David Bradbury (Lindsay, Australian Labor Party, Assistant Treasurer ) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

Today I introduce a bill to amend the Commonwealth Inscribed Stock Act 1911 and the Corporations Act 2001.

This bill delivers another key plank in the Gillard government's Competitive and Sustainable Banking Package, which the Deputy Prime Minister announced in December 2010. The overall objectives of the package are to improve consumer protection in banking services, to support smaller lenders in increasing competitive pressure on the big banks, and to secure the long-term safety and sustainability of the Australian financial system by reducing reliance on offshore wholesale funding markets.

As part of these objectives the government has committed to fostering a deep and liquid corporate bond market. Establishing a strong and liquid retail market in the premium, AAA-rated debt security—Commonwealth Government Securities (CGS)—is a critical step in the formation of a wider retail debt market, including corporate debt. For the first time in our history, Australia has been awarded the gold-plated AAA rating from all three global ratings agencies. We are one of only eight sovereigns around the world to achieve this with a 'stable' outlook.

Making it easier for mums and dads to invest in the safest bonds in Australia is an important step in building up their familiarity with fixed income investments more generally. It will provide retail investors with a visible pricing benchmark for investments they may wish to make in corporate bonds.

The Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012 contains a number of measures to facilitate trading of CGS on financial markets that are accessible to retail investors.

The first set of amendments contained in this bill allows retail trading of CGS to commence by making appropriate amendments to the Commonwealth Inscribed Stock Act 1911 (the CIS Act).

These amendments are required because retail trading will be conducted differently from the current practices in the wholesale market. During consultation with stakeholders it has become apparent that the most timely and cost-effective way to implement this policy is to use an existing model whereby retail investors will buy and sell beneficial interests in CGS, known as depository interests. This is a widely used model—for example, there are already over 80 types of depository interests traded on the ASX and more are expected. Based on this model retail investors will be able to buy and sell depository interests in CGS on retail markets like any other listed share. Owners of depository interests will have the same claim to payments of principal and interest as if they owned the underlying CGS itself.

As the CIS Act currently does not contemplate beneficial interests in CGS, the amendments in the bill are required to ensure that the Australian Office of Financial Management (AOFM) is authorised to make the necessary payments in connection with the issue, sale and management of depository interests in CGS.

In order to enable retail trading of CGS depository interests to commence, the government has sought proposals and tenders from industry stakeholders for commercial services necessary to implement this policy. In particular, proposals have been invited from market operators interested in quoting and trading CGS depository interests on their market. The government anticipates that market trading will be able to commence in the near future.

The government supports competition in financial services and will similarly engage with other market operators in the future should they be interested in hosting trading in CGS depository interests.

Investor protection measures

The second set of amendments in the bill will ensure that the investor protection and market integrity provisions in the Corporations Act 2001 (the Corporations Act) apply to retail CGS.

These measures will ensure that financial services providers will have to comply with a range of licensing, conduct and disclosure requirements when they provide their services in relation to CGS depository interests. As an example, financial advisers providing personal advice to a retail client about CGS depositary interests will have to be licensed and supervised by the Australian Securities and Investments Commission (ASIC) before they can do so. They will also have to give the client a statement of advice setting out a range of information relating to their advice as required under the law.

The amendments in the bill will also require information statements to be provided to retail clients when they are given personal advice about CGS depository interests. The information statements will take the place of the product disclosure statement that is usually required for a financial product. The government considers that tailor-made disclosure documents are appropriate for CGS depository interests because they are a particular type of safe and simple investment.

The AOFM will consequently produce information statements providing concise information on CGS depository interests. These documents will be made available to the public on a dedicated website, together with other information related to CGS. Financial advisers will be able to download and print out the information statements from this website and provide them to their clients when they recommend investing in CGS depository interests.

The government will pursue other avenues in addition to this bill to ensure that the information statements are provided to retail investors through on-market transactions—for example, through the online trading platforms offered by online brokers.

The amendments in the bill also ensure that CGS depository interests quoted and traded on financial markets are subject to the same legal requirements and protections as other listed securities.

Minor amendments

In addition to the two key reforms I have outlined, the bill also contains some minor amendments in relation to the CIS Act that will facilitate the day-to-day administrative work of the AOFM.

MINCO approval

The Ministerial Council for Corporations has been consulted on the amendments to the Corporations Act contained in this bill.

Summing up

This bill delivers another key plank in the Gillard government's banking reform package.

Passage of this bill will allow retail investors to buy and sell CGS depository interests on a financial market. They will also be provided with appropriate disclosure documents when they obtain personal advice about investing in CGS depository interests.

The establishment of an active retail CGS market will constitute an important step in the formation of a deep and liquid corporate bond market.

A vibrant corporate bond market is critical to putting competitive pressure on bank lending rates to business.

It is also central to harnessing our national superannuation savings so we can domestically fund more productive investment in our economy, via both the banking system and the corporate sector, reducing our reliance on offshore wholesale funding markets.

This critical reform is part of the Gillard government's broad agenda to promote Australia as a leading financial services hub and boost our reputation as one of the most attractive investment destinations in the world.

Debate adjourned.