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 Access for small and medium business to finance, together with the evidence received by the committee.

On 25 November last year, the House referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into access for small and medium business to finance. While we understood that there had been a number of inquiries by other committees both in this House and in the other place, the committee felt it was necessary to examine the impact that access to finance has on small to medium enterprises, in particular a number of circumstances coming out of the global financial crisis and also anecdotal evidence from a range of areas with regard to small business being able to carry out its activities. The committee's report for the inquiry was presented to the Speaker out of session on 28 April this year. As Chair of the Parliamentary Joint Committee on Corporations and Financial Services, I am now pleased to table that report.

The committee was asked to consider the availability of finance for small and medium enterprises throughout Australia and the terms and conditions on which finance may be obtained. The OECD has praised Australia's economy as one of the more resilient economies throughout the global financial crisis but, nevertheless, the GFC has left its mark on the availability of finance for small and medium business in Australia and, for that matter, around the world. No review of the financial market for small and medium business would be complete without taking that particular financial crisis into account. The committee heard evidence that the GFC caused competition to decrease, with a number of lenders withdrawing from the Australian market. At the same time that that occurred, the global financial crisis resulted in the cost of providing finance also increasing. It was the evidence before the committee that small and medium business can continue to access finance but on terms less favourable than those prior to the crisis. The committee also heard evidence that the GFC prompted lenders to change lending conditions, and at times this was at short notice.

Evidence before the committee also highlighted multiple inconsistent definitions of small and medium business ranging from the way it is applied in terms of banks, policy development, data collection and other areas. A lack of standard definitions means a lack of standardised data. Inconsistency can also lead to misunderstandings when interpreting that data, hindering the development solutions tailored to the challenges faced by the various kinds of small and medium businesses. The committee considers that consistent definitions would assist an analysis of the health of the small and medium business sector and promote more informed policy and practice and, for that matter, would lead to better decision making, a more consistent approach across lenders and a better mechanism to better understand the way that lending, data and definitional issues impact on small and medium enterprises. In a unanimous report the committee has made four key recommendations. These are as follows: (1) that the government assess the value of developing uniform definitions of micro, small and medium business to be applied for data gathering, policy development and analysis by Commonwealth and state agencies; (2) that the Reserve Bank of Australia specifically track the impact of the introduction of the Basel III reforms on the cost of small and medium business finance and residential mortgages in Australia; (3) that the code of banking practice and the mutual banking code of practice be amended to include a standardised notice period for notifying business borrowers of changes to loan terms and conditions that may be materially adverse for borrowers; and (4) that the government undertake further work to explore policy measures which may strengthen the mutual sector as a fifth pillar of the banking system and thereby promote further competition.

Finally, I would also like to express my sincere thanks to all those who provided submissions to the inquiry evidence at the public hearings. The committee received 19 submissions and held three public hearings. I also want to thank the committee secretariat for their assistance with the inquiry. As always they did good work. I also take this opportunity to thank Dr Ian Holland, who has now moved to another committee but was an instrumental part of the good work of this inquiry. The committee hopes that the implementation of the recommendations will help improve the financial environment for Australia's small and medium business. I also want to thank the committee members for their hard work.

Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

I am pleased to speak to the report of the Joint Committee on Corporations and Financial Services on the inquiry into access to finance for small and medium businesses. The chair has just presented the overview of the committee's recommendations in some detail. I would like to draw the attention of the House to a number of related matters highlighted by the inquiry and the committee's report.

Consistent with the terms of reference from the House, the committee considered the types of finance available, lending competition and the impact of prudential regulation on the availability of finance for small and medium businesses. As the chair has outlined, the committee met with small and medium business representatives, members of the banking sector and members of the mutual banking sector in order to assess the strength of small and medium business finance. I would like to join with the chair and other members of the committee who were part of the inquiry to thank all of those who contributed to the inquiry by providing evidence to the committee through written submissions and at the public hearings which we held around Australia.

The evidence before the committee, as the chair outlined, was clearly that access to finance from lending institutions is, as we know, crucial for the ongoing productivity and growth of the small and medium business sector. Finance from the banks and the mutual lenders is an essential source of funding for small and medium businesses. The global financial crisis had a number of effects on the Australian economy. The committee report points out, at page 11 at the beginning of chapter 2, that Australia weathered the global financial crisis far better than most other countries as a result of its fiscal and regulatory strengths. On behalf of the opposition I welcome the unanimous acknowledgement in this report that it was the fiscal strengths and the regulatory strengths in Australia that the current government clearly inherited that saw Australia see its way through the global financial crisis in better shape than other countries.

The global financial crisis also reduced lending competition nonetheless. That is why the committee has made a number of recommendations, including that the government undertake further work to explore policy measures that may strengthen the mutual sector, as the chair outlined in his contribution just a few minutes ago. As he also outlined, the committee heard concerns from business representatives regarding the introduction of the Basel III prudential regulations. There is overall support for the framework. However, the committee also considers it prudent to track the impact of the new requirements on the cost of finance.

The committee also considered the finance options available to small and medium businesses in regional Australia compared with the finance options available to businesses located in metropolitan areas. Lending institutions presented evidence to the committee of finance options tailored to the agribusiness sector. However, it should be noted that some agribusiness products can attract higher interest rates. The committee did not receive evidence that clearly indicated a lack of banking competition in regional areas. The mutual sector appears to have a growing presence in regional Australia. Agribusiness shares the challenges of small and medium businesses. However, agribusiness can also face challenges largely unique to their sector. The recent natural disasters are, of course, one example of this, as I am sure Deputy Speaker Scott would appreciate as he represents an electorate affected by the floods. The committee noted with approval the advice of many lenders that they are providing loan assistance to businesses affected by the recent devastating floods and extreme weather events.

Small and medium businesses are essential for the ongoing productivity of Australia's economy. They comprise a critical share of Australia's economy. There are two million businesses employing more than four million Australians. Recognising the significance of small and medium businesses to employment, innovation and economic growth is absolutely vital and the financing of small and medium businesses is an issue of enduring concern for Australian parliaments. The measures that the committee has recommended will promote some improvements in small and medium business finance and, in turn, strengthen the sector and strengthen the Australian economy. I would like to thank members of the committee and the chair who conducted this inquiry.

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 the evidence received by the committee.

I am pleased to speak to the committee's May 2011 report, Statutory oversight of the Australian Securities and Investments Commission. Section 243 of the ASIC Act directs the committee to inquire into and report on ASIC's activities and matters relating to those activities to which the parliament's attention should be directed. In preparing the report the committee held hearings with ASIC officials, the Office of Legal Services Coordination and the Australian Stock Exchange. I thank ASIC for its continuing cooperation and assistance and thank the representatives from the Office of Legal Services Coordination and the ASX for the additional insight they provided.

Responsibility for supervision of real-time trading on Australia's domestic licensed markets transferred from the ASX to ASIC on 1 August 2010. This means that the ASX has responsibility for market operation while ASIC has responsibility for market integrity. A key driver of the transfer was to promote efficiency through merging responsibilities for problem identification and investigation. The committee is pleased to note that since the transfer the time taken from identification of a trading problem through to formal investigation has decreased.

The committee endorses the protocols that the ASX and ASIC already have in place to coordinate their enforcement and monitoring activities and welcomes the further development of a protocol to govern continuous disclosure of information between the two bodies. The committee is particularly concerned to ensure that the transfer of responsibilities from the ASX to ASIC leads to measurable improvements in market integrity. We will continue to raise these matters with ASIC as is necessary.

The government also recently granted Chi-X an Australia market licence. On 29 April ASIC released the final market integrity rules that will provide the framework of competition in equity exchange markets. ASIC has also introduced market integrity rules specifically for the Chi-X market, which reflect the rules applying to the ASX. The committee endorses the work of ASIC in consulting closely with the Treasury, with the Australian Competition and Consumer Commission and with industry in developing access arrangements to market operator services. It is expected that Chi-X will commence operation in October or November of this year.

The committee also has had a continued interest in the complaints-handling mechanisms and complaints-handling methods of the regulator. As such, the committee notes with approval ASIC's commitment to continuously improving its complaints-handling process and acknowledges the large number and often sensitive nature of these complaints, which makes dealing with them quite complex. It is worth bearing in mind the scale of ASIC's complaints handling. ASIC receives approximately 14,000 complaints per year. Of these, approximately 21 per cent relate to matters outside of ASIC's responsibilities. For complaints within ASIC's regulatory ambit, policies regarding market integrity, confidentiality and privacy influence the type of response and the level of information the complainant receives.

ASIC's complaints-handling policy requires that it responds to 70 per cent of complaints within 28 days. The committee notes with approval that, for the year to date, 80 per cent of complaints were responded to in that time frame. Responding to complaints promotes market confidence and is a key regulatory function. The manner in which complaints are handled affects public opinion about whether ASIC is effectively fulfilling its regulatory responsibilities. It is apparent from evidence provided to the committee that complaints are thoroughly assessed. The committee expects ASIC to provide complainants with sufficient information and assure them that their complaints have been assessed without compromising the rights of a person investigated or market integrity.

With that said, it still needs to be noted that there still exists or appears to exist a gap between the market's expectations, expectations of consumers within that market and the work of the regulator—the good work that ASIC does. I think it is a role and responsibility of this committee to actually try to bridge that gap, be it a perception gap or a reality gap. I believe, as I know the rest of the committee does, that continual improvement needs to be exercised in this particular area to ensure that there is market confidence and to ensure that the public has the right view of the capacity of the regulator to fulfil its responsibilities.

The committee will hold its next hearing with ASIC next month and looks forward to the opportunity to discuss these and other issues with the new Chairman of ASIC, Mr Greg Medcraft. I take this opportunity to congratulate him on the fine work he did as a commissioner and now in his new role as Chairman of ASIC. I also take this opportunity to thank outgoing chairman, Mr Tony D'Aloisio, for the work he has done and the assistance he has given the committee in recent years. Mr D'Aloisio has made a significant contribution to the Australian community as a whole and to the regulation of the Australian securities market in particular. I also thank the secretariat for, as always, its good work and to thank the committee members for their fine efforts as well.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I too am pleased to speak to the report of the Joint Committee on Corporations and Financial Services, Statutory oversight of the Australian Securities and Investments Commission. As the chair of the committee, the member for Oxley, has noted, this committee reports to parliament from time to time on ASIC's activities. Let me take a moment to focus on the litigation ASIC undertakes, its work promoting financial literacy and its possible role in the regulation of the not-for-profit sector.

Turning firstly to litigation, a key interest for the committee is ASIC's involvement with both civil and criminal litigation. The committee notes with approval ASIC's compliance, as indicated by the Office of Legal Services Coordination, with the Legal Services Directions, which impose on ASIC an obligation to act as a model litigant. Given the complex nature of the litigation ASIC pursues, the committee considers that ASIC must have ready access to highly qualified and experienced legal counsel to conduct litigation. The committee has previously commented that it is essential for ASIC to have dispassionate and expert legal opinion about the prospects of any proposed litigation.

The exemption from the Legal Services Directions that allows ASIC greater flexibility in engaging counsel expires in June this year. It would be of significant concern were the Legal Services Directions to impede ASIC's access to high-quality legal services and thereby undermine ASIC's effectiveness as a regulator. For this reason the committee submits that the Office of Legal Services Coordination should carefully consider extending the exemption beyond June 2011.

Turning secondly to financial literacy, the committee is keen to support initiatives which promote financial literacy amongst the Australian community as a whole and amongst retirees in particular. For this reason the committee notes with approval the development of the MoneySmart website. This builds on the foundation provided by ASIC's previous website, known as FIDO, and the interactive consumer information and tools provided on that website. The committee takes a keen interest in financial literacy amongst retirees. The committee will closely watch the research ASIC is conducting into financial advice provided to those considering retirement. The committee looks forward to the outcomes of that research.

The third area I wish to address is the question of how the not-for-profit sector is to be regulated. At present, regulation of this sector is fragmented. Multiple agencies have responsibility for the sector, including ASIC. There has been a recent Productivity Commission report into this matter. The report recommended that, as an interim measure, ASIC should assume responsibility for all regulatory functions relating to not-for-profit organisations. The committee is aware that the Australian government is currently considering this proposal. The Treasury is releasing a consultation paper that outlines options for the combined regulatory functions being undertaken by ASIC or the Australian Taxation Office.

I would like to communicate to the House the committee's view that ASIC is an effective regulator; however, the committee is concerned that any suggestion that ASIC should expand its responsibilities carries with it the risk of diluting ASIC's expertise and effectiveness. Accordingly, any move to expand ASIC's regulatory ambit must be appropriately resourced.

Finally, I join with the chair of the committee in thanking Tony D'Aloisio for his work during his term as chairman of ASIC. Similarly, I join with the chair and the rest of the committee in welcoming Mr Medcraft to the position of chairman of ASIC. Like the rest of the committee, I very much look forward to working with him and his team.