Deborah O'Neill (Robertson, 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 advisory report, incorporating additional comments, on the Corporations Legislation Amendment (Derivative Transactions) Bill 2012.

In accordance with standing order 39(f) the report was made a parliamentary paper.

by leave—On 13 September, the House of Representatives referred the Corporations Legislation (Derivative Transactions) Bill 2012 to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry and report. As chair of that committee, I am pleased to be able to table the committee's report today.

The committee received 11 submissions and held a public hearing in Sydney on 5 October. The committee extended thanks to all who contributed to the inquiry process.

The proposed legislative measures demonstrate Australia's commitment to uphold the G20 agreement to increase the transparency of, and reduce the risk attached to, the over-the-counter derivatives market.

As this House would be aware, the global financial crisis highlighted a lack of transparency in the OTC derivatives market. International regulators have found that it was this lack of transparency, this lack of regulation, that contributed to the global financial crisis.

The G20 agreed to implement over-the-counter derivatives regulatory reforms by the end of 2012. As a G20 member Australia is committed to implementing the OTC derivative market reforms. The bill before the House delivers on Australia's commitment and will allow Australian regulators to more effectively manage the risks attached to over-the-counter derivative transactions.

The bill will amend the Corporations Act 2001 to introduce a legislative framework that would allow the operational details of the new over-the-counter derivatives scheme to be largely established by subordinate legislation. The evidence before the committee is clear that this structure will allow regulators to readily respond to changes in the OTC derivatives market. The flexibility will mean that regulations can keep pace with market changes and continue to ensure transparency and—very important, in response to the very real lessons that need to be learned from the GFC—this will reduce systemic risk.

In terms of the exercise of delegated authority, submitters to the inquiry raised three areas of concern with the bill. While acknowledging the need for flexibility, some submitters were concerned to ensure that the authority delegated to the responsible minister and to the Australian Securities and Investments Commission is exercised appropriately. To this end, the committee has made three recommendations to provide industry greater guidance on the operation of the new regulatory scheme.

The committee recommended that:

In terms of the electricity sector in particular, three industries also sought exemptions from the new OTC derivatives transaction requirements. Notably, representatives of the electricity sector strongly opposed the application of the new OTC derivatives regulatory requirements to participants in the national electricity market. Representatives put forward several arguments to support the application. In essence, it was put to the committee that the national electricity market is currently sufficiently robust to not present systemic risk to market integrity.

The committee found persuasive the view put forward by Treasury that amending the bill to expressly exclude any sector or class of derivative would not be best practice, particularly in the light of the international regulations and requirements around this issue. Rather, we found that it would limit regulators' capacity to respond appropriately to market changes.

However, I can report that the evidence before the committee was clear that, at this time, the government does not intend to prescribe the electricity sector as a class of derivatives to which the new OTC derivatives framework would apply.

The committee recommended that the Minister for Resources and Energy be consulted prior to making recommendations on rules that would affect the energy sector.

The committee recommends that the bill be passed without amendment.