Stephen Parry (Tasmania, Liberal Party) Share this | Hansard source

I present the report of the Parliamentary Joint Committee on Corporations and Financial Services, Financial products and services in Australia, together with the Hansard record of proceedings.

Ordered that the document be printed.

On behalf of Senator Mason, the deputy chair of that committee of that committee—I move:

That the Senate take note of the report.

I seek leave to have Senator Mason’s tabling speech incorporated into Hansard and leave to continue my remarks.

Leave granted.

The speech read as follows—

As Deputy Chair of the Parliamentary Joint Committee on Corporations and Financial Services, it gives me great pleasure to table this report on financial products and services in Australia.

The committee inquired into financial products and services regulation with a particular focus on the issues raised by recent collapses such as Storm Financial and Opes Prime.

The committee received nearly 400 submissions, more than 200 of which were from people affected by the collapse of Storm Financial. The collapses of Storm, Opes Prime, and others, have certainly had a devastating effect on the people who invested in them. On behalf of the committee, I would like to thank those individual investors who took the time and effort to assist the committee with its deliberations while in the midst of such difficult personal circumstances.

When taking evidence on these collapses - most notably Storm Financial - the committee has taken the approach that we are not a judicial body and are in no position to make judgements about individual claims that have been made to us. Nor has it been possible to resolve the contradictory evidence received from Storm investors, the banks who provided margin loans, and Storm Financial themselves.

The committee can say this: investors were frequently given financial advice from Storm's financial advisers that was clearly inappropriate for them. The committee has been highly critical of the one-size-fits-all investment strategy offered by Storm, especially when that strategy involved borrowing to invest against the value of people's homes. We cannot reconcile the fact of Storm recommending aggressive, leveraged investment strategies to people on low incomes at or near the end of their working lives, with their obligation under the Corporations Act to provide advice appropriate to their clients.

The committee also considers the confusion between Storm and the banks over the provision of margin calls to be unacceptable, and we are concerned that some banks were lax in their lending practices when allowing Storm clients to borrow against their homes. The margin lending and consumer credit protection bills which the parliament has debated this year should rectify gaps in legislation that allowed these circumstances to occur outside the regulatory system.

The committee has taken into account the circumstances of these collapses when making recommendations for regulatory change to guard against similar events in the future. As a committee we recognise that isolated corporate collapses do not necessarily indicate regulatory failure. However, the committee received broad and consistent evidence telling us that improvements are needed to raise the overall quality of financial advice Australians receive. The committee's recommendations are designed to increase professionalism within the financial advice sector and improve consumer confidence and protection.

A better regulatory framework for managing financial advisers' conflicts of interest is needed. The product distribution role of financial advisers - and the remuneration they receive from product providers for recommending certain financial products - too often leaves consumers getting advice that is not in their best interests. The law needs to explicitly state that financial advisers must place their clients' interests ahead of their own. The committee has recommended that the Corporations Act be amended to include a fiduciary duty requiring advisers to put their clients' interests first.

The committee believes that payments from product providers to financial advisers - such as commissions and volume bonuses - create entrenched conflicts that are very difficult to manage. The committee has therefore recommended that the government consult with industry on the most appropriate way to cease payments from product manufacturers to financial advisers. In order to make transparent fee-for-service payments more appealing, the committee has also recommended that the government consider the implications of making the cost of financial advice tax deductible.

Greater professionalism could also be achieved by requiring those wishing to call themselves financial advisers to become members of an independent, industry-based, professional standards board. The committee has recommended that ASIC immediately consult with industry on setting up this body, which would establish, monitor and enforce nomenclature, competency and conduct standards for the industry.

Recent collapses have also shown the need for more effective regulatory enforcement. The committee has recommended that ASIC be appropriately resourced to perform effective risk-based surveillance of advice provided under licence and perform financial advice shadow shopping exercises annually. We recognise that it is often difficult for ASIC to take action when it identifies problems. The committee has therefore made two recommendations designed to lower the threshold for ASIC to remove individuals and licensees from the industry.

To protect investors when collapses do occur, the committee has recommended that the government investigate options for a statutory last resort compensation fund for investors.

I thank the committee secretariat for their assistance with this inquiry. Finally, I would again like to express my sincere thanks to all those that provided submissions to this inquiry and provided evidence at one of our public hearings. We as a committee hope that this report will lead to change to improve the regulation of financial products and services in the years ahead.