Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

I too want to make a contribution on the tabling of the report by the Parliamentary Joint Committee on Corporations and Financial Services on the statutory oversight of the Australian Securities and Investments Commission, commonly known as ASIC. The Joint Committee on Corporations and Financial Services is charged with the oversight of ASIC, the consumer protection regulatory authority in terms of financial services in this country. Firstly, I want to thank ASIC. As the chair has indicated, ASIC are subjected to extensive questioning, not just at hearings of the Joint Committee on Corporations and Financial Services but at the estimates process. ASIC appeared not only at the hearing of 13 June but also at estimates hearings in May and February this year. They were subjected to questioning on the same, if not similar, issues across the board at those three hearings. On behalf of the Labor opposition in the financial services area, I would like to thank ASIC and generally congratulate them on their responsiveness at those hearings.

I would have to say that generally, in most respects of financial services regulation, Labor has been pleased with the approach of ASIC. There are a couple of exceptions, and I have some concerns which I will go to shortly. The report that has been tabled deals with some very important and current issues. The report certainly dealt with the Westpoint matter, which I want to go to in greater detail shortly; the recent shadow shopping exercise; what is known as the Vizard matter; and a number of other issues.

Firstly, I go to the Westpoint financial scandal. There are probably up to 4,000 investors in this country who have lost a substantial sum of money. The sum of money is likely to be in the range of $300 million to $400 million. Most of the investors in Westpoint are elderly Australians, many of whom are retired. Much of the investment in Westpoint took place through what is known as self-managed superannuation fund structures. Between 30 and 40 per cent of the investments in Westpoint were through self-managed superannuation fund structures.

Of particular concern to the Labor opposition is what I have described as the perfect storm of regulatory failure with respect to the Westpoint financial disaster. I call it a perfect storm because it is apparent that there were a number of failures across a number of regulatory agencies and at other points that led to this financial disaster. I am sure that many people have noted the media coverage of current proceedings involving Westpoint. I do not want to go to those in this forum. However, it is apparent that it will take some time, if not years, to unravel what occurred in respect of Westpoint. Even when that is finished, I think it is apparent that most of the investors in Westpoint will end up with very little recompense. The Westpoint investors—as I said, many of them elderly—face a very difficult set of circumstances. Not only will they have to wait for some years for the court outcome but, when that wait is over, I am sure that the level of recompense will be very small compared to the moneys that have been lost.

I come to the issues that are being canvassed not just through the committee’s oversight but also at Senate estimates. As I said, Westpoint is a good bad example of a range of failures that have occurred in our financial services regulatory area. Let me deal with ASIC first. My concern with ASIC’s approach is that ASIC have always argued that they did not have the legal power to regulate in this area—the issue of the promissory notes and the $50,000 exemption. Labor accepts that this was the case and still is the case today. Labor accepts that ASIC did not have the regulatory authority. However, that would not have prevented ASIC, once they were alerted to the Westpoint issues and problems, from going to the financial planners who were recommending Westpoint and at least making inquiries and alerting them to the fact that they had concerns about the Westpoint investment. In my view, if ASIC had done that, the planners would have been much more cautious about recommending Westpoint and there would have been a considerably lower number of people who would have placed funds in Westpoint. Unfortunately, some of the planners involved could not overcome the temptation of the commissions that were on offer for recommendations to go into Westpoint—and commissions are a much broader issue and problem in terms of shadow shopping and superannuation, which is also dealt with by this report.

In particular, ASIC were warned by the Western Australian government, specifically the Western Australian Minister for Consumer and Employment Protection, in writing in August 2002, January 2003, May 2003, June 2003 and March 2004. So they were warned in writing on no less than four occasions about issues relating to Westpoint. I do not believe ASIC were sufficiently proactive in following through on those complaints, so that is a criticism I make of ASIC. However, the government was also warned. No less a person than the Treasurer, Mr Costello, was written to by the Western Australian minister, and it took some six months before the Treasurer deigned to reply. On a very important issue of financial protection, it took six months for the Treasurer to bother to reply to the Western Australian minister.

I know the Treasurer is a busy man and has got lots of things on his plate—but to take six months to respond to a report about, at that stage, possible financial malpractice? I think the Treasurer needs to get a bit of focus in his office and give greater attention to matters that are referred to him by ministers—in this case, the Western Australian minister. It is interesting: the then parliamentary secretary, Minister Ian Campbell, who is now minister for environment and parrots, wrote back on behalf of the Treasurer and said, ‘If required, the government will consider any recommendations ASIC make to improve consumer protection in this area,’ and:

... the Commonwealth Government will consider legislative change should ASIC identify any regulatory gap.

ASIC had already identified the problem of the $50,000 promissory note exemption—the gap in regulation. I still cannot understand why, to this day—and we posed the question to Senator Coonan yesterday in question time—the government will not act to close this loophole. The ASIC chair, Mr Lucy, has called on the government to close the loophole. He is on the public record—add two zeros; $5 million, not $50,000—and yet the Treasurer has not acted to close this loophole in our financial services system to minimise and prevent the sorts of abuses and losses that have occurred to thousands of Australians, mainly elderly, as exemplified by the horrible Westpoint financial scandal.