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

I am pleased to be speaking on the motion and on the second reading amendment which has been circulated in my name. This bill establishes the Financial Regulator Assessment Authority, and as such, implements two recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: recommendation 6.13 and recommendation 6.14. It will mean that the Australian Securities and Investments Commission, hereafter ASIC, and the Australian Prudential Regulation Authority, hereafter APRA, are subject to quadrennial capability reviews, which the new authority will conduct.

The government has taken a minimalist approach to the establishment of the body and therefore to the implementation of the recommendations of the royal commission. I make no comment about that. The body established will consist of three part-time members to be appointed by the government, with the Treasury secretary to be an ex officio member. The authority will provide biennial assessments of ASIC's and APRA's performance as financial regulators, with those reports to be tabled here in parliament. It will prepare ad hoc reports at the minister's request, but there is no requirement that these particular reports be tabled. It will also have the authority to make directions in relation to the regulators or to advise them on how they might undertake actions in respect of individual cases within their remit. The authority will add yet another layer of accountability on top of existing mechanisms such as the committees of parliament, direct ministerial oversight, audits from the Australian National Audit Office, public government frameworks and the IMF's financial sector assessment programs to name just a few.

Let's be clear what this bill represents. It's a culmination of eight years of pressure upon the government, and it highlights eight years of inaction by the government on implementing the recommendations that have previously been put to the government by the Murray review. It's a result of the evidence from the banking royal commission, which I might note that the government and every government member in this place voted against 26 times. It is worth going back to some of the examples that were cited by the royal commission in its final report, in order to put the bill before the House in some context. I have with me in the House volume 2 of the final report of the Hayne royal commission. I'll be referring to specific case studies that were cited by Commissioner Hayne in that report.

It is by now part of the folklore of regulation within the financial services industry and now in this place that there were operators within the superannuation sector that were for many, many years charging fees for services they simply did not provide.

Mr Tim Wilson interjecting—

I'll come to the member for Goldstein's role in all of this in a moment. If he could with every fibre of his being resist and remain silent until I come to him, we will all be the more educated for the experience.

I want to take you, Deputy Speaker Goodenough, to volume 2 and the specific findings of the royal commission in relation to the fees-for-no-service exercise because they actually shine a light on why there is a need for provisions such as this. At page 281 of the report, Commissioner Hayne cites the changes that occurred within the superannuation industry as of January 2014. To summarise, from January 2014, superannuation funds had to pay any new default contributions into a MySuper account unless a member made a specific election for them to go into what is called a choice account. The obligations are set out in the SI(S) Act, and APRA had a responsibility under its act to ensure compliance with these provisions.

It cites the example of Colonial First State super. From February 2014, Colonial First State super, then a subsidiary of the Commonwealth Bank of Australia, informed APRA that it may have breached section 29WA of its obligations under the act to make these transfers. This was because, it said, some members of its FirstChoice Personal Super product had received contributions into a non-MySuper product. APRA told the fund, the regulated entity, that it needed to fix the problem in the short term or else APRA might take enforcement action. It's is worth noting that this breach of a specific provision was a breach which affected 13,000 members of the CFS product. According to the evidence presented by Ms Rowell before the Hayne royal commission, there were many interactions between Commonwealth First State super and the regulator, so the actions—or should I say inaction—of the regulated entity in dealing with this acknowledged breach were well known. After some time, the regulated entity provided a proposal to APRA on how it would deal with its acknowledged breach. APRA—and I quote from the royal commission report—said:

After receiving the proposal, APRA asked for some further information but otherwise told CFS that it—

its proposal for dealing with the acknowledged breach—

was acceptable.

What was subsequently revealed was that the proposal for dealing with the breach was in itself deceptive and misleading conduct, and the offending conduct continued on for many, many years. In fact, it continued up until September 2017. So, from 2014 to 2017, an acknowledged breach of the obligations that the trustees had to their members to convert them to a MySuper product was known to the regulated entity and to the regulator. The breach was going on, but for in excess of three years no corrective action was put in place. You might say, 'What's the harm done in this?' The harm done was immense because, for that entire period, Colonial First State super was charging more fees to its members than otherwise would have been charged had it been compliant with the law. What the commissioner observes in his report was that 'APRA did not take any formal enforcement action'—no formal enforcement action. And we can assume that, had the royal commission not shone a spotlight on this issue, that action would have continued on indefinitely.

It is one of two examples that are cited by the royal commission in volume 2 of it final report which shine a spotlight on the culture of the regulators—the regulators which saw the regulated entities more as partners or perhaps stakeholders and where the enforcement action was weak or non-existent. It was not that the laws weren't strong enough; it was the fact that the culture within the regulator was to either ignore or take a very passive approach to addressing the breaches of the law, even when the breaches of the law were admitted to by the fund and brought to their attention. There are many other examples of behaviour such as this. I have cited the behaviour of the Australian Prudential Regulatory Authority, and there are examples within volume 2 of the report where a similar approach was taken by the Australian Securities and Investment Commission—what could only be described as a very light touch or indeed a no-touch approach to regulating and enforcing the law in the interests of consumers.

It is against this background that the commission, in its final report, recommended a series of changes to the regulators. In relation to APRA, it recommended a completely different disposition, which can best be summarised in the words of Commissioner Hayne himself; that is, that the regulator should be asking himself or herself when appraised of a breach of the law, 'Why not litigate?'—a revolution in the approach that APRA had taken hitherto, as so scandalously exposed by the royal commission. So here we have a situation where both ASIC and APRA, the twin peaks of regulation within the financial services industry, had a culture which had grown up over many, many years of asking the very opposite of themselves. Instead of 'Why not litigate?', it was 'Why not accept some other form of enforceable undertaking?'—a very passive approach to regulation indeed. So it is against that background that the commission took up that recommendation, previously provided to the government some eight years earlier by David Murray, to put in place an oversight body to regularly review the performance of the regulators and provide that report to both government and the parliament.

It is also possible to look at this recommendation of the commission as a failure of the existing parliamentary provisions for oversight of the regulators over the last eight years. You can form only that conclusion if you look at the considerable responsibilities that are given to parliamentary committees, whether it's the Parliamentary Joint Committee on Corporations and Financial Services, which has a statutory role to oversee the performance of the regulator, or the House Economics Committee, which has a statutory role to oversee the performance of the regulators, amongst other bodies. It is with great regret that I have to inform the House that it is completely abrogated that responsibility under this government. There are members of this place, including the member for Goldstein, who is in the House at the moment, who have seen their role as chairs of this committee to completely hijack the role of the committee away from its statutory role of overseeing the performance of the regulators and have taken them on a wild goose chase—

Mr Tim Wilson interjecting—

Deputy Speaker, you will note that the member for Goldstein has a place on the speaking list. Maybe he might like to wait his turn. They have been abusing the roles and responsibilities of the committee and refusing to shine a spotlight on where a spotlight needs to be shone. They have been taking the committee on wild goose chases, conspiratorial theories and paper chases that end up in dead ends, while refusing to allow the committee to perform its responsibility, under statutes of this place, to properly oversee the performance of the regulators.

Ian Goodenough (Moore, Liberal Party) Share this | Link to this | Hansard source

Order! It being 7.30 pm, I propose the question:

That the House do now adjourn.