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

I will make a brief contribution on some aspects of this report. Senator Chapman has pointed out that the Parliamentary Joint Committee on Corporations and Financial Services, of which he is chair and I am a member, has the role of statutory oversight of ASIC, one of our main regulators of the financial services sector. Generally, I have noted an improvement in the level of information and detailed material received from ASIC, and generally they have been responsive to issues raised via the oversight process.

In my contribution, I want to refer to a couple of specific issues. The ongoing monitoring of superannuation fees and costs is critical in the context of superannuation. Superannuation is compulsory in this country to overcome what is known as inertia—in many circumstances people fail to put aside moneys for retirement, and therefore we have compulsion. But this begs a series of questions about just how competitive superannuation funds can be and about the rational decisions that individuals make about highly complex financial products, particularly superannuation. There is an international critique that fees and charges in a competitive environment are often not rational or responsive to competitive pressures, and therefore it is necessary for regulators to provide oversight and some degree of regulation in this particular area.

I believe ASIC has generally pursued a rigorous oversight of fees and there has been some action taken as a result of what is known as ‘mis-selling’, where some planners make recommendations that are not in the best interests of the individual but in the best interests of the planners themselves because of what is known as commission based selling. This is not just a problem in Australia; it is a problem worldwide. I think there are four companies still under surveillance by ASIC. We know that AMP has given an enforceable undertaking, but there remain a further four major financial superannuation operators in this country—we do not know their names yet—against whom action may occur for mis-selling.

The other issue that I want to touch on is Westpoint. I think most people would be familiar generally with the media coverage in respect of Westpoint. Westpoint is one of the most serious failures in our financial services sector in the last decade. Some 3,000 investors have probably lost up to $400 million through Westpoint related entities and a series of court cases are underway in this regard. There has been some reasonably spectacular and, at times, bizarre media coverage of some of the activities of the individuals involved in the Westpoint financial collapse—frankly, I would use the word ‘scam’ because that is what I think it was.

The Westpoint collapse highlights a number of difficult issues and failures in the regulation, oversight and compensation within our financial services sector. One issue relates to what is known as an exemption for promissory notes and a $50,000 threshold. Importantly, the committee unanimously recommended—there was no dissent, and the chair referred to this in his remarks—the removal of this $50,000 threshold applying to promissory notes. The difficulty with this loophole is that ASIC claimed, with some substance, that it was difficult for them to act in respect of Westpoint because of the loophole; they did not have jurisdiction. I accept that there was a legitimate question mark over that, but I still believe ASIC could have taken other actions earlier to limit the damage from Westpoint’s collapse, and there is certainly a question mark around this $50,000 threshold. The committee unanimously recommended it should be removed to remove any doubt.

I contrast the chair’s remarks and that unanimous recommendation with the comments of Senator Coonan, who is actually in the chamber today. In response to a number of questions Labor had been raising about Westpoint, she said in respect of the $50,000 loophole—and I quote the Hansard of 22 June last year:

But it is wrong—

that is a reference to Labor—

there is no legal loophole.

In her response to this Westpoint issue, the minister believes, on behalf of the government, there is no legal loophole. But the chair and the committee, and indeed the chair of the regulator—in this case, Mr Lucy—argue there is a loophole. Yet the government has failed to close this loophole, which goes to the heart of the regulatory action that ASIC can take in respect of promissory notes, and which was the major reason for the Westpoint collapse. We have a real problem when the government of the day does not believe there is a loophole but everyone else believes there is a loophole that requires closing.

But there are a number of other reasons for the collapse of Westpoint. One-third of the moneys were invested through self-funded superannuation funds rather than directly into the Westpoint entities. This begs the question: what has the Australian Taxation Office, which regulates self-managed superannuation funds—and this is not a new criticism of mine—been doing to ensure effective regulatory oversight of the self-managed superannuation fund sector? There are at least $230 billion of investments in self-managed superannuation funds, and there are over 300,000 funds. The Westpoint financial scandal again highlights—and I think the attitude of the ATO is starting to change—that this area needs improved regulatory oversight.

I met a group of a couple of hundred Westpoint victims last Sunday afternoon in Sydney, and I have met others on previous occasions and corresponded with them. It is pretty distressing to meet a group of, overwhelmingly, senior Australians who in many cases invested their entire life savings and have probably lost the lot. And these people were not looking for a high-risk investment with a super high return; they were looking for a reasonable, safe investment largely to set themselves up for retirement. That brings me to my next set of criticisms of this government. Why have those people lost the lot? There are a number of remedies for these investors. The regulatory system has failed them. What is the remedy? We have the Financial Industry Complaints Service—an independent, industry operated body. The problem with FICS is that there is a $100,000 cap on compensation and many of the victims had in excess of $100,000 invested in Westpoint. Therefore, those victims cannot even get to first base. They cannot claim any compensation because the level of their investment exceeded $100,000. That is one problem.

The second problem is PI insurance, which is referred to separately in this report. The government made a promise five years ago to introduce compulsory PI insurance for financial planners. We may see compulsory PI insurance sometime next year—six years after the government promised to introduce it. That again is a major problem for many of the victims of Westpoint because many of the planners who recommended Westpoint products either had no PI insurance or had insufficient PI insurance. Frankly, this is an unholy mess because of a lack of proper regulation and a lack of proper compensation for which the government is partly responsible through its own inaction in a number of key areas of the regulation and compensation of our financial sector and, more worryingly, our superannuation sector, where we are being urged to invest billions of dollars. (Time expired)