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 reports together with the evidence gathered by the committee on the following bills: Corporations and Financial Sector Legislation Amendment Bill 2013 and Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, incorporating a dissenting report.

In accordance with standing order 39(f) the reports were made parliamentary papers.

by leave—I commence my remarks by addressing the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill.

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee's report on the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, together with the evidence received by the committee.

This bill has two distinct schedules that deal with, firstly, simple corporate bonds, and secondly, with the use of the terms 'financial planner' and 'financial adviser'. I will address simple corporate bonds first.

In November 2009, the Johnson report, titled Australia as a financial centre—building on our strengths, identified the lack of liquidity and diversity in Australia's corporate bond market as a weakness in Australia's financial system. To assist in the development of the retail corporate bond market, the Johnson report recommended a reduction in the regulatory requirements on corporate debt issuance to retail investors.

In December 2010, the government announced the Competitive and Sustainable Banking System package that identified the bond market as a key element of the long-term safety and sustainability of the financial system. In 2012, parliament passed the Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012. The legislation enables retail trading in Commonwealth government securities depositary interests on the public exchange in order to foster the development of the retail debt market.

This bill continues the development of the retail debt market by reducing the regulatory requirements on issuing simple corporate bonds identified in the Johnson report, while also retaining appropriate investor safeguards.

The bill will make three changes to the current arrangements for issuing corporate bonds. First, the bill offers a streamlined disclosure process through a two-part prospectus for corporate bodies wishing to issue simple corporate bonds.

Second, the bill allows simple corporate bonds to be traded on the ASX, using the same depositary interests mechanism that exists for Commonwealth government securities.

Third, the bill removes deemed civil liability for directors in relation to simple corporate bonds. This removes the need for directors to carry out due diligence on the two-part prospectus used to issue simple corporate bonds, and therefore reduces the costs involved with a bond issue. Importantly, investor safeguards are maintained by ensuring that simple corporate bonds adhere to a set of qualification criteria that ensure they are long-term, low-risk, and relatively stable sources of income for investors.

Another measure in the bill clarifies the due diligence defence that is available to directors in respect of criminal liability regarding the offering of all securities.

This bill will benefit Australian businesses by making it easier to access alternatives sources for raising funds within the domestic market, and it will benefit retail investors by allowing them to diversify their portfolios with bonds that provide relatively safe and stable returns.

The second part of the bill complements the government's Future of Financial Advice (FOFA) reforms that aim to improve the quality of financial advice, and protect consumers.

The bill addresses concerns that consumers may be influenced by unprofessional and inappropriate advice from unlicensed persons such as 'property spruikers'. The bill strengthens protections for consumers by enshrining in law the terms 'financial planner' and 'financial adviser' and restricting the use of those terms to those persons that offer personal financial advice in relation to designated financial products and that operate under an Australian Financial Services Licence.

The bill makes it an offence for unlicensed persons to portray themselves as financial planners or financial advisers, and enables ASIC to take action against unlicensed persons using the defined terms. In effect, the bill will help consumers by clarifying where they can go to get personal financial advice, and it will improve consumer confidence in the financial advising industry.

Both sections of this bill received broad support from industry.

The committee recommends that the House passes the bill.

I would like to thank the industry bodies and the officers of the Treasury who assisted the committee during the inquiry. I commend that bill to the House.

I now turn to the tabling of the report into the inquiry into the Corporations and Financial Sector Legislation Amendment Bill 2013. This is a response to the 2008 financial crisis, which prompted calls for financial regulators to review the regulatory framework underpinning domestic and global economies. A central cause of the crisis was the largely unregulated derivatives market, which had grown rapidly. This market was conducted on both public stock exchanges and in private through over-the-counter derivative transactions.

In 2009, the G20 agreed to progress measures to strengthen the international financial regulatory system. As a follow-up to its G20 commitments, the government asked the Council of Financial Regulators to undertake a consultation and review of the existing regulatory framework. The Corporations Legislation Amendment (Derivative Transactions) Act 2012, known as the DT act, was enacted in December 2012 to implement the Council of Financial Regulator's recommendations and to address Australia's G20 commitments. The DT act provides a high degree of flexibility to facilitate the adjustment of Australia's over-the-counter derivative requirements in response to international regulatory developments. Under the framework, obligations may be imposed through delegated legislation and regulatory rules.

The bill complements this framework by amending a variety of acts to introduce a range of miscellaneous measures related to the regulation of over-the-counter derivatives and other financial products.

First, the bill would amend the Payment Systems and Netting Act 1998 to provide legal certainty in the event of a default or insolvency of a trade participant. In those circumstances, a central counterparty may protect itself against the consequences of default by moving the transaction of a failed participant to another, solvent participant. This process is known as 'porting'. Without the amendments, insolvency law would allow an external administrator to intervene and stop or unwind porting transfers. The measures provide legal certainty to these transactions, which will generally be required in crisis situations. These amendments ensure that the Australian legislative framework is consistent with international developments, including in the United Kingdom, and are intended to increase the stability of the financial system.

The second measure in the bill would provide some discretion to ASIC and the RBA in terms of reviewing certain licence holders, while also prescribing specific licence holders for ASIC and the RBA to assess annually. During the committee's inquiry, stakeholders noted that the proposed amendments would allow ASIC and the RBA to better prioritise resources and ensure that attention is directed to primary areas of focus, including large retail markets.

The third measure in the bill would enable ASIC to share information with pan-European regulators, putting beyond doubt ASIC's ability to render assistance to those regulators in their administration and enforcement of foreign business laws. The intention is to promote better enforcement outcomes in Australia and abroad, and this is consistent with our G20 commitments. These commitments require countries to adopt harmonised and cooperative arrangements to ensure transparency and to manage risk in financial markets.

Other measures in the bill would formalise ASIC's annual reporting commitments in relation to its use of information-gathering powers. These amendments are intended to broadly align ASIC's reporting obligations with those of other regulators, such as the ACC.

The bill also proposes measures that would assist RBA officers to share protected information for regulatory purposes and allow the RBA to impose confidentiality restrictions on persons to whom protected information is provided. These amendments are intended to assist the RBA in collaborating with domestic and international regulators and are modelled on the provisions available to APRA in its legislation. Stakeholders noted that due to the increasing globalisation of markets, effective sharing of information is necessary, both in normal operations and in times of crisis, and at a domestic level and an international level.

Another measure in the bill would enable the Clean Energy Regulator to share protected information with licensed and prescribed trade repositories. These amendments are intended to promote transparency and to assist with the operation of markets on which carbon credit units may be traded.

The committee acknowledges that there remains significant scope for Australia to implement the 2009 G20 commitments further. This includes increases in trade reporting, central clearing, and exchange and electronic platform trading. The committee also recognises the ongoing consultation being conducted by the Australian regulators and commends them for their very strategic approach.

The committee views the measures in this bill as representing practical steps towards implementing Australia's G20 commitments regarding over-the-counter derivatives. The measures are broadly supported by the Australian regulators and financial industry.

The committee recommends that the House pass the bill.

On behalf of the committee, I would like to thank the industry bodies and experts, and the officers of the Treasury, the RBA and ASIC that assisted the committee during this inquiry.

Given the significant numbers of pieces of legislation in this area that have been referred to the joint parliamentary committee, I would also like to thank the members of the committee secretariat who worked on this inquiry: Dr Richard Grant, Alistair Cadman, Madeleine Willis and Kate Campbell—and Patrick Hodda, of course who made a fantastic contribution.

I commend the report to the House.