Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 contains amendments that simplify and streamline Australia’s corporate and financial services regulation, company reporting obligations, auditor independence, corporate governance, fundraising, takeovers and compliance. The bill implements the government’s response to several recommendations made in the Re-thinking regulation report of the task force on reducing the regulatory burden on business relevant to corporate and financial services regulation. It also amends various provisions of the Corporations Act and related acts to improve the efficiency of corporate and financial services regulation, based on the proposals outlined in the Corporate and Financial Services Regulation Review proposals paper of November 2006. It also makes various minor and technical amendments to the Corporations Act and related acts. The Corporations (Fees) Amendment Bill 2007 and the Corporations (Review Fees) Amendment Bill 2007 are supporting bills that make amendments about chargeable matters in support of some measures in the main bill. They also contain a measure to introduce a facility for up-front payment of annual review fees, which is a good initiative. The main Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 contains several schedules that make significant amendments to the Corporations Law. These amendments have by and large been the subject of extensive consultation procedures.

Tonight, I will only be dealing with the schedules which have been the subject of submissions and evidence to the statutory Joint Committee on Corporations and Financial Services, on which both the shadow minister who just spoke, Senator Sherry, and I sit. These changes to financial services regulations were originally flagged in the Corporate and Financial Services Regulation Review consultation paper and in further consultation in the Corporate and Financial Services Regulation Review proposals paper.

The amendments contained in this bill exempt a financial adviser from giving a statement of advice for investments of less than $15,000. However, advisers would still be required to provide a record of advice which sets out key information about conflicts of interest and whether they receive remuneration for the advice given. This proposal is seen as necessary because financial advisers were avoiding giving advice to smaller investors because of the expense of providing a statement of advice. On initial perusal the relevant amendment appears to be benign, and it certainly appears from the majority of the submissions to the committee that it is more than acceptable to the financial services industry that there be a threshold of $15,000, although the Australian Bankers Association and the Financial Planning Association want that threshold increased to $25,000.

There were submissions, especially from those involved in the superannuation industry, which piqued my interest. These submissions looked in detail at the implications of the amendments, especially for small, unsophisticated investors with superannuation funds to invest. The Australian Institute of Superannuation Trustees made a significant submission to the committee and, as they point out, regulation of the financial services sector has two aspects: consumer protection and market integrity. It seems to me that in the wake of the Westpoint, Fincorp and ACR collapses we need to be very careful in introducing measures that might have the unintended consequence of lessening protection for mum and dad investors, particularly where they are unsophisticated investors. Although $15,000 may seem like a relatively small amount of money, if someone seeks advice on how to invest $10,000 on several different occasions and they are advised always to invest in, say, ACR, that could add up to a substantial amount in the end.

I do note that the report of the Joint Committee on Corporations and Financial Services states at paragraph 3.17:

While a number of submitters considered the possible utility of anti-avoidance provisions in relation to the threshold, Treasury officials submitted that they could see no clear way for the threshold to be abused without the knowledge and consent of the client.

And there’s the rub. Unsophisticated investors may be complicit in this situation, foolishly waiving their rights. In those circumstances, with the passage of this legislation, the adviser is not required to provide a statement of advice as to why they keep recommending that particular financial product to that particular customer. I concede that in those circumstances a record of advice must be given. However, it is my understanding from the committee hearing that these are less substantial documents and exactly what is required to be contained in them has not been finalised in the regulations. I would have preferred an outright prohibition of aggregating advice occasions below the threshold.

Several of those giving evidence to the committee wanted the definition of the proposed threshold clarified, in particular in relation to superannuation advice, which has the possibility of exceeding the threshold over time. The Association of Superannuation Funds of Australia was not alone in expressing confusion about the definition. As pointed out in the committee’s report, the Australian Bankers Association stated:

It is unclear how future investments will be treated. The Explanatory Memorandum suggests that the threshold will relate to the value that the initial investment and the future amounts anticipated to be reached in the next 12 months.

…         …         …

We suggest that the amendment be clarified so that the threshold relates to an acquisition or disposal in a 12 month period.

The grammar used there is not very good, so I stress that that was a quote.

Others giving evidence to the committee were of the opinion that a clarity of definition, as much as the actual numerical figure, was important. The Industry Super Network said that they agreed with the objective of increasing access to advice for small-scale investors, but, as noted in the report, they stated:

... in order to ensure that the reforms achieve this end without unintended side effects we would urge the Committee to ensure that the $15, 000 threshold is well defined so that the total amount under advice does not exceed this threshold.

The Industry Super Network also advocated a reduction of the proposed threshold because the increased limit had been arrived at without sufficient consultation. It did appear to a number of witnesses that the amount of the threshold was based more on what the financial break-even point for financial advisers was in giving advice rather than the amount relevant to consumers. As pointed out in the committee report:

The Financial Planning Association supported the move to grant relief from the need to provide extensive disclosure, and like the ABA, called for the proposed threshold to be raised to $25,000, and for advisers to be able to access the exemption even when being remunerated. IFSA took a similar view, arguing that the calculations undertaken by Treasury as to the ‘break even’ point for advisers were inaccurate.

According to the FPA, there is only a minority of unscrupulous financial advisers in the industry, and I do know that the FPA is working hard to ensure that the number is reduced further. The anecdotal evidence is that, although they might be a minority, there are an awful lot of them. However, as the Australian Institute of Superannuation Trustees pointed out in its submission:

The industry keeps seeing mis-selling of products, resulting in tens of thousands of Australians losing millions of dollars in the process, due to these unconscionable and unscrupulous advisers, even if they are in the minority.

The statement of advice is a powerful tool both for ongoing use by the investor and as a way in which good quality advisers can set out the reasons for their advice. This can act as a protection for them and as a tool for ASIC when they are pursuing financial advisers over poor or conflicted advice.

From the evidence provided to the committee, the late inclusion of superannuation came as a surprise to several of the witnesses. According to the committee report, the organisation Choice opposed the late inclusion of superannuation:

Compulsory superannuation is deferred earnings designed to fund future retirement. It is a long-term public policy measure and the potential for inappropriate advice or mis-selling is obvious.

According to the Australian Institute of Superannuation Trustees, it is not necessarily simple to identify which fund is the best for the client:

Matters like the existence of severe penalties to withdraw from many of the funds provided by financial institutions, the availability and value of life/total and permanent disablement/income continuance insurance arrangements, and the willingness of a current employer to contribute to the selected fund, can all influence a decision that would otherwise be made on the basis of fees or investment returns alone.

The AIST referred to the fact superannuation is compulsory and because of that there should be effective safeguards against uninformed decision making, submitting:

Diminishing disclosure requirements and creating loopholes for the minority of financial advisers who are acting unscrupulously, or in bad faith, does not provide a confident investment environment for consumers to feel that their retirement savings are safe and secure.

AIST indicated that considerable consternation arose as a result of the late inclusion of superannuation in the bill. Several witnesses testified that they were led to believe that it would not appear and that they were surprised when the bill was made public. A lack of consultation was confirmed by Treasury officials when they appeared before the committee. It seems surprising, given that there was good consultation on so many other aspects of the bill, that this important area was overlooked. I agree with the statement from AIST that the purpose of the Corporations Act is not to make business easier for financial advisers, nor to assist them to be commercially viable. The objectives of the financial services act are to maintain market integrity and provide consumer protection. There are dangers that this amendment does not satisfy these criteria.

The AIST also refer to ASIC’s shadow shopping survey on superannuation advice, which found that 16 per cent of advice given by financial advisers was clearly not reasonable and a further three per cent was probably not reasonable. That adds up to one in five. Furthermore, one-third of the advice given to consumers to switch superannuation funds lacked a credible reason and risked leaving the consumer worse off. It was also three to six times more common for unreasonable advice to be given where the adviser had an actual conflict of interest because they were receiving a commission for product recommendations. In 46 per cent of cases, advisers failed to give a written statement of advice where one was required. I know that the government is sensitive to that and I know that ASIC is sensitive to that. I know that the financial world is trying to address those things, but it actually reinforces the point made by the shadow minister that there are still fundamental problems in getting this area right. ASIC obviously has problems with the financial sector and is constantly watchful of it. As AIST say in their submission, recent financial collapses further bolster their point that disclosure requirements should not be diminished, particularly in an environment which, even now, does not protect ordinary Australians and their retirement savings.

I would like to make a remark with respect to the committee’s report. I draw the government’s attention to recommendation 1. It reinforces the strong and accurate remarks made by the shadow minister and a view widely held by members of the coalition and in my own circumstance. The committee has recommended that the government and industry stakeholders consult further and devise ways to reduce the length and complexity of statements of advice and product disclosure statements and make them more readable. We do have a problem that consumers just are not paying any attention to them, and therefore they are ineffective.

With respect to auditor independence, on this particular amendment I would like to thank the government for finally taking up one of my suggestions. The wording is slightly different but the intent is the same. I refer the coalition to the Senate Hansard of 21 June 2004, page 24,316, where I proposed an amendment to the CLERP (Audit Reform of Corporate Disclosure) Bill 2003 which has similar effect to those proposed in your bill. It shows that if you keep putting forward good ideas, perhaps someone in the government will see the sense of it and implement them, so I am grateful to record a small win. I do not have many of those anymore, as you know, so I am glad to have got one.

As we are dealing with amendments to the Corporations Act, I will again move my amendments requiring shareholder approval for companies making political donations. Since I last spoke on this matter on 29 March 2007, I notice that the coalition at large have been attacking the Labor Party and the way it is financed by the union movement. The Minister for Employment and Workplace Relations has been reported as saying that unions do not have the same accountability as corporates. I am not sure that it is true in any respects, but it is certainly not true with respect to political donations. Corporations are not required to obtain shareholder approval before they make donations to a political party in just the same way as unions are not required to get the say-so of their members to use their funds to donate to the Labor Party.

I was interested to read in the Age and the Adelaide Advertiser of 2 June this year that the Liberal Party’s federal treasurer, Mark Bethwaite, was berating companies for making political donations to both the Liberal and the Labor parties. He described this ‘even-handedness’ as something he could not applaud, especially in light of what he said was the ACTU’s practice of ‘gouging’ funds from union members. I disagree with that. Provided companies and unions have their political donations policies approved by shareholders and members respectively, they are entitled to donate to whomever they want. But there again is the rub. They do not have the approval of shareholders and members. It is immoral and improper for companies and unions to donate money to candidates or political parties without their donations policies being approved by shareholders and members respectively.

In that Age report of 2 June, Michelle Grattan wrote of a resolution passed by the Liberal Party Federal Council. It said:

In a resolution passed with the Prime Minister’s support, the council called on the Federal Government to immediately pass legislation requiring unions and employer organisations to obtain the consent of the majority of their members before distributing funds for political purposes.

Note that it has the Prime Minister’s support and, on that basis, I expect us to see legislation. I suppose such legislation will only be introduced after the employer organisations have spent their advertising money on supporting Work Choices. I am pleased to see that the National Farmers Federation have made it clear that that is not going to be their role, and I think they are perfectly entitled either to advertise or not to advertise, and that is their right.

But I am not going to stand by and watch a one-eyed distortion of a fundamental principle that I and the Democrats have been advocating for a decade. Again and again I personally have moved amendments that require companies and unions that donate money to candidates or political parties to have their donations policies approved by shareholders and members respectively. Every single time I have moved those amendments, Labor, the Liberals and The Nationals have voted them down. Here is your chance again. Now that the Liberal federal council has voted for unions and employer organisations to observe the principle that their political donations policies must be approved by members, let us start the ball rolling by insisting that companies that donate money to candidates or political parties must have their donations policies approved by shareholders. The coalition should be willing to lead the way for shareholder approval of political donations since it says it feels so strongly about union members not having their say with respect to political donations.

I have raised this issue many times since 1996. I have moved amendments several times. I drew attention to this matter in my minority report to the Joint Standing Committee on Corporations and Financial Services May 2004 report into CLERP 9. Again, in my supplementary remarks of the September 2005 report of the inquiry by the Joint Standing Committee on Electoral Matters into the conduct of the 2004 federal election and matters relating thereto I set out the Democrats approach. I said:

The practice of companies making political donations without shareholder approval and without disclosing donations in annual reports must end. So must the practice of unions making political donations without member approval. It is neither democratic nor is it ethical. Shareholders of companies and members of registered organisations (or any other organisational body such as mutuals) should be given the right either to approve a political donations policy, to be carried out by the board or management body, or the right to approve political donations proposals at the annual general meeting. This will require amendments to the relevant acts ...

I also drew attention to the need for disclosure by companies making political donations without shareholder approval and unions making political donations without member approval, and suggested remedies for this, and I refer you to my minority report. The amendments provide for the prohibition of gifts and political donations—and the amendment I refer to is the one to be dealt with in the committee stage—by companies unless the political donation is authorised by a resolution passed at a general meeting by a majority of shareholders of the company or unless the political donation is made in accordance with a shareholder-approved donation policy. It does not seek to prohibit donations; it seeks to require that the shareholders approve the policy under which donations are made. It is their money.

I would like to remind the Senate that in the report of the Joint Standing Committee on Corporations and Financial Services which assessed that original CLERP 9 legislation, recommendation 26—which was unanimous—said the following:

The Committee recommends that provisions be inserted in the Corporations Act that would require the annual report of listed companies to include a discussion of the board’s policy on making political donations.

So the relevant committee has taken a stand. To date the government has not taken up that committee recommendation. And like so many other good committee recommendations—many of them unanimous and which I have identified in other speeches previously—too often the coalition chooses to ignore them. It should not. Thank you.