Chris Ketter (Queensland, Australian Labor Party) Share this | Hansard source

I rise today to speak on the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. Labor isn't against this bill and won't stand in its way. In fact, the bill is a welcome move, an acknowledgement from the other side that the market can't sort everything out and that there is a proper role for government in making sure that the financial sector serves the interests of everyday Australians. There's a need for our banking executives to take responsibility for the scandals and the rip-offs that have occurred. However, I am concerned that this bill doesn't go far enough; it's light on policy and heavy on politics.

This measure was announced on budget night last year and was used by the likes of the Treasurer and the Minister for Revenue and Financial Services to hold off calls for a banking royal commission—and we know how that worked out. We saw the world's biggest backflip last year. At ten minutes to midnight the Prime Minister and Treasurer were finally brought kicking and screaming to accepting a royal commission. But even then it was only after the big banks twisted their arms. The long-awaited acknowledgement that we need a royal commission is a strong indication that this bill doesn't go nearly far enough to changing the culture in the big banks. In fact, the policy process of this bill and the royal commission seem to show that the government is still running its protection racket for the big banks. More has to be done with changing the culture, and I welcome the royal commission, particularly on behalf of those everyday consumers and small businesses who endured rip-off after rip-off while the banks rode roughshod over all and sundry.

Of course, I note that the royal commission has commenced communications with the banks. I won't pre-empt its next steps, but I must point out that consumers are ready and willing to give evidence, and the sooner the process through which that can happen is made public the better the level of public confidence and the sooner we can begin to put to bed some of the recent banking scandals. In the meantime, I note that the ACTU and Choice are gathering submissions via their websites to submit to the royal commission. Consumers who have a story to tell may like to visit www.actu.org.au or https://campaigns.choice.com.au/royalcommissionbanks.

In terms of the bill itself, the Senate Economics Legislation Committee, of which I'm the deputy chair, conducted the inquiry into this legislation, and you can believe me when I say that this bill is no substitute for a banking royal commission. As Choice said in its submission to the inquiry, what we've got is a bit of a teddy bear, when what Australia really needs, in the way of banking reform, is a grizzly bear. This is what Labor told the government for 601 days, and finally they got the message. But they haven't got the message about the flaws in the BEAR legislation, and I will outline some of the key concerns now.

The first thing to mention about this bill is that it seems that the Treasurer has hand-picked another element of the UK system without the supporting structure. I want to make it known to senators that the UK reviewed their own regulatory arrangements after the global financial crisis, and that resulted in the Senior Manager and Certification Regime, or SMCR. A number of stakeholders to the inquiry praised the UK approach, in which they took a holistic view and took their time to properly consult and develop their accountability regime. In contrast, the BEAR is not holistic; nor was the proper time given to consult—far from it. The UK harmonised their regulatory framework, making sure that the prudential regulator and the conduct authority were able to competently handle both prudential and non-prudential matters. The UK reforms ensured that there were no regulatory gaps and that regulatory responsibility was clear. As Choice succinctly put it:

Our take generally is that the UK system has been really constructive—that it has involved both regulators working together to define the limits of powers for each one and make sure that there aren't gaps. Because this was developed in tandem it just means that you don't end up with those awkward gaps between regimes that can happen when you split regulatory powers between a prudential and a consumer regulator.

Yet here we have a bill that talks only about APRA and says nothing about ASIC's powers. The Treasurer has again botched the policy process. He tried to copy the UK's approach, and he couldn't get it right. He is clearly out of his depth.

There's much more I can say on this matter, but it's clear that Australia should follow the UK's approach and conduct a holistic review of the banking and financial services sector. The government's royal commission could have gone closer to doing this very thing if the opposition had been properly consulted. That way we could have had a bipartisan set of recommendations that complemented and enhanced each other. It's my view that taking that teamwork approach would have given the public the highest level of confidence that the real problems in the industry would be properly dealt with. But of course we know that the Prime Minister is not big on teamwork. The very way in which he was dragged kicking and screaming to the royal commission is evidence of this fact, with the Nationals having to finally break ranks to get him over the line. And we saw a bizarre situation of a divided coalition and a divided government, with the likes of the Treasurer and the Minister for Finance, both Liberals, resisting calls for an inquiry—quite unsuccessfully, as we now know—whilst the Nationals members finally found their voice and a desire to hold the banks to account.

As welcome as it was to see the Nationals coming to their senses, let us not forget that it was very late in the day. I don't think that should be forgotten when we look back on this debate, because the Nationals sat back for almost 600 days and let the very farmers they purport to represent get ripped off by the banks. I've lost count of the number of stories I've heard about farmers losing everything when the banks moved in. And, while the Nationals sat back in Queensland, where was 'Team Queensland'? Labor was leading the charge, standing up for farmers in rural and regional Queensland who had been mistreated by the banks. And while Senator O'Sullivan finally found his voice to stand up for Queenslanders on financial reform—and I commend him for that—where, might I ask, was the federal member for Maranoa?

We've read a lot in the media about Mr Littleproud since he replaced Mr Chester in the ministry. We know that he has a background in banking and that he prides himself on the number of farmers' kitchen tables he has sat around. Surely then, he's heard some stories about banking misconduct and the impact on our farmers. But we weren't reading in the media then about any calls for a royal commission from the member for Maranoa. No, like most of his colleagues he remained silent, not wanting to rock the Prime Minister's boat, no matter how many banking scandals came to light. No, the National Party is no real friend of the bush.

On the issue of scandals, the explanatory memorandum cites six scandals set out in the Coleman report to justify this bill. I quote from the EM:

The Coleman Report referred to a number of instances where participants in the financial sector have been treated inappropriately by banks and other related financial institutions:

• the provision of poor financial advice at NAB;

• the mishandling of life insurance claims at CommInsure;

• NAB’s failure to pay 62,000 wealth management customers the amount that they were owed;

• the poor administration of hardship support at CBA;

• ANZ’s OnePath improperly collecting millions of dollars in fees from hundreds of thousands of customers; and

• ANZ improperly collecting fees from 390,000 accounts that had not been properly disclosed.

Yet with the very simple question of: 'Would this bill have prevented this scandal or would it have triggered the BEAR's penalties?', both APRA and Treasury were unable to give a definitive yes. APRA said, 'In the course of our inquiry we cannot definitely say what the outcome would be.' And Treasury said, 'I don't think Treasury is in a position to do an analysis and to look back as to whether a law would have applied in particular circumstances.'

It seems very strange that the government seeks to use these scandals to justify the passage of this bill when it's far from clear that this bill would have made a meaningful difference. Much of this legislation's reform success also hinges on how APRA will define prudential. This bill limits APRA's remit to prudential standing and prudential reputation, and there are many concerns that the scandals I mentioned previously would not have triggered anything in the BEAR, as the scandals which ripped off ordinary customers were not at a level to threaten the prudential standing of the bank. The Consumer Action Law Centre said:

We've one clear ask of the committee, and that is to give this BEAR real teeth. Treasury has restricted the application of the proposed BEAR so that it will apply to poor conduct or behaviour that is of a systemic and prudential nature. This misses the crucial element of the United Kingdom model that ties accountability measures to poor consumer outcomes, not just prudential matters.

In fairness to the public servants, I understand the difficulty in advising on the impacts of legislation had it been in place during the time that the events occurred. However, when you consider that both Treasury and APRA can give no promises that the BEAR legislation would have made a difference and that the government clearly decided to limit the BEAR's remit to prudential matters, no-one can be blamed for just being a tad cynical about the approach of this government and whether this bill will actually match its tough talk.

I want to talk a little about the fact that the consultation process on this bill was extremely rushed. This is something that stakeholders have picked up on during the course of our inquiry. We did have quite a diverse group of stakeholders. Firstly, you had the Bankers' Association saying:

The seven day consultation period announced by the Federal Government on new banking executive accountability laws is grossly inadequate and playing fast and loose with a critical sector of the economy.

You would expect the ABA to make those comments. You had the Governance Institute of Australia in its Treasury submission putting it in much more polite terms:

Due to the comprehensive nature of the proposed legislative regime and the timeframe given to provide a submission, we have not responded to each of the detailed questions set out in the consultation paper but have confined our comments to the following issues.

The obvious question here is: what did they and others have to leave out? During the inquiry, Dr Wardrop and Dr Wishart said that, in fact, their views about it changed depending on the time they had to look at it. Also, their comments about some words used imply, without stating directly, they might be the result of the swift development process of the bill.

But, if you don't want to take their word for it, just see what the Prime Minister's own department said. The Office of Best Practice Regulation made it quite clear. The OBPR considered that to only provide one week for affected stakeholders to consider and comment on draft legislation was a significant departure from best practice. So we have a Treasurer out of his depth, playing fast and loose with policy development. The Finance Sector Union has also raised concerns about the bill and about the disjoint in the accountability regimes. We now face the situation of having the BEAR in place, a possible ASIC senior managers ban and the Australian Bankers' Association's conduct background check for frontline workers. There are three schemes and there seems to be no acknowledgement from the government that this is an issue and that we need to consider the overlap or gaps that might exist. For example, the FSU made it clear that these arrangements are inequitable, particularly the fact that executives would have an appeals process under the BEAR while frontline workers would have no appeal mechanism under the ABA conduct background check.

As a starting point, the ABA should introduce an appeals mechanism. Further, what really needs to be considered, in my opinion, is an accountability scheme that doesn't create a cultural divide between frontline workers and executives. Again, this is just typical of the piecemeal approach the Prime Minister and the Treasurer have brought to reform in the financial services sector for so long when what we really need is a holistic approach—something that a proper royal commission can bring.

Coming back to consultation, the explanatory memorandum mentions that the major banks met with the government in February last year, before the announcement in May, discussing the accountability gaps. We have media reports that Mr Gonski was instrumental in gaining an appeal mechanism in the BEAR as a concession. However, the small and medium ADIs were not afforded similar early access to policy discussion or concessions. The Customer Owned Banking Association raised concerns about the additional regulatory work that needs to be done alongside other reforms underway, often implemented by the same small teams in the banks. The Treasurer talks big talk about standing up for the smaller banks, but the reality is that he is still standing up for the major banks. The royal commission is the icing on the cake. It says everything about the Prime Minister and his Treasurer that he only agreed to Labor's royal commission when the banks told him they had to.

The government has always been on the side of the banks. I'm still a bit cynical and a bit concerned that the government's protection racket for the banks isn't over yet. But there has been some good news for the small and medium ADIs. Labor has lobbied hard for an amendment to this bill: to delay the start date by 12 months to ease the burden on small and medium ADIs and to give them appropriate time to prepare. I understand that the Treasurer has finally followed Labor's lead on this and Labor's amendment has passed the House of Representatives. I also note the Treasurer chose to support Labor over the chair of the Senate Economics Legislation Committee to make this happen. That was one of the recommendations in the Labor senators' additional comments report. I congratulate Mr Morrison on recognising when Labor has policy right and admitting, through that amendment, that the Liberals got it wrong. I'm proud that Labor is once again supporting small businesses—small banks in this case—and making their lives a little bit easier.

I note from the inquiry that the Customer Owned Banking Association made it very clear to us that the regulatory compliance burden is a critical factor. They made it clear that, in fact, regulatory compliance is a competitive advantage that the major banks have because they have vastly greater resources and capacity than smaller competitors to cope with the new regulatory obligations. So I want to make it very clear that we support that change to help out small businesses.

I will conclude my speech where I started and indicate that Labor will not stand in the way of this bill, but it is, as I said, disappointing to see that, once again, we have a Treasurer releasing substandard legislation. This bill was more of a political fix for the Treasurer, but, day by day, week by week, we saw the fix unravel. This bill couldn't stop the government calling a banking royal commission. Labor knew this bill was a political fix. Government senators in the inquiry saw the problems and shortcomings with the bill, and comments from other government backbenchers made it clear that the bill was no substitute for a royal commission. We've heard this legislation described as a 'teddy bear'—and who doesn't like a teddy bear? So I will support the bill, but, importantly, Labor fully recognises that the consultation process was inadequate and that the transition time will disadvantage smaller operators. So we have sought an amendment to delay the start date to help small and medium ADIs. I hope that the Prime Minister and Treasurer continue to follow Labor's lead in making this improvement. This bill is a baby step and I conclude by reiterating: it is the royal commission that will really deliver the much-needed change in this sector.

Finally, while I have the floor, I hope that the government is taking note of the calls in the media this week that action is urgently needed for improved consumer protection laws around payday lending. These laws, which the government has been dragging its feet on, are needed to prevent another financial crisis affecting Australian families. The Turnbull government has a lot to answer for because it's a government that's, for far too long, stuck its head in the sand on financial reform.