Christopher Back (WA, Liberal Party) Share this | Hansard source

I open my comments with a reflection to all colleagues, following the statement that was just made by Senator Hinch, that there needs to be mutual respect across this chamber, all for each other. We can come in here with spirited and different views, but the simple fact of the matter is that, when mutual respect for colleagues is lost, this Senate, which is the senior chamber of the Australian parliament and the Australian people, is the poorer for it.

It is my pleasure to speak to the Banking and Financial Services Commission of Inquiry Bill 2017, which has been moved by several in this place. I want to make the point, firstly, about the work the government is doing, has done and will do into the future in relation to regulation and control of the banking sector to the extent that it is the role of the federal parliament to so do. Let me spell out, if I may, just a summary of the key contacts for people who believe they have a case against the banking sector—in other words, misconduct in the banking and financial services sector.

I refer firstly to the Australian Small Business and Family Enterprise Ombudsman. That particular person's role is to assist operators of small businesses, family enterprises, who may be in dispute with parties such as clients, other businesses or Commonwealth government agencies, and this includes banks. That provides tailored facilitating discussions between disputing parties.

The second is the financial ombudsman: a person who provides free, independent dispute resolution for consumers unable to resolve their complaints with a member of the financial services sector. Businesses with an Australian financial services licence must be a member of either the FOS, Financial Ombudsman Service, or the Credit and Investments Ombudsman agency for external dispute resolution purposes—a service which is available to small claimants particularly.

The third area where alleged misconduct by the banks can be brought to the fore is the Credit and Investments Ombudsman, which again provides free, independent dispute resolution for consumers unable to resolve their complaints with a member of the financial services sector. The fourth is the Superannuation Complaints Tribunal. I have certainly had constituents who have availed themselves of this service. Again, it provides free, independent dispute resolution for complainants who believe they have been unfairly dealt with by regulated superannuation funds, annuities, deferred annuities and retirement savings accounts.

Each of these is free and each of these is independent—I keep going. In this country we also have ASIC, the Australian Securities and Investments Commission, which regulates financial markets, including alleged illegal conduct by credit providers, by insolvency practitioners, through share market misconduct and by financial service providers. ASIC also examines and investigates scams involving financial products. It is a very powerful organisation that is well funded and increasingly well funded now by the federal government.

I now come to APRA, the Australian Prudential Regulatory Authority. Regulated institutions under APRA include, firstly, banks and, secondly, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, the private health insurance sector, friendly societies and most if not all within the superannuation industry.

As a result of the allocation of funds in the 2017 budget—and I certainly hope the measures will be passed in this place in the next sitting period before the end of the financial year—a new unit within the ACCC is to be established to undertake regular inquiries into specific financial system competition issues. It is vitally important that we have a strong, robust and reputable banking system filled with integrity. It is equally important that all of Australia's consumers, where they believe they have a complaint as a result of misconduct of a person in the banking sector, have redress available to them without cost, where they can have their complaint heard, have it adjudicated and receive satisfaction.

I, like many others in this place, have received complaints from constituents. Senator Dastyari, who is sitting opposite, and I notice Senator Whish-Wilson is also in the chamber—we have participated in the managed investment scheme inquiries, and we have all heard about the most terrible activities undertaken by some in the banking sector and by those who supported them in what was a very, very poorly designed and implemented scheme, particularly as it related to aspects of agricultural and horticultural production. I, for one, am certainly of the view that we need strong regulation and strong oversight of the banking system. What this government has done and will be able to do in the future with the concurrence of those in this chamber across the divide is to continue to exercise strong control over the banking sector and particularly give complainants—especially those who would otherwise not have the financial wherewithal—the ability to register their complaints and have them heard and adjudicated.

Let me explore further, if I may, some of those measures. First of all there is the concept of a one-stop shop to be established 12 months from now, by 1 July 2018. I say 'by 1 July 2018', but I would hope that it will be legislated and in place before then. The Australian Financial Complaints Authority will be an industry-funded—not funded by the taxpayer—one-stop-shop dispute-resolution body that will provide free, fast and—listen to this—binding determination for consumers. This, of course, is as a result of recent work undertaken to investigate the banking system. It will be able to award fair compensation when it has determined that consumers have wrongfully suffered a loss as a result of the conduct of a financial services provider, and it will provide real and immediate outcomes for consumers. It was part of a recommendation of the recently completed Ramsay review. The Turnbull government, as we know, is focusing on delivering genuine outcomes for Australian consumers, and we want to try and remove the politics from this whole process so that we can get to the stage of doing what we need to do for Australian consumers, and that is to protect them.

The second element I am about to canvass to the chamber is long overdue: a banking executive accountability regime. This is an incredibly powerful tool. The government will introduce a new banking executive accountability regime, with enhanced powers for APRA, the Australian Prudential Regulatory Authority, to remove and to disqualify a banking executive, to direct adjustments to the bank's remunerations policies and to enforce new expectations on bank conducts, with penalties of up to $200 million where they are not met. It will be a requirement that senior bank executives will be registered with APRA, and the banks will be required to advise APRA prior to making a senior appointment.

There will be penalties imposed on banks that do not monitor the suitability of their executives to hold senior positions. Can you imagine what the career prospects would be for a banking executive who was found to be in default under these new guidelines? What chance would they have of a future career in the banking industry or related credit industries? The answer is nil. This is a powerful weapon to be able to ensure that bank executives meet the expectations of the community and, indeed, one would hope, to meet the expectations of their own vision and mission statements in terms of integrity and probity, not only for themselves but for those who are subordinate to them and who report to them. They will have nowhere to hide. They will be registered with APRA and there will be transparency. I go back to that level of penalties on the banks: if their conduct falls short, there is a capacity for penalties of up to $200 million. This new regime will require a proportion of senior executives' variable remuneration—the bonuses—to be deferred for a period of at least four years, to focus any decision-making on what might be long-term outcomes. It will not be possible for somebody who knows the heat is about to be applied to them to grab their bonus and take off, because it will have to be withheld for a period of up to four years.

I turn now to credit card reforms. I think it is fair to say in this community that credit cards, in many ways, are a scourge. I go back, if I may, to the early 1970s. Some of us in this room will remember when Bankcard first came in. It was widely circulated. There were people who had died who got Bankcards; there were children who got Bankcards. My father, not long before he died, was a bank manager. He had come from very humble circumstances—he lived in Fremantle and got a job on the wharf when he could during the Depression, and eventually he got a job in the banking world. He said to me one day: 'Chris, credit cards will be the absolute death of many families in Australia.' I said to him, 'Why?'

He said: 'You have to have been abjectly poor to know how badly you want what someone else has got but you can't have. But what this jolly Bankcard is going to do is that it is going to make people think they can afford what they can't have. They will buy it, and they will be forever in financial stress.' He said, 'It's going to lead to domestic violence.' He said: 'It's going to lead to marital break-up. It's going to lead to all of those arguments within families as the Bankcard bills come in and can't be met, with the levels of interest that are charged.' My father died in 1974, and I often reflect on his words when I see the stress that is on households now as a result of massive credit card debts and when I hear the stories of people in all socioeconomic sectors who max out—I think that is the term used—their credit cards every month. Indeed, they use another form of finance to pay the interest on credit card debt. I often reflect on how true those words that my father said to me in the early 1970s were because his warning has come home to roost.

With regard to credit card reform, the government will crack down on poor practices in the credit card market by putting into place new rules for how credit is provided and credit card interest is calculated and make it easier for consumers to cancel cards or reduce credit limits. Based on the comments I just made, my urge is surely that, before a person is given a credit card with the limits they are allowed to spend up to, there should be greater scrutiny and counselling of that person. I am including young people, but I am also including people who themselves might not have the wherewithal to be able to make those decisions for themselves, because it sounds easy, doesn't it: 'I've got a credit card. I've got $20,000 credit. I want that particular product. I'll put it on the card. I'll put it on the never-never.' And 'the never-never' is right because it never, never gets paid, and in many instances it is the cause of so much stress.

I want to go to the new bank levy. As we know, the government, subject to legislation being passed in this place, will be introducing a major bank levy for the authorised deposit-taking institutions, banks, with liabilities of at least $100 billion, and it will raise $1.5 billion per year. I make these comments, if I may, in relation to the levy. The banks, of course, have been actively lobbying against this. They have been saying, 'Well, either the costs have to be borne by consumers or they have to be borne by shareholders.' Let me remind the banks of a couple of elements going back to the global financial crisis.

Mr Wayne Swan was the Treasurer at the time. Mr Rudd was the Prime Minister. In the face of the global financial crisis, the now Prime Minister, then the Leader of the Opposition, Mr Turnbull, recommended to Mr Swan that there should be put into place a protection of deposits of consumers, customers, up to $100,000, possibly with some financial impost and penalties in place. Regrettably, despite Mr Turnbull's long experience in the banking industry, Mr Swan chose to ignore that advice. He regarded it as being ridiculous. Within days, he not only went that way but extended it beyond $100,000 of protection for depositors through to an unlimited level of protection for depositors. Of course, there was to be a financial impost on the banks in consideration of this. One bank—without using the name, I guess I could ask the question, 'Which bank?'—did not avail itself of that facility, and of course it did not incur the financial burden.

But what happened as a result of that? We had the major banks with the protection of the Australian government, the Australian taxpayer, so we saw a flow of funds, as I understand it, from smaller lenders, from smaller home mortgage operators, into the major banks. An enormous amount of money, an enormous amount of deposits and an enormous number of home mortgages transferred into the big banks, and they enjoyed the benefit of that at the expense of other, smaller lenders in the banking world. Of course we know that, with the global financial crisis then diminishing, those mortgages remained with the big banks. So for the big banks today to be saying they are being unfairly targeted as a result of this levy is a little bit cheeky.

The second point I would like to make in relation to this is to do with the current circumstance with the cash rate. We know it sits at 1.5 per cent and has not moved now for some extended period of time, and yet what have we seen with home mortgage interest rates? They have continued to go up. The cash rate has stayed the same—that cost impost has remained the same—and interest rates have gone up. To whose benefit? Yes, it has had an impact on housing prices in Melbourne and Sydney, but I can tell you that the Australian housing market is not just Melbourne and Sydney; the rest of Australia exists also. But I can also say to you that that surplus profit occasioned by the fact that home mortgage interest rates have gone up but the cash rate has remained the same has gone straight into the pockets of those four major banks. If they now are in a position to be able to make a contribution to assist in reducing the debt and the deficit, which we know are unacceptably high as a result of what we inherited from the last government, then it is up to the banks to be part of that process.

The question has been asked: why should other, international banks not participate in the scheme? The answers, I suspect, are obvious from the comments I have made. First of all, they were not the lucky recipients of the umbrella of protection back in the global financial crisis. Secondly, they are not major participants in the home mortgage interest program. But of course, should any of those banks get to the stage where their authorised deposits have liabilities exceeding $100 billion, then they too would have the opportunity to assist the rest of the Australian community in the budget by raising that $1½ billion a year. The level is very low. It is 0.6 of one per cent. That is the level at which it is being struck. By comparison, debt funding costs for the major banks are estimated to have fallen by 0.35 per cent in recent times. That is six times the figure that is being sought in this sector.

I conclude by saying we have a strongly regulated banking sector. We will improve the regulation; we will improve the strength, and I simply say: those are the levers that are required by this country to ensure consumers are protected and the banks meet their financial obligations.