Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I thank Senator Dastyari and Senator Whish-Wilson for their contribution to this debate. Obviously the government does not want to see these regulations disallowed. In giving effect to these regulations from 1 July 2014, the government is giving effect to some very firm commitments we made to the Australian people in the lead up to the last election. Of course, the improvements that we have made and will continue to make to our financial advice laws deliver benefits for consumers as well as, in particular, small business financial advisers. Financial advisers across Australia provide a very important service. They help people with their financial health and wellbeing. They help people manage financial risks. They help people seize financial opportunities. They help Australians saving for their retirement, managing their retirement and managing other financial risks through life. Yes, in doing so, they are dealing with other people's money, so there ought to be appropriately robust regulation in place.

Whenever anything goes wrong, as it did with Storm Financial and other such collapses, policymakers and indeed the financial services industry itself ought to step back and reflect on what happened and make judgements on whether the policy settings, the regulatory settings, can be improved. That is exactly what happened in 2009, 2010 and 2011. We had a bipartisan inquiry chaired by the now shadow minister for financial services, Mr Ripoll. It came up with a set of recommendations on how our regulatory system could be improved which was supported by the coalition. The truth of the matter is that the Labor Party used the cover of events in the wake of the global financial crisis to push changes that went too far, to push agendas on behalf of their friends in union dominated industry funds. We have always supported sensible reforms of our financial services regulations. We have always said that we were supportive of the statutory requirement, introduced as a result of the Ripoll inquiry, for advisers to act in the best interests of their clients. We said we were supportive of the ban on conflicted remuneration and a whole range of other changes. Labor, in their changes to FOFA, went too far.

Senator Dastyari and Senator Whish-Wilson said that we are somehow rushing this. That is not true. Nothing could be further from the truth. I released a statement back on 28 April 2011, more than three years ago—and I know Senator Dastyari and Senator Whish-Wilson were not in the Senate then—making the point that 'investors who receive financial advice will face more red tape, increased costs and reduced choice if Labor's latest version of Future of Financial Advice proposals pass the parliament in full'—which, of course, it did. I said: 'The coalition supports sensible financial advice proposals which increase transparency, consumer choice and competition. However, any reforms in this area need to strike the right balance between appropriate levels of consumer protection and ensuring the availability, accessibility and affordability of high quality financial advice.' That is why we have said for some time that we support in principle the proposed statutory best interest duty for financial advisers, subject to seeing the detail in the legislation.

However, we also said then that Labor's push to force people to keep re-signing contracts with their financial advisers on a regular basis was bad public policy, which did not strike the right balance. The reason we said that was that it pushes up the cost of advice without doing anything to improve consumer protections.

Later, then Minister Shorten actually did a special deal with Industry Super, saying that they should not be subject to the opt-in requirements, unlike small business financial advisers. In March 2012, I put out a release titled: 'The coalition will fix FoFA in government'. I said:

If the Coalition is elected to govern at the next election we will fix Labor's FOFA mess.

I said, 'The FoFA legislation passed by the House of Representatives today never went through a proper regulatory impact assessment.' Indeed, it did not. I further stated:

Labor's FOFA will increase red tape and costs for both business and consumers, while reducing choice, competition and diversity across the financial services industry …

It is unnecessarily complex and, in large parts, unclear. According to then Minister Shorten himself, 'FoFA will cause job losses in the financial services industry.'

And further:

Conservative industry estimates suggest that it will cost around $700m to implement and a further $350m per annum to comply with …

From the beginning of this process—

and I am still quoting from my release of more than two years ago—

the Coalition has supported sensible reforms which increase trust and confidence in Australia’s financial services industry.

However, the legislation passed by the House of Representatives, we said, was 'regulatory overreach'. I said:

… it has failed to strike the right balance between appropriate levels of consumer protection and the need to ensure the ongoing availability, accessibility and affordability of high-quality financial advice.

I said then that it was coalition policy that in government we would fix FoFA by implementing all of the 16 recommendations we made as part of the Parliamentary Joint Committee for Corporations and Financial Services inquiry into this legislation. We stated that these changes would include: the complete removal of opt in; the simplification and streamlining of the additional annual fee disclosure requirements; improving the best-interest duty; providing certainty around the provision and availability of scaled advice; and, refining the ban of commissions on risk insurance inside superannuation et cetera.

Rather than it being rushed, not only did we flag in 2011 and 2012 what we would do in exact detail but we actually released the policy in the lead-up to the 2013 election. It was the coalition's policy to boost productivity and reduce regulation. Of course, in that policy, point 18 relates to the Future of Financial Advice amendments. Of course, my good friend Senator Sinodinos, on coming into government, started an extensive process of consultation. When I became Acting Assistant Treasurer earlier this year I paused the process that was underway and conducted some further consultations. I note that Senator Dastyari and shadow minister Bowen have missed this particular statement, but on Friday, 20 June I actually released a very comprehensive five-page statement with the way forward on financial advice laws, including explanations of why we were doing what we were doing and also of the process that we would use in terms of regulation and legislation.

I am pleased to inform the Senate that, as I said last week when I was questioned in the Senate about this matter, I have been consulting with crossbench senators in relation to these matters. In particular, I have had some very good conversations with Mr Palmer, on behalf of the Palmer United Party, and also with the Australian Motoring Enthusiast Party. I know that Labor wanted me to act contrary to good practice. I know that Labor wanted me to rush the tabling of the regulations in the Senate so that there was even more pressure on new senators to deal with a whole range of issues, on top of having to deal with the carbon tax repeal legislation. But I have very much appreciated, having the events of last week behind us and having ensured that the regulations could only be dealt with this week, the time spent with Mr Palmer as Leader of the Palmer United Party and the opportunity to talk through the issues, explain what we were doing and why. In particular, I explained that what the government was doing was in the public interest and was good for consumers because it would improve access to affordable high-quality financial advice by removing unnecessary and costly red tape, while the government was maintaining all the important consumer protections that matter for consumers.

I am pleased to inform the Senate that the government has reached agreement with the Palmer United Party. I have written to Mr Palmer about a range of additional measures that the government will pursue by way of further regulations in order to take on board the positive suggestions that were made by Mr Palmer on behalf of the Palmer United Party. I have written to Mr Palmer and, at the end of reading this letter into Hansard, I will table this letter, consistent with the discussions that I have had, in order to provide full transparency around how we will even further improve the improvements that we have already made to our financial advice laws.

I am reading from the letter here:

Dear Mr Palmer

Thank you for your time yesterday and today and the very constructive discussions with you on behalf of the Palmer United Party about the Government's improvements to our financial advice laws.

As we discussed, the Government's intention is to improve access to affordable, high quality financial advice by removing unnecessary and costly red tape, while maintaining all the important consumer protections that matter for consumers.

As a result of our discussion this morning, if the FOFA Regulations tabled in the Senate on 10 July 2014 are not disallowed, the Government will make further Regulations within 90 days to ensure the following requirements in the Corporations Act 2001 are explicitly listed in the Statement of Advice provided by financial advisers to their client and signed off by both:

I now list the various provisions:

Corporations Act 2001

Corporations Act 2001

These regulations will also specify that any instructions to alter or review instructions must be in writing, signed by the client, and acknowledged by the adviser. There will also be a requirement in those regulations that in that Statement of Advice the financial adviser provides an explicit statement that he or she genuinely believes that the advice provided to the client is in the client's best interests, given the client's relevant circumstances.

There will be a specific requirement enshrined in those regulations that the Statement of Advice is to be signed by both the adviser and the client.

These additional requirements will require regulatory change. The Government will make the necessary regulatory changes within 90 days.

We also will reflect those changes, as required, in amendments to the actual legislation currently before the Parliament, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014.

Finally, the Government will work in consultation with all relevant stakeholders, to establish an enhanced public register of financial advisers (including employee advisers), which includes a record of each adviser's credentials and status in the industry.

Incidentally, that deals with one of the recommendations out of the Senate Economics Legislation Committee inquiry into ASIC and is also consistent with one of the propositions that has been put forward by the Financial System Inquiry interim report released today. I continue quoting:

On behalf of the Government, I appreciate your advice that on this basis, the Palmer United Party and Senator Muir from the Australian Motoring Enthusiasts Party will be in a position to support our regulations to improve FOFA which came into effect on 1 July 2014, by voting against any disallowance and to support our FOFA legislation as amended to give effect to the additional measures in this letter.

The Government appreciates the very constructive approach taken by the Palmer United Party and by Senator Muir on behalf of the Australian Motoring Enthusiasts Party in helping the Government to improve access to affordable, high quality financial advice for all Australians.

Then it says that I have copied this letter to various people. I now table this letter for the benefit of the Senate. For completeness, I would also like to inform the Senate that I had very good discussions with Senator Leyonhjelm and Senator Day as well.

This is very good news for consumers. This means that consumers will have certainty about the regulatory settings moving forward. It will make sure that consumers across Australia will be able to benefit from proper competition. It means that consumers will have the benefit from being able to access affordable advice, because we are removing all of the unnecessary and costly red tape which Labor imposed on consumers and small business advisers, at the behest of the union movement. So I really thank the Palmer United Party for the very constructive approach that they have taken to this process, unlike the Labor Party. All the Labor Party and the Greens have been doing in this is playing politics. In the meantime, the Palmer United Party engaged with the government. They came to us with some positive suggestions. They came to us with some constructive suggestions on how our improvements could be made even better. That is the way to legislate. That is the way to drive public policy improvements. On behalf of the government, I very much thank the Palmer United Party for their very constructive engagement with the government. Mr Acting Deputy President, he has already spoken.