Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I rise to speak on the ASIC Supervisory Cost Recovery Levy Bill 2017 and related bills. Labor is supportive of the Australian Securities and Investments Commission industry funding model on the principle that ASIC's regulatory costs should be borne by those entities it regulates. Under this model, in the 2017-18 financial year ASIC's regulatory costs will be recovered from the corporate sector and the financial services sector instead of being borne by the taxpayer. These costs are anticipated to be $240 million in 2017-18. The opposition notes that the cost recovery levy is similar to the arrangements currently in place for funding the Australian Prudential Regulation Authority.

The principle that regulation is paid for by the entities that have created the need for it rather than by the Australian public is uncontroversial. Reflecting ASIC's function as the corporate regulator, the levy will apply to all companies and in 2017-18 is expected to raise $81 million, with costs ranging from $5 a year for small proprietary companies to $662,000 for listed public companies with a market capitalisation above $20 billion. Reflecting ASIC's function as the financial services regulator, additional levies will apply to entities in the financial services sector, and these levies are expected to raise $159 million from the financial services sector in 2017-18. We note that some existing ASIC fees, the government has foreshadowed, will be reduced in lieu of the cost recovery levy.

The total levy is to be implemented in a rather complicated manner. ASIC's regulatory costs are apportioned between subsectors, with about 50 different formulas to be included in the regulations. To take one example: payday lenders are expected to be liable for $2 million of ASIC's regulatory expenses in 2017-18. Each payday lender is expected to pay a $2,000 minimum levy, with an additional graduated levy to be charged based on the amount of credit provided. The regulations will be supplemented by an annual legislative instrument made by ASIC to specify the amounts in each formula so that costs relating to particular subsectors are attributed to that subsector.

The disallowance periods in this bill are shortened from 15 sitting days to five sitting days in order to provide greater commercial certainty. An adjustment is also made to the default position under subsection 42(2) so that if a motion is unresolved in accordance with that subsection at the end of the disallowance period, a provision of the instrument is not automatically taken to have been disallowed.

We do note the significant complexity in the way the ASIC mechanism has been designed. A lot of the heavy lifting of this model is left to the regulations, which have only just been released in draft form. Labor will be watching implementation closely. We note too that the regulations will be the centre of action, and so making sure that those regulations are appropriately drafted will be absolutely critical.

If you read the minister's second reading speech to this bill, there is too much rhetoric about tough cops on the beat and encouraging regulatory compliance. These are words that will ring hollow to anyone who has been watching the government's performance in this space. Since coming to office in 2013, the coalition government slashed ASIC's funding by $120 million in the 2014 budget—reflecting a massive free pass to corporate and financial sector misconduct.

We should reflect on that as we look at this bill today, which Labor supports. For all the talk of those opposite, we do know that this is the government that has cut funding to the corporate regulator. The government took no action to unwind those cuts until Labor proposed a royal commission into the banking and financial services sector in April 2016. Those cuts to ASIC had a devastating impact—the loss of staff and of expertise, and on the ability of the regulator to address misconduct appropriately. Cuts to ASIC have hamstrung ASIC and continue to have an ongoing impact today.

That is similar to the record of the coalition on financial protections more broadly. It was not so long ago that the Liberal and National parties were voting against Labor's Future of Financial Advice reforms and voting against reforms that were all about improving trust and confidence in financial planning. They were voting against reforms that would give ASIC, the very subject of this bill, its much-needed powers to oversee financial advice. Upon coming to office the coalition attempted to unwind Labor's Future of Financial Advice reforms under the guise of removing red tape. This so-called red-tape repeal, taking powers away from ASIC, was only ever going to advantage those who would seek to rip off honest borrowers and lenders.

In debating this bill, it is absolutely critical to understand that anything relating to financial services, as this bill does, must take into account the need for a royal commission into the banking and financial services sector. In the wake of Storm, Trio and Westpoint, and the many other scandals—in the wake of the bank bill swap rate scandal and the Comminsure scandal—it is critical to get to the bottom of what has gone on in the banking and financial services sector. It is critical that the government stops standing in the way of a banking royal commission, because only a banking royal commission can go to the bottom of the cultural and systemic issues that have led to thousands of Australians having their lives ruined.

A Productivity Commission review is merely going to be about competition in the banking sector, but it cannot get to the bottom of the misconduct. It cannot forensically examine documents and witnesses, follow leads to get to the bottom of these scandals. Neither can the House economics committee hearings serve the role of a royal commission. A cup of tea with big bank CEOs is no substitute for a proper royal commission.

Since Labor called for a royal commission in April last year we have seen more and more misconduct. In the past 18 months alone the big banks have been forced to pay in excess of $300 million in fines or compensation for fraud, misleading conduct, illegal conduct or breaching consumer protections. Since this bill relates to ASIC, I will take just one ASIC example. In October 2016 ASIC released its report Financial advice: fees for no service. The report revealed that Australia's biggest banks have spent years charging over 200,000 customers fees for services they did not receive—yet more proof that we need a royal commission into the banking and financial services sector. That October 2016 report revealed that AMP, ANZ, CBA, NAB and Westpac will have to pay almost $180 million—excluding interest—in compensation, because again they have failed to do the right thing. A recent update by ASIC, on 19 May 2017, says that that figure is now over $204 million in fees that were charged for financial advice that was never received. In an Senate estimates hearing in April, ASIC advised that the number of customers affected is now up to 330,000. These were not just technical glitches. In its October report, ASIC found that these organisations:

…prioritised revenue and fee generation over the delivery of advice and services paid for by their customers.

Customers were charged fees for advice from financial advisers who had left or retired, and for services that involved nothing more than three unanswered phone calls. ASIC found:

…advisers were allowed to have many more ongoing advice customers on their books than they would have been able to monitor or advise on an annual basis. For example, some advisers had many hundreds of customers—often having 'inherited' these customers, and the stream of fee revenue, from other advisers who had departed from the licensee.

ASIC found that licensees did not have systems in place to ensure that services were provided in return for the fees being charged.

We have seen the pressure that has been place on ASIC by the big banks. A freedom of information request by The Australian's Ben Butler reports a case in 2014: '… as ASIC worked on a press release about losses caused to customers who used NAB's Navigator investment platform, a worker in the regulator's media unit wryly emailed colleagues: "This is one of those releases that has been drafted by everyone other than ASIC!"'

We had an example in relation to a review of Macquarie Equities Limited, the Macquarie Group's financial planning arm, by EY. According to The Australian, Adrian Borchok, a senior manager in ASIC's enforcement team, was questioned about a draft press release about the matter. Mr Borchok was asked: 'In paragraph 5, do we really want to say "superficial", as Macquarie Equities Limited did engage EY to do a review of their compliance system?' Mr Borchok responded: 'I think the use of "superficial" is appropriate because it reflects the situation. Further, the EY review was a sham, therefore they are getting off easy with "superficial".'

Then there were documents relating to the Commonwealth Bank's media releases. Adele Ferguson wrote of one of the documents: 'In one press release dated May 2014 that relates to ASIC imposing new licence conditions on two of CBA's financial planning arms, an original draft press release called it for what it was: the business had "misled" ASIC over its compensation scheme and the methodology used to compensate clients. But the word "misled" was dropped by an ASIC executive.' These documents only emerged after a two-year battle between The Australian and ASIC through the freedom of information process. This again raises significant concerns about the cuts that have been made to ASIC under this government.

Labor supports these laws that ensure that the corporate sector pays for regulatory costs within ASIC. We also recognise that it is important to have appropriate laws in place to curtail dodgy phoenix operators. The tax commissioner today told a Senate estimates committee, 'I could appoint you as a company director without you even knowing it, and have me then controlling the company.' An expert has recently been quoted as saying, 'You can almost register your dog as a company director, literally.' That is why last week Labor—Brendan O'Connor, Senator Katy Gallagher and I—announced a package of measures to crack down on dodgy phoenix activity, including a unique director identification number, with a 100-point identity check, which makes it as difficult to become a director as it currently is for a regular Australian to open a bank account. That call for a director identification number from Labor has been supported by the Productivity Commission, the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman, the Australian Chamber of Commerce and Industry, Master Builders Australia, the Australian Council of Trade Unions, the Australian Restructuring Insolvency and Turnaround Association, and the Phoenix Project, which comprises experts from Melbourne University Law School and Monash University Business School. The only significant entity in Australia that does not support a director identification number is the Turnbull government.

Labor's package on dodgy phoenix directors would also increase penalties associated with phoenix activity, introduce an objective test for transactions depriving employees of their entitlements and clarify the availability of compensation orders against accessories. We cannot let dodgy directors off the leash, because they are hurting workers, firms and taxpayers. A report seven years ago estimated the cost of phoenix activity to be $3.2 billion per year: $0.6 billion to taxpayers, $0.7 billion to employees and $1.9 billion to business. Labor's package to crack down on dodgy phoenix directors is a pro-business measure, because it is honest businesses—the vast majority of businesses are honest—that are the worst hurt by dodgy phoenix activity. The cost today is almost certainly well above that $3.2 billion estimated from five years ago.

As we support this bill, we call on the government to provide the same measure of bipartisan support to the introduction of a director identification number and other measures to make sure that dodgy phoenix directors can no longer rip off taxpayers, workers and honest businesses.

David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the ASIC Supervisory Cost Recovery Levy Bill 2017. I will make some remarks about this specific bill and then some broader issues of relevance. This bill gives effect to an important recommendation of the Murray inquiry back in 2014, and that recommendation was that industry should pay the cost of ASIC's operation and that the level of cost should broadly reflect the usage of ASIC's time. So, an industry which ASIC spends a lot of time regulating would be required to pay more than an industry which ASIC spends a minimal amount of time regulating. As a consequence, a formula has been arrived at. ASIC staff will allocate their time based on activity, as occurs in many professional services firms in the private sector. ASIC will determine the amount of time that is spent on particular activities, and then each industry subsector will be charged an amount based on the cost of regulating it. What that means is that industries with a poor record of conduct, where ASIC spends a lot of time regulating them, will pay more than industries with good conduct. The entities within that specific sector will then be allocated a proportion of the cost, and that cost will broadly reflect the entity's market share. The idea is that an entity which might have a five per cent market share in a particular subindustry would pay five per cent of the cost that is apportioned by ASIC to it for the regulation of that industry. That is entirely fair, because obviously the larger the entity, the more time that ASIC will spend regulating it relative to a smaller entity.

Importantly, the need for ASIC to apportion its time also puts some pressure on ASIC to be transparent about its own internal activities and to publicly account for that time. If ASIC is spending a very large amount of time, for instance, regulating one industry, with minimal practical benefit, then the question would obviously be asked as to why ASIC is spending so much time on that industry. Conversely, if ASIC is spending a lot of time regulating a particular industry and is demonstrating practical outcomes as a result, that would be a sensible outcome and something that would be encouraged.

Similarly, organisations that may have a large number of different licences from government will, through this system, be encouraged to look at those licences and those operations and see if they indeed need all those licences. For instance, if an entity has a licence to operate in a particular subsector, it will be apportioned some of the cost of regulating that subsector and, if that entity turns around and says, 'Actually, our activities here are next to nothing; we don't want to pay that regulatory cost,' perhaps it would hand back its licence if it is not actually acting in that sector. So it will require entities to think carefully when they do in fact seek government licences to operate, particularly in the financial services sector.

This model is quite similar to the APRA model and brings ASIC more in line with the existing APRA model. Importantly, this new regime will be phased in over time. It is effectively an 18-month phase-in process. In June of this year it is expected that ASIC will publish forecast cost data and indicative levies for next year. There is a range of other activities that will happen during the course of 2017, including in October ASIC is expected to publish in its annual report and cost-recovery implementation statement the proposed allocation of resources to address particular strategic risks. And it will continue to publish information over an extended period throughout 2018, with the invoices to individual entities due in January 2019 and payment in February 2019. It is a change to the way that entities contribute to the cost of their regulation, but it is not being rushed and everyone will have ample time to understand its implications.

It is pleasing that this bill has bipartisan support, implementing as it does that important recommendation of the Murray inquiry. But there are very substantial differences in this broad area of corporate supervision and the need to take action now, and there is very, very significant disagreement between the government and the opposition. I want to talk particularly about the activities of ASIC and the regulatory activities as they pertain to banks and the financial services sector. The reality is that an enormous amount is happening in this space at the moment under this government, and absolutely nothing happened under the previous government.

It is important to understand that, when those opposite rail against the financial services sector and call for a royal commission and so on, the Leader of the Opposition was actually the Minister for Financial Services and Superannuation from 2010 to 2013. So, in fact, from October 2010 right up until the election lost in July 2013, the now Leader of the Opposition was the Minister for Financial Services and Superannuation. He was also the Assistant Treasurer for a year between 2010 and 2011. What did the then government do about the regulation of banks during that entire three-year period when the current Leader of the Opposition was the responsible minister? The answer is absolutely nothing. There was no substantive achievement in the regulation of the banking sector at all in that entire three-year period when the Leader of the Opposition, who now rails against the banks and purports to be the friend of the consumer against the banks, was the responsible minister. He did absolutely nothing during those three years. And the only policy that the Leader of the Opposition has in this space now is to have a royal commission. And, of course, that is not a policy; that is simply a call for an inquiry. It is not actually a practical solution to any particular issue; it is basically saying, 'Have another inquiry to make some recommendations in a few years time.' That is a completely inappropriate approach to regulation in this area.

By contrast, this government is taking very firm action in relation to the regulation of the financial services sector. It was very pleasing to see in the budget a range of initiatives in this area. Foremost among them is the creation of the Australian Financial Complaints Authority. This new authority, overseen by ASIC, will be a one-stop shop which will allow consumers to come forward and press their claims against banks. At the moment, there are three different bodies—the Financial Ombudsman Service, the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman. This is a really difficult process for people to navigate through. It can be very confusing, very time consuming, and there are three different entities to go to. In the future, there will be one entity which will regulate the banks and have the capacity for binding resolutions of consumer complaints. It was good to see that this was welcomed by the CEO of the Consumer Action Law Centre, Gerard Brody. He said: 'Australians need one high-quality service to resolve their disputes against financial institutions quickly and fairly. The one-stop shop announced today is a sensible move that can help Australians get justice.' That is a very welcome and sensible comment. In contrast, those opposite did nothing between 2010 and 2013, when the now Leader of the Opposition was the responsible minister, and they have made not one constructive contribution to this debate in the ensuing period.

Another important area where the government is taking action concerns executive accountability. One of the things that came out of our recent House Economics Committee inquiry into the banking sector was the complete lack of accountability in the senior ranks of the banks for the various bad examples of consumer treatment we have seen in recent years. The reality is that, until this government took action to announce this executive accountability regime, there was not a regime in place. Those opposite, in three years of government, did not do anything to address the issue of executive accountability in the banking sector. We are taking action on that. There will be fines of up to $200 million for large institutions that do the wrong thing. APRA will have the power to remove and disqualify directors. For the first time, there will be a register of senior executives in the banking sector. That will mean a much greater emphasis on the actions and conduct of senior bank executives. Again, nothing was done by the previous government but this government is taking action in this area.

Another important area concerns competition in the sector. The reality is that, when interest rates rise out of step with the Reserve Bank, our committee's work demonstrated that that is overwhelmingly to the detriment of the consumer. Between 2000 and 2016, there were 20 occasions when interest rates moved out of step with the RBA. On 19 of those occasions, that movement was bad for customers. What that suggests is a lack of strong competition in the banking sector. Again, the architecture that those opposite left when they left government in 2013 was a system where no regulatory body had specific responsibility for regulating systemic competition issues in banking. Frankly, under the previous government, nobody was regulating systemic competition issues in banking.

So what this government has announced is that the ACCC, commencing now, will have ongoing power to investigate competition issues in banking. In particular, in an inquiry that will run through to May of next year, it will look very closely at residential mortgage pricing in the banking sector. That is extremely important. What happens now when interest rates move out of step with the RBA is that people rightly criticise that. People say, 'Why is this bank moving interest rates out of step with the RBA?' In a practical sense, there is no regulatory supervision of that activity. And that changes now, through the ACCC's new team focused on competition issues in banking and specifically interest rates in the mortgage market. Again, those opposite did not do that, and they did absolutely nothing about competition in the banking sector during those long three years of the Rudd-Gillard-Rudd government. When the now Leader of the Opposition was responsible for the financial service sector, he did not take action on any of these issues.

Another concerning issue in the sector that we are taking action on is this issue of the lack of new entrants into the banking sector in Australia. Between 2006 and 2016 the total number of new banking licences for new Australian start-up companies was one. So, we had one new entrant into the banking sector in an entire decade. That basically says that there are a whole range of rules that make it very difficult to start up a bank. There are shareholding restrictions and capital restrictions and a whole range of things that in practice mean it is incredibly hard to get a new bank licence and to get a bank off the ground. That needs to change and, again, the government announced that change in the budget through relaxing the 15 per cent shareholding rule and through having a more two-stage process to enable people to get banking licences and a range of other initiatives.

Again, it is action taken now to improve the sector for consumers and, similarly, the opening up of consumer data so that consumers can go to their bank and say, 'I would like you to share my data with another bank or another financial services provider so that they can offer me a better deal.' The government said in the budget that it will be taking action on this issue, which is a very important long-term structural issue in the banking sector. What we have here, through the ASIC supervisory bill and a range of other initiatives, is the government taking strong action in the banking sector. When the Leader of the Opposition was the minister for financial services for three years, he did absolutely nothing. We are taking action now. The opposition has no policies and no constructive contribution on this. (Time expired)

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

The ASIC Supervisory Cost Recovery Levy Bill 2017 and related bills implement the Australian Securities and Investments Commission's industry funding model. Under the model, from the 2017-18 financial year, ASIC's regulatory costs will be recovered from the corporate sector and the financial services sector instead of being borne by the taxpayer. The costs are anticipated to be $240 million in 2017-18. The cost recovery levy is similar to the arrangements that are currently in place for funding of the Australian Prudential Regulatory Authority. Entities that are regulated by ASIC will be required to pay a levy that will recover ASIC's regulatory costs for the financial year from entities that were regulated in that financial year.

The amounts payable each year will be set through a combination of regulations and legislative instruments, and the regulations will set out the methods or formulas that will be used to apportion ASIC's regulatory costs. ASIC will issue a legislative instrument that will set out what its regulatory costs were in relation to the financial year as well as information about how those costs are apportioned across leviable entities. After the levy amounts have been determined for a financial year, ASIC will then issue the notices to entities setting out the amount of the levy and when it is due and payable. The explanatory memorandum explains that that levy will be sent out in the year following the year in which the levy was determined. Failure to pay the levy by this date will attract a late payment penalty at a rate of 20 per cent per annum unless ASIC has granted the entity an extension. The increased regulatory burden arises because around 7½ thousand entities will have to establish new reporting systems to provide ASIC with additional data and around 55,000 entities will have to provide additional data to ASIC each year.

Labor is supportive of these reforms. We have said from the beginning that we are supportive of this ASIC industry funding model. And we support the principle that ASIC's regulatory costs should be borne by those entities that it regulates. But—forgive me for being cynical—at the heart of this the government is really not fair dinkum about this reform. It is not something they believe in. It definitely goes against this Liberal philosophy of reducing regulation within markets and freeing up markets. It is not something that ordinarily a Liberal government—let alone the Turnbull government—would put to the parliament as a reform that is necessary in financial services. This is evidenced by the fact that in the government's 2014 budget they actually slashed ASIC's funding by $120 million. It was a massive free pass to corporate and financial sector misconduct. Of course, as a result, there was a devastating loss of staff and expertise, which has had a significant effect on the ability of the corporate and financial service regulator to address misconduct.

Really, the only reason they have come to this policy—developing this policy and putting it to the parliament—is because of Labor's calls for a royal commission. In the wake of the scandal-ridden banking sector—financial services, wealth management, in particular, and insurance—these issues have been highlighted through numerous parliamentary inquiries and also through the media. The government really was forced to do something about it. They have taken the approach of, 'We'll do anything but a royal commission.' We have seen in the recent budget they have announced the new bank tax. That legislation was introduced today, finally. Finally we will be able to get a look at what the government is proposing. And, of course, we have reforms such as this.

Despite the depth of the cuts and their massive impact, the government took zero action to partially unwind those cuts until Labor began its calls for a royal commission into the big banks. It has long been Labor's strongly held position that the only way to restore trust in the banking system and the only way to restore integrity to the banking sector and financial services in Australia is through a royal commission. It is a policy Labor has had since the last election. It is a policy that has garnered well over 70 per cent support of the Australian public through published opinion polls. It is a policy that anyone who has been involved in these financial scandals with the banks supports. It is a policy that many small businesses in Australia support. It is a policy, clearly, that the Australian finance and banking sector needs.

It has been made abundantly clear through the House of Representatives economics inquiry into the banks that there is a need for a royal commission in Australia. Simply calling the banks down to Canberra once a year for 20 minutes worth of questions from this committee, in which we cannot delve in depth into particular scandals and issues on behalf of victims, is not sufficient. It is not going to cut it and it is not going to remove the wish of the public and the calls for a royal commission. They are not going to die down because of the measures the government is introducing here or because of the bank levy.

In fact, it was Labor that first proposed a levy on the banks to fund the implicit guarantee they had in the wake of the global financial crisis to ensure the banks in Australia do not fail. It was Labor, based on the advice of the regulators and of the Reserve Bank, that proposed an initial levy on banks to set up a special fund for a rainy day, if you like, when there may be a situation in future downturns where a bank may fail and the government may need to ensure depositors' finance with that bank. Let's never forget what those on the opposite side did: when Labor proposed it, they opposed it. In fact, we all recall the member for Warringah calling it a 'trouser tax' and saying that this was Labor's attempt to get their hands into people's hip pockets with respect to their bank accounts. Here we are, a couple of years later, and that is exactly what the government is going.

They are saying it is regulated on deposits above a certain level with commercial institutions and that the banks are not going to pass it on. Deputy Speaker, I think you would have to be living in a dream world to think the banks will not find a way to pass this on to the customer.

The other point to make is that no Australian worth their salt believes the government when they say the banks will not pass this on—in fact, people probably wonder who these fools are in Canberra, in cabinet, who are running this policy when they can propose something like this, try and make it different from what Labor is proposing, and think that it will not be passed on by the banks. We will wait and see how they are going to do that, and hopefully some of that information will be contained in the proposal that has finally been released today in the form of legislation.

I mentioned earlier the Economics Committee inquiry. In hearings over the last couple of years we have heard about the scandals and the rip-offs that are continuing in the banking industry. They are not exceptional—they have become, unfortunately, the norm in the Australian banking sector. That is why the public are wholeheartedly sick of it and want a royal commission. The government's budget was nothing more than a misdirected attempt to protect the big banks in Australia—a bit of smoke here and a well-placed mirror there. Unfortunately, nothing in the budget will obviate the need for a royal commission into the banking and financial services sector in Australia.

ASIC has had a very difficult time of it over recent years because of the cuts that I mentioned earlier that the government initially undertook in the 2014 budget but that they have sought to reverse in recent years because of all the scandals and because of Labor's call for a royal commission. Through its wealth management project, ASIC has been investigating financial advisers and as a result it has issued temporary and permanent banning orders against multiple financial planners in each of the banks. I will not go through them at length, but they include CBA wealth management licensees—15 advisers were terminated in October 2015 and October 2016, with a further 20 advisers terminated; NAB had 21 planners dismissed for conflicts of interest, bad advice and compliance issues in 2014; there have been temporary and permanent banning orders against at least three ANZ financial planners in recent times; and there have been banning orders against two Westpac financial planners. In September 2016 ASIC announced that ANZ had refunded $29 million to hundreds of thousands of accounts for failing to disclose certain periodical payment fees, and also in September 2016 ASIC announced that Westpac had refunded $9.2 million in bank fees that should have been waived in one case and $20 million in credit card foreign transaction fees in another. In October 2016 ASIC announced that CBA would repay $105 million to customers who had been charged for financial advice that was never provided.

We have seen the poor way in which the government has treated the financial regulator in the past, and one of the things that a royal commission would look into is whether or not regulators are best equipped to deal with the financial crimes that have been occurring in this industry and to tackle and try to prevent some of the scandals we have seen in recent years. The government is proposing this bank tax, but the one group of people it has ignored through all of this are the victims of bank fraud. The victims of the bank fraud are voiceless when it comes to the Turnbull government, and they are the ones who want the royal commission and the opportunity to put their case and be heard and who want an independent arbiter to make suggestions to government about ensuring that these things do not occur again. This legislation is no substitute for getting to the bottom of what has gone on in the banking sector and the financial services sector more broadly. The only way to do that is through a royal commission, and only Labor will give the Australian public the royal commission that they deserve into the banks.

Matt Keogh (Burt, Australian Labor Party) Share this | Link to this | Hansard source

The ASIC Supervisory Cost Recovery Levy Bill and cognate bills would establish a levy on industry to recover ASIC's regulatory costs. ASIC is a regulator that I had a long-running involvement with in the past as a federal prosecutor before coming into this place. In particular, I worked in the area of prosecuting corporate crime and I worked closely with ASIC throughout that time. This legislation and this idea have had a long genesis, which I have followed quite closely. The bills implement a new industry funding model. Under that model, from the next financial year, ASIC's regulatory costs will be recovered from the corporate sector and the financial services sector instead of being borne by the taxpayer. It is anticipated that next year those costs will be in the order of $240 million.

Labor supports this legislation and the principle underpinning this legislation: that the industry that is regulated by ASIC should fund its costs. This is a principle that already applies to a number of other regulators. I know many before me have mentioned that this principle applies to APRA, which of course regulates banks and insurers and superannuation to some extent. But the principle also applies in a number of other areas, such as NOPSEMA, its predecessor NOPSA, and a number of other spaces in state government that are funded by the industries that they regulate.

Part of this is intended to establish a price signal to drive economic efficiencies in the way in which resources are allocated within ASIC and to improve its transparency and accountability to the industries that it regulates and of course to the public at large about the work that it is doing and where it is spending the money that it has. It also, I suppose, provides a bit of a price signal overall to industry, in that, if it does not need as much surveillance and enforcement maybe it will cost a little less to run.

On the basis of what is being put forward, the financial sector will contribute to some of the needs for the services and the benefits of them and it should contribute to some of the costs. That is going to be reflected in that ASIC as a corporate regulator will recover some of its costs from all companies. Different costs will be recovered from companies of different sizes. And, of course, as the regulator of financial services, financial service providers will provide other parts of those costs.

For a long time the banks, in particular, and the ABA—as their representatives—were opposed to this idea, figuring that they were already contributing too much to APRA, as their other regulator. But then suddenly we saw a shift; we saw a movement from the ABA and the Australian banks where they fully supported this concept of industry funding for ASIC. I have to say that took me a little by surprise. But it would appear that the reasoning behind that was that the Australian banking sector came to a realisation and said, 'Actually, ASIC needs our support; ASIC needs some help; ASIC needs greater funding, and we need to be able to kick that in.'

There is an interesting concept that arises here. One of the really important things about any sector that is funding its own regulator is making sure that we keep that distance between the regulator and those that they regulate. But I think the fundamental point that was being put by the banks and why they support this is that they see that this is the way in which the regulator can become better at doing its own job. I do not say that in a cynical way of better regulating the banks from the banks' point of view. What they appreciated was that ASIC, in particular, needs to not only upskill but also expand its capability in a range of complex financial areas that it regulates.

Effectively what the banks are saying is, 'We know government won't give more money to ASIC.' In fact, if we look at the history of this government we see that it took a large chunk of funding out of ASIC only to discover that that was such a bad idea that it had to put some of it back in. It put it in and then it took a very long time for ASIC to get to the point where it was able to hire more staff, fill those roles and expand its capability. But what underlies this is that they are saying, 'We'll fund this because we know there needs to be an expansion; there needs to be better capability in ASIC. We know that they need to be able to expand their cost base and pay for that, and government won't supply that.'

This brings me to one problem that I am foreseeing in this legislation. It is not a reason to oppose the legislation, but it is something that government is going to have to think through and work out on a different model. The way this works is that government will allocate a cost base to ASIC and say, 'This is what you are going to be able to spend for the year,' and then that money will be recovered through this levy at the end of each year. That means that the capacity for ASIC to say, 'We need to expand; we need to add some more capability over here; we need to increase our capacity to investigate, enforce or regulate in a particular sector,' without diminishing its capability and capacity in other parts of its role, will require additional upfront funding from government.

Even if it can recover that levy subsequently, it will still require a decision of government to fund that additional capability and capacity for ASIC. I know from speaking to other regulators that have similar models where they have to go to government to get an advance decision on being able to expand a capability or capacity that often that is not forthcoming. The idea that what sits behind is that industry has to pay where see the need to expand capability and capacity in our regulator will not actually exist unless the government makes a decision. That is different to some of the other levy models that are in place in other areas in this sector—I think the NOPSEMA model operates a little differently to the way that is being implemented here for ASIC. I flag that as something for government to be aware of. If part of the idea here is to make sure that you have a regulator that is able to respond to issues in the sectors that it is regulating, its capacity to do that is not being freed up by this legislation necessarily, and that is something that we need to be fully aware of.

As I said before, that has to be viewed from the point of view that in the 2014 budget this government actually slashed the funding for ASIC. It took money out of ASIC. Of course, it took a long time. It really took until this opposition made the strong call, which is supported so resoundingly by the Australian community, for there to be a royal commission into the banking sector and highlighted that, time and time again, ASIC as a regulator had failed to be proactive and to pick up on issues which had to be brought forward by whistleblowers coming out of the banks and coming to parliamentary committees and to other inquiries. It was not until then that the government finally tried to bite a bullet and said, 'Okay, we'll put more money back into ASIC.' They said they were putting more money into ASIC, but really all they were doing was restoring the money that had been previously taken away from ASIC by the government. So I highlight this problem with the funding model.

Which then brings me back to this: it is excellent that we have a well-functioning, well-funded, highly capable corporate regulator in this country. That is absolutely necessary. It is especially necessary in a country like Australia where we have such a high proportion of corporatisation of businesses of all sizes. It is especially important when we have such a wide variety of companies incorporated in Australia, from mum and dad businesses and the corner store all the way through to some of our biggest multinational mining companies, our retail sector and our tech sector. All of those different areas need to be regulated by ASIC and, of course, our financial services sector, which are not just regulated as corporates but are regulated for the essential services they provide to our economy.

Which brings me, then, to a royal commission into banking. When we talk about the capability and the capacity of ASIC, one thing is fundamentally true here: the regulation of our banking sector is quite diverse and separated across many different regulators. There are some clear strengths in having a separate financial services regulator, consumer regulator and prudential regulator, but what we have seen—especially what we have seen through a number of inquiries that are currently running in this parliament and that have previously run in this parliament—is that the capacity to look behind is not currently sitting in the way our financial services sector, and in particular our banking sector, is operating.

What we have not had is the great capability of being able to look at not just whether the law is being broken but also how effective we are at catching that. I can tell you right now, as someone who has worked in the corporate regulatory space, as someone who has worked as a prosecutor in corporate crime, that one of the biggest issues is actually working out whether our law is effective in making sure that these things do not happen, whether our regulators are effective at finding those things when they occur and what the unintended consequences of our law are in the way that it operates and the way that it drives behaviour. So much of the financial services sector and the way that it operates is about looking at what the unintended consequences of behaviour that is driven by the law as it operates are and what policies are put in place.

That brings me fundamentally to culture, and this is where I want to finish. The chairman of ASIC, senior people in ASIC and senior people across all of our regulators have spoken often—and in fact, every banking CEO who has was appeared in front of our banking inquiry, which I am a part of, over the course of the past 12 months has made the point—about culture. But what has fundamentally not been looked into is what the actual culture is.

One of the great missings from all of the inquiries that we have had to date in this parliament and in so many other fora has been what is happening at the board level and what is happening at the ground level. Everyone talks about culture coming from the top, and we have heard a lot of talk from the CEOs of banks about culture and the culture that they are instilling in their organisations. But the reality is that the top is above that. The top is the chairman and chairwomen of those boards and the directors of those boards. What is the culture that they are instilling in the senior executives of their banks? And what is the culture that those executives are distilling all the way down through their organisations?

The key thing here is this: the capacity of a single parliamentary inquiry, the capacity of a prudential regulator, the capacity of an ABA led inquiry or the capacity of ASIC to look deeply and to think deeply about what the fundamental causes of the problems are that we are seeing and therefore what changes are required—not just in the law and not just in our regulators but in the culture of these organisations—for what does not exist in the existing entities that we have. We need to have a full exploration of all of these issues, because we know from time and time again and from people coming before us is that there are many individuals throughout this nation who have been ripped off badly and that have had a bad experience. They have seen themselves suffer financially and therefore suffer also the mental anguish and mental health issues. In some of the worst experiences people have taken their own lives because of these sorts of activities; we need to be able to get to the bottom of that, but we also need to be able to make sure that we fix it going forward. That will only happen if we have a full exploration of all of these issues—not just the law and not just the regulator but also the culture within these organisations.

I commend this legislation. I do, as I said, think there is a problem that government needs to look out for. At the end of the day we cannot just leave all these things to ASIC; we need to have a royal commission into banking as well.

Craig Laundy (Reid, Liberal Party, Assistant Minister for Industry, Innovation and Science) Share this | Link to this | Hansard source

I rise today to sum up the ASIC Supervisory Cost Recovery Levy Bill 2017. Firstly, I would like to thank those members who have contributed to this debate.

This bill continues to deliver on the government's commitment to strengthen the Australian Securities and Investments Commission, ASIC, and to better protect Australian consumers. The government recognises that our financial institutions have not always lived up to the reasonable expectations of all Australians. That is why we are empowering our regulators to take action today, rather than spending three years holding a royal commission into the financial services sector that would provide no practical benefit to everyday Australians but, of course, plenty of benefits to barristers.

Introducing any industry funding model for ASIC will increase the transparency of the regulator. It will make the industry directly accountable for its conduct and it will make ASIC more efficient and proactive as a regulator. It is a critical component of our plan to improve outcomes in the financial services sector and it builds on other measures in the government's comprehensive financial sector program, including the $127.2 million funding package allocated to ASIC in 2016 to ensure that it continues to be the tough cop on the beat.

Industry funding will do four main things: firstly, improve equity; secondly, encourage regulatory compliance; thirdly, improve ASIC's resource allocation; and, finally, enhance ASIC's transparency and accountability and, by extension, its performance. Equity between taxpayers will improve because from 2017-18 only those entities which are regulated by ASIC and create the need for that regulation will pay for it rather than the Australian taxpayers, who too often bear the cost of the financial sector's misconduct.

There will be greater compliance with regulatory requirements, because industry sectors with good conduct records will require fewer ASIC resources and will face lower regulatory costs than those sectors that continue to pose unacceptable risks to Australian consumers. ASIC will become more efficient, agile and innovative as a result of the collection of new rich data on actual business activity. Coupled with the government's $61.1 million investment in ASIC's analytical capabilities, this data will allow ASIC to better identify emerging risks, prioritise its resources and ensure compliance with regulatory requirements. Industry funding will also increase ASIC's transparency.

These bills will require ASIC to publicly explain its regulatory priorities, to demonstrate how it will address them and to account for its performance, including the dollars it spends and the regulatory tools it uses. This will encourage ASIC to ensure that it is as efficient as possible whilst boosting investment in performance assessment, as recommended by the ASIC capability review. Finally, to ensure that industry funding delivers on its promise, the bills will grant ASIC powers to enforce the industry funding model, which will provide industry with confidence that everyone is paying their fair share. For entities that are not operating with the correct licence or authorisation, ASIC will be able to impose on those entities the cost recovery levies that would have been payable had the entity been properly licensed. In addition to whatever other enforcement ASIC deems necessary, ASIC will also be empowered to charge penalty interest at 20 per cent per annum and to take appropriate administrative action, including the possible suspension or cancellation of a licence.

As demonstrated, these bills deliver on the government's promise to strengthen ASIC and better protect Australian consumers. I commend the bills to the House.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

The question is that these bills be now read a second time.

Question agreed to.

Bills read a second time.