Stephen Jones (Whitlam, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

As the Clerk has said, the Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 is succinctly described as:

A Bill for an Act to amend the law relating to taxation, corporations, competition, financial services, consumer credit, product grants and benefits, superannuation and legislative and other instruments, and for related purposes.

It's one of those omnibus bills filled with amendments to Treasury legislation. There are three schedules to the bill. Labor do support the bill but we will be moving some amendments. A second reading amendment has been circulated in my name, and I'll be speaking to that together with the substantive bill and foreshadowing that some further amendments may arise at the third reading stage.

Schedule 1 of the bill closes a loophole that allows testamentary trusts of deceased estates to be used for tax evasion purposes. Under current laws, the income minors receive from testamentary trusts is taxed at adult marginal rates, which access the $18,200 tax-free threshold. Some taxpayers are, therefore, able to appropriately obtain the benefits of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust. The government want to close this loophole, and we fully support them. It means that income from testamentary trusts will be limited to income derived from the assets that are transferred from the deceased estate or the proceeds of the disposal or the investment of those assets.

Schedule 2 of the legislation is the one that I am particularly interested in. It amends the Corporations Act to delay the deadlines for existing financial advisers to comply with new educational and exam requirements. This is an amendment that Labor supports, but I've got to say that the utter shambles of this government that was on display after question time—in fact, it's been on display since Christmas—is threaded through the circumstances that lead to the sorry state that has this bill before the House today. I'd like to take some time to go through the background of the bill.

I could start in 1997, when the Wallis financial systems inquiry gave us the twin peaks, as it was described, of financial markets regulation in this country—the Australian Prudential Regulation Authority, a new authority back then, set up to deal with the prudential regulation of financial markets, and the Australian Securities and Investments Commission, taking over the requirements hitherto dealt with by state authorities for licensing, disclosure and consumer protection. The recommendations of the Wallis inquiry were legislated for in 2001 through amendments to the Corporations Law, which gave us chapter 7 of the Corporations Law, that part of the Corporations Law that deals principally with the regulation of financial markets. Chapter 7.6 deals with the licensing of financial advisers; chapter 7.7 deals with the disclosure that is required of financial advisers, brokers and others; and chapter 7.7A deals with the requirements of advisers when giving financial advice.

There were a number of amendments to this chapter in the Corporations Law, before this bill arrived with us today. It is also important that I give some background to that, to underscore the importance of the harsh criticisms that I make of the government, because the amendments they are having to make today are a result of their own incompetence and dastardly management of recommendations that have been on the books since at least the Wallis inquiry, certainly known to industry participants since 2001, and brought into sharp focus since November 2009. I mention 2009 because this is when the Parliamentary Joint Committee on Corporations and Financial Services tabled in this parliament—in this place and the other place—its inquiry into financial products and services in Australia, colloquially known as the 'Ripoll report'.

The Ripoll report followed hot on the heels of the global financial crisis and the collapse of large financial schemes—Opes Prime, Westpoint, Trio and Storm Financial—leaving mum-and-dad investors millions and millions and millions of dollars out of pocket. The Ripoll inquiry focused specifically on those collapses but also on the broader question of financial advice within this country. It made a number of pointed recommendations. At recommendation 1, it recommended the introduction of a statutory fiduciary duty for financial advisers, requiring them to put the interests of their clients ahead of their own. That was recommendation 1. Second was the development of an appropriate mechanism by which to cease payments from product manufacturers to financial advisers—shorter words: commissions and conflicted remuneration. Third, and relevant to the bill before us today, was the establishment of an independent industry-based professional standards board to oversee nomenclature, competency and conduct standards for financial advisers. Point to note: that was November 2009. The Future of Financial Advice reforms were introduced into this parliament and enacted in 2012. They included the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 and the Corporations Amendment (Future of Financial Advice) Act 2012, colloquially known as the FOFA or Future of Financial Advice bills. The legislation took effect from July 2012, with compliance becoming mandatory from 1 July 2013. The main components of these bills included the introduction of a best interest obligation, which requires financial advisers to act in the best interests of their clients when giving personal financial advice; the introduction of the first phase of a ban on conflicted remuneration, including commissions, volume payments and soft dollar benefits, when financial product advice is provided to retail clients; and, thirdly, increased transparency, through a requirement that providers of financial advice obtain client agreement to ongoing advice fees and enhanced disclosure of fees and services associated with ongoing fees.

Prior to the introduction of all of these reforms, we had the Ripoll inquiry. We also had the financial services industry, consumer groups and ASIC raising considerable concerns around the education and training requirements applicable to financial advisers. Frankly, standards were considered to be too low. This was, in turn, contributing to a lack of confidence in both the competence and conduct of financial inquiry. Both the PJC inquiry—that is, the Ripoll inquiry—and the financial systems inquiry identified that existing professional standards for financial advisers were too low and did not ensure that all advisers had the skill to provide the sort of high-quality advice that was required. Those reviews found that the regulatory framework was insufficient to generate the sort of consumer confidence in the industry that, quite frankly, we need and customers deserve.

In response to both of these inquiries and the Financial System Inquiry, on 20 October 2015 the government said that it was committed to ensuring that consumers received professional and fair treatment from advisers and that it would raise the education standards. So we had the 1997 Wallis financial systems inquiry, we had the 2001 amendments to the Corporations Law, we had the 2009 Ripoll inquiry, we had the 2012 future of financial advice reforms—these were all related—and then we had the October 2015 announcement. They were followed in 2017 by the Corporations Amendment (Professional Standards of Financial Advisers) Act. This introduced several measures that would require financial advisers to have a degree, to pass an exam and to undertake a professional year to be authorised to provide unsupervised personal advice to a retail client. It required existing advisers to bring their qualifications up to degree-equivalent and required all advisers, both old and new, to undertake continuing professional development and to be party to a code of ethics monitored by ASIC, amongst other things.

Anybody who is enrolled in a profession, as I am, would look at all of these things and say, 'Yes, that's pretty much par for the course.' If you're an accountant, a legal adviser, or a medical professional, these are all pretty standard requirements. They were recommended as early as 1997. The government committed to them in 2015 and legislated for them in 2017, but the passage of events between the acceptance of that series of recommendations and advice and today has been a sorry series of incompetence, blunders, stuff-ups and delays, which means that once again this parliament is being asked to delay the implementation of these professional standards requirements.

This is nothing short of a disaster. I don't blame the financial advisers. There's a lot being visited upon them today. Their industry has been turned upside down, mostly, I should say, for good cause. All of the reports and the legislative changes that I have spoken about, together with the recommendations of the Hayne royal commission, point to the fact that systemic changes are needed within the financial advising industry. We are on the path to delivering that—

Debate interrupted.