direct response to turmoil in global and Australian financial markets. It is appropriate that intervention powers be taken out of the hands of the Rudd Labor government and given to market experts at APRA because the government caused chaos in the market through its bungled bank guarantee scheme. We even see the government continue to destroy financial markets through its great big tax on mining, which is reducing the value of resources stock as we speak. The Treasurer even admitted that the great big new tax would hit financial markets as a means of justifying Labor’s $38 million misinformation campaign about the tax.

The Financial Services Scheme as originally designed by the government did not have a cap on balances that could be guaranteed under that deposit scheme. Labor ignored the advice of the RBA and of the coalition to limit that amount. The unlimited guarantee caused a rush on mortgage trust funds because investors started moving their money away from what they perceived to be risky trust based investments and placed them into guaranteed risk-free deposit accounts. Trust funds were forced to freeze redemptions on account balances as the rush rapidly depreciated the value of funds, much of which was tied up in property investment. At the recent round of estimates hearings, ASIC detailed that 63 schemes were frozen and were holding around $70 billion of investments.

In February, $25 billion of these investments were still frozen. This is part of the Rudd Labor government’s impact on the markets—$25 billion still remaining frozen in mortgage trusts and a great big new tax on mining that is hurting financial markets by the government’s own admission. Scott Murdoch commented in the Australian in December 2008 that:

… instead of being a stabilising force for the domestic financial system, the Government’s banking guarantee is proving more damaging than beneficial. The consequences of the policy’s haphazard formation are now emerging, fracturing financial markets more than most experts and economists thought possible.

This minister knows all about misjudging the market through the government’s bungled Fuelwatch and GROCERYchoice debacles, which displayed no understanding of the market and were simply a waste of money. In contrast the Financial Claims Scheme was a good measure in theory. It was broadly supported by the coalition. But the government should have listened to the coalition and to the Reserve Bank on the actual design of its scheme, just like the government should be listening to industry with regard to the resources super profits tax. Instead we are seeing the government attack the mining sector, which is raising legitimate concerns about this tax. When this government thinks it is right, it simply refuses to listen to anyone.

The government’s other regulator, ASIC, highlighted last week the double standard in this debate with regard to its impact upon financial markets. Last Wednesday, ASIC’s acting chairman Belinda Gibson warned that mining companies:

… have to work out whether they have enough information to form a view on the impact of this tax, which is not yet written, to say to the market categorically that that is the impact.

What a rather interesting statement to have to form a view on the impact of the tax, which is not yet written! Absolutely astounding, Mr Deputy Speaker Washer!

So, on this debate we have the situation where the government regulators can hold mining companies to account over statements made regarding the tax but the Rudd government escapes similar responsibilities. We have the Rudd government out in the market claiming that mining companies only pay between 13 and 17 per cent tax when the actual tax rate is 41.1 per cent for coal companies. They were arguing time and time again that the headline figure was going to be a 40 per cent tax on profits under this great big new tax on mining yet the Treasurer now admits that the tax could be up to 57 per cent. The Prime Minister even said that any suggestion that the tax was hurting Australian financial markets was, ‘wrong, wrong, wrong’. Well, two days later we had the Treasurer justify the government’s great big waste of money on advertising on the basis that the tax was having an impact on financial markets. You cannot have it both ways.

If the manager of a company had made such reckless remarks to the market as this government has done recently, it would be guilty of breaching continuous disclosure obligations. Leading investment managers are starting to express their concerns about the tax. John Teale of the Australian Foundation Investment Company, the oldest investment company in Australia, commented recently that he has been in the market for over 50 years and has never seen people from overseas turn off Australia so quickly. ‘It’s very sad,’ he said.

The government simply does not know what it is doing in the market. It introduces legislation such as this, which provides market integrity and regulation through APRA, and then ignores these principals in its reform agenda—if you could call it ‘reform’; perhaps we should call it a ‘change’ agenda rather than a ‘reform’ agenda.

This is one of the reasons why the coalition supports this bill. It allows APRA more flexibility to address market concerns in the financial services market and prevents the likelihood that a Labor government will step in and distort market functions. The explanatory memorandum to the bill says:

In performing and exercising its functions and powers, APRA is required to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing those objectives, is to promote financial system stability in Australia.

This is a reasonable principle to take forwards in financial services policy. Unfortunately, this government does not hold this principle in its own actions, and we are all paying the price.

The coalition supports this bill. We support light-touch amendments to Australia’s financial regulation. This bill improves Australia’s prudential framework by providing some light-touch measures allowing APRA to be more responsive to market fluctuations in financial services. I commend the bill to the House.

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

It is a pleasure to speak on the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Bill 2010, and it is always a pleasure to follow the member for Cowper and to listen to his contributions and to hear what he has to say, in representing the opposition in this place, about the very good reform agenda program that we have—hearing him admit that we do have a reform agenda and that we are getting on with the business and the job of reforming many parts of the financial services sector which the former government failed to do for 12 very long years. These are matters and issues which the opposition could have dealt with. These are pressing matters and they are being supported by the opposition—and they should be supported by the opposition—but they should be supported in the light of the fact that they could not bring themselves in those 12 very long years to make these changes and reforms themselves.

Some of these issues are more complex than others; they involve some extensive consultation with the sector and an extensive review of a number of bills. This bill in particular is quite involved and deals specifically with prudential regulation and making certain that there are some refinements and some other measures in the legislation which assist industry. This particular bill continues the legislative amendments that were made by the government to improve the efficiency and operation of a range of financial sector legislation. The bill itself contains amendments to 17 different acts and repeals five redundant acts. In a previous contribution a member of the opposition was talking about more regulation and more burden when in fact this government is removing or repealing, wherever it can, redundant acts and getting rid of regulation where it is not necessary. More important than having a debate over ‘more’ or ‘less’, the debate in this place ought to be about ‘appropriate’. That is what this place ought to be about—appropriate regulation, not more or less regulation. That is what this particular amendment bill is about.

The bill covers five particular key areas of reform. The first is the amendment of the prudential regime by strengthening APRA’s powers to prevent potential concerns arising and to address them as they do arise. Secondly, it amends the financial claims scheme to facilitate APRA’s administration of the scheme and improve the scheme’s operation. It also amends the Financial Sector (Collection of Data) Act 2001 to promote the harmonisation and flexibility of the data collection and publishing regime and APRA’s role as a central repository for the collection of financial data. It also amends the financial sector levies framework to improve the methodologies governing the determination of levies. Finally, the amendment bill repeals—very importantly—five redundant acts as part of the government’s commitment to continuously cleaning up red tape. We spoke in this place a little earlier today and had an amendment about cutting red tape for companies limited by guarantee. That is more good work in the financial services sector in terms of reform and ensuring any unnecessary compliance, red tape and other cost barriers to business are removed.

These amendments are largely the result of a review of the prudential regulatory framework by APRA and also by the Treasury. Both of these organisations have been working very closely to bring about an extensive consistent reform agenda in line with the government’s policies, and they ought to be applauded for their work. These amendments are consistent with developments happening overseas in countries such as the United Kingdom and the United States. We have sought to review and strengthen our financial regulatory frameworks and make reference to those in other countries with economies similar to our own economy. At this point it is important to note that both the UK and the US and others are turning to Australia to look at our regulatory framework, particularly looking at our twin peaks model between ASIC, the Australian Securities and Investments Commission, as a regulator and APRA as the prudential regulator. That speaks volumes about the sound regulatory framework that we have in this country. The amendments and the changes and the strengthening that we are putting in place are consistent with what is happening in other jurisdictions around the world.

Schedule 1 of the amendment is in relation to the Banking Act 1959 and deals specifically with a range of changes. Schedules 1 to 3 of the bill are aimed at ensuring the quality of the financial institution system for identifying, measuring and managing the various risks to reduce the risk of failure, and that where failure does occur the public still has confidence in the financial system that we have in this country—making sure that confidence is maintained while any failure is properly and appropriately managed. This bill amends the Banking Act 1959 and a number of other acts to ensure there is consistency in the prudential laws and the approach that we take across the board.

There are also significant changes to the Insurance Act 1973. Again these amendments are largely a result of an extensive review of the prudential regulatory framework by APRA and Treasury. The review identified that amendments were necessary to strengthen APRA’s ability to effectively fulfil its mandate. This is consistent with what is happening in other similar jurisdictions, notably in the United Kingdom and the United States. These amendments are in schedules 1 to 3 of the bill.

The bill also amends the Life Insurance Act 1995. These amendments are also a result of the review of the prudential regulatory framework by APRA and Treasury. That review identified that amendments were necessary to strengthen APRA’s ability to effectively fulfil its mandate. As a result of that, we have these amendments before us today. This is consistent with the developments in the other jurisdictions that I mentioned before.

We are also amending a range of other acts so that there is consistency. We are ensuring that the prudential laws are appropriate and consistent across a range of areas. The amendments in schedule 4 of the bill are aimed at promoting the harmonisation and flexibility of the data collection and publishing regime and APRA’s role as the central repository for the collection of financial data, including enabling APRA to collect data to assist the minister in formulating financial policy. The amendments in schedule 4 also ensure that APRA has powers to address prudential concerns at a general or a life insurer via compulsory transfer of business. Lastly, the amendments in schedule 4 enhance the regime for the provision and protection of information under the prudential laws.

There are a range of other amendments. This is quite a significant amendment bill in that it does alter quite a number of acts. As I said at the outset, it amends 17 separate acts and repeals five redundant acts. Further to that, on 1 July 2008 the then Assistant Treasurer announced an examination of the methodologies governing the determination of financial sector levies. This was in response to industry views on the methodologies and the fact that the methodologies had not been considered for quite some time. That was part of the consultation process that took place between industry, parts of the sector, Treasury and APRA as the review was being carried out.

The review of the levies methodologies was undertaken by Treasury and APRA together. As a result of that work the team recommended legislative changes to the Assistant Treasurer. Out of that review the drafting error in the Financial Institutions Supervisory Levies Collection Act will be corrected. Also the levy date for new starters under the Superannuation Supervisory Levy Imposition Act 1998 will be amended so as to bring it into line with the other imposition acts. The bill will also amend the imposition acts to provide more flexibility by enabling a valuation basis other than assets to be used on a case-by-case basis in the annual determinations.

It is necessary that these amendments be passed by 1 July 2010 so that the collection of levies based on the recommendations can commence properly in the 2010-11 financial year. These are sound amendments. They are supported by both sides of the House. While I have other comments to make on this, I seek leave to continue my remarks later.

Leave granted; debate adjourned.