Jonathon Duniam (Tasmania, Liberal Party) Share this | Hansard source

I, too, am delighted to be speaking on the Treasury Laws Amendment (Enhancing ASIC's Capabilities) Bill 2018. I was very pleased to hear a couple of the points made there by Senator Williams with regard to educating younger Australians about financial literacy and personal responsibility, but I'll come to those a little later on.

I think everyone in this place would agree that having confidence in the integrity of our financial services sector and having faith in the capacity of our financial service regulators, like ASIC, as we're discussing in this bill, is of utmost importance for Australians. I think having faith that things are being done in accordance with the law—that people aren't being ripped off and that their best interests are being looked after—is something that Australians want us to focus on.

Competition, which is something Senator Williams and I'm sure other contributories to this debate have spoken about, is an incredibly important part of this, and enabling entities like ASIC to not only do the work that they need to do but also have further functions, as outlined in this legislation, is important when it comes to ensuring, as I say, we have that integrity, that Australians have that faith in the financial services industry—all the major players and all the smaller entities—and that we do have that competition being promoted within the sector as well.

Obviously, when confidence is undermined, and when people lose faith in the financial services sector and those who regulate it—the government entities that are designed, geared up and resourced to regulate this industry—it has far-reaching consequences. We only have to turn our mind back a very short 10 years to recall what happened in the US and then the flow-on ramifications through the global financial crisis felt here in Australia. As a consumer of financial products—I expect like nearly everyone in this place, be it a credit card, a home loan or personal loan or as someone who makes contributions to superannuation or who has life insurance—it is important that we have faith in those who are tasked with making sure that government institutions have the appropriate powers and resources in order to give effect to the laws they uphold.

As I'm sure others have noted in this legislation, the bill puts in place and sets up key recommendations from the Financial System Inquiry and the ASIC capability review. I'll have a quick look at both of these documents shortly, but it is very much about ensuring that ASIC has the capacity to do its job properly and that we deliver fair outcomes for all Australians, including young Australians, who perhaps are the least financially literate in this day and age.

It is important to note that there has been a fair degree of work that has been gone through in order to get to this point. It wasn't just a case of the government randomly coming up with a few key areas to look at with regard to ASIC's functions and roles. Indeed, it has been a lot of work. I've already mentioned the Financial System Inquiry that was undertaken, with the final report being released at the end of 2014. There was the ASIC capability review, which was done in 2015. Complementing all of that, we have the Productivity Commission's Competition in the Australian financial system report—with some interesting recommendations that we'll have a look at—which was released just a couple months ago. We could go to all of these areas of competition and how we can best set up things so that people do well out of them.

Looking firstly at the Financial System Inquiry, for which I was able to locate some of the documents online, the inquiry made 44 recommendations relating to Australia's financial system. The recommendations reflect the inquiry's judgement based on evidence received by the inquiry. The inquiries test has been of public interest—the interests of individuals, business, the economy, taxpayers and governments. It was a broad-ranging inquiry looking at a whole host of areas. It points to a number of themes within the financial services sector. They look at things like the resilience of the sector, superannuation, retirement incomes, innovation—which, of course, this bill does touch on—consumer outcomes and the regulatory system. Those last two are very important areas. In consumer outcomes, the most important part, as it states at the head of the overview to the Financial System Inquiry report, is to 'enhance confidence and trust by creating an environment in which financial firms treat customers fairly'.

As Senator Williams touched on just a little while ago, there has been a great degree of reporting around negative experiences consumers have when it comes to financial institutions, particularly with big banks. We're hearing a bit more about insurers. I echo the comments of Senator Williams that it would be great to see the royal commission extended to insolvency practitioners, administrators, liquidators and receivers. I'm sure anyone who runs an open-door electorate office gets people coming in to make complaints about people in that sector who haven't been aboveboard or fair with their consumers. That's not to say all practitioners in the field are not obeying the law, but there are certainly some, and it would be remiss of us not to ensure the royal commission included that part of the industry.

Turning to the issue of competition whilst still looking at the Financial System Inquiry final report, it said on page 5:

Although the Inquiry considers competition is generally adequate, the high concentration and increasing vertical integration in some parts of the Australian financial system has the potential to limit the benefits of competition in the future and should be proactively monitored over time.

That points to the need to be future looking, to be proactive, to ensure that the regulatory entities—in this case, ASIC—are set up and geared towards the future so that they can be dynamic and can respond to what is a fast-changing environment. There's been a lot of commentary around the way in which products are sold to consumers and the way products are set up.

The financial system inquiry's approach to encouraging competition is to seek to remove impediments to its development, the report says. It further says the inquiry has made recommendations to amend the regulatory system, including narrowing the differences in risk rates in mortgage lending, considering a competitive mechanism to allocate members to more efficient superannuation funds and ensuring regulators are more sensitive to the effects of their decisions on competition, which of course is what this bill is largely about. International competitiveness and the free flow of capital, and in particular the state of competition in the financial system, should be reviewed every three years, including assessing changes in barriers to international competition. And of course it would be silly for us to think that we are isolated here in Australia and that our economy, and indeed the sector we are talking about, is completely independent of impacts flowing from overseas.

In the area of innovation, with the emergence of new business models and products and substantial investment in areas such as mobile banking and cloud computing and payment services, there's a need to make sure that regulation and regulatory authorities are keeping up with that. In particular, the financial system inquiry recommended to facilitate innovation aiming to encourage industry and government to work together to identify innovation opportunities and emerging network benefits where governments may need to facilitate industry coordination and action. I think it's important to note that it is about industry coordination and action, because they're the ones that are in the field. They're the experts; they know what they're doing; they know what works and what doesn't. Of course government oversight is important so as to prevent bad things from happening, and we've seen outlined in the royal commission what happens when oversight isn't properly there.

The financial system inquiry also recommended to strengthen Australia's digital identity framework through the development of a national strategy for a federated style model of trusted digital identities, remove unnecessary regulatory impediments to innovation—I think that is an excellent recommendation—particularly in the payment system and in fundraising for small businesses. And in the area of innovation, it recommended to enable the development of data-driven business models through holding a Productivity Commission inquiry into the costs and benefits of increasing access and improving the use of private and public sector data.

It then goes on to look at consumer outcomes, which is all about the fair treatment of consumers. This is to make sure their rights are protected, the outcomes they receive are ones that are in their interests, and the concept that financial products and services should perform in the way that consumers expect, or at least are led to believe when they are purchasing a product, when they are signing up for something. They want to make sure they get the outcome they were told they would.

The biggest problem identified in this report related to the shortcomings in disclosure and financial advice, which meant some consumers are sold financial products that are not suited to their needs and circumstances. I think Senator Williams touched on a few of those things, and it comes down to financial literacy—people being able to understand exactly what they're signing up for. How many people know that their superannuation policy has life insurance in it, that they don't need to go and purchase another one at extreme expense? How many people know that they need to roll their super over into a new fund when they commence employment? Any regime shouldn't be expected to prevent all consumer losses. Sadly, no regime will ever be able to do that, but self-regulatory and regulatory changes are needed to strengthen financial firms' accountability, which is something we can't echo strongly enough.

Turning to the regulatory system, obviously we need to make sure that our regulatory entities are strong, are independent and are well-resourced, which is what this bill does actually go to. On that, moving to the ASIC capability review that commenced in July 2015, when the government established an expert panel to review the capabilities of ASIC, interestingly it did say in the capability review that ASIC's regulatory capabilities are 'in line with' global best practice. But it was acknowledged that additional measures were required to support ASIC in delivering on its mandate of ensuring it is fit for the future. Again, it's that point about being geared up, ready for a dynamic and changing financial environment with new entities, new ways of doing business and making sure that, most importantly, consumers are protected from any harm that may otherwise be done to them.

There were a number of recommendations made through this particular review, the capability review undertaken by the expert panel, that are being acted on today. The review went to areas like issues of ensuring we have enhanced data analysis. It highlighted the critical role that sophisticated analytics and risk assessment processes can play in identifying and mitigating conduct risk. In response, the government has already committed over $61 million to enhance ASIC's data analytics and surveillance capabilities, as well as to modernise ASIC's data management systems, which ensures ASIC will be able to take advantage of emerging analytical technologies, and, most importantly, better detect emerging financial sector misconduct.

There was also a boost to surveillance funding, with the government providing ASIC with an additional $57 million for surveillance and enforcement on an ongoing basis. That's a great piece of news with regard to what, again, we've heard coming out of the royal commission. To have extra resources available for ASIC to undertake its job is something consumers and business should have great confidence in.

There are new powers that ASIC will have and there is a commitment of an extra $9.2 million in funding for ASIC and the Treasury to consider a whole range of issues. Most importantly, though—as we've heard other say in this bill—we're turning this into a user-pays model. I think that's important, because, really, the reason ASIC and entities like it are in place is to regulate an industry that needs regulating. It's not the consumer's fault that banks or insurance providers or any other entity, for that matter, need regulating. Therefore, it's not too much to ask for these businesses, these entities and these sectors to pay for a service that regulates them. It's not the consumers' role to do so, so I'm pleased to see that we are putting the onus on industry in that respect.

Finally, I'll turn to the Productivity Commission report, Competition in the Australian financial system, which was released at the end of June this year. The report examines the market and looks specifically at the power, the market share, of the big four banks as a starting point. It also examines the role of regulators and then, importantly, how consumers can be better served and how to get there, and it makes a whole host of recommendations around that. In talking about the big four banks, interestingly—and I think it's important to put some of these things in context when we start pointing the finger at where problems are—the Productivity Commission report said:

High market concentration does not necessarily indicate that competition is weak, that community outcomes will be poor or that structural change is required. Rather, it is the way market participants gain, maintain and use their market power that may lead to poor consumer outcomes.

So, rather than it being a circumstantial thing, that we have four major banks with a whole heap of entities trading in areas like institutional banking, retail banking, insurance and wealth management et cetera, it's more a case of making sure, through our regulatory bodies, that these large entities are operating in the best interests of consumers and, of course, in accordance with the law. The report went on to say:

… reforms that alter incentives of Australia's banks, brokers, insurers, and advisers, aimed directly at bolstering consumer power in markets, and reforms to the governance of the financial system, should be the prime focus of policy action.

I'm pleased to say that what we are debating here today is exactly that.

It was interesting to note the exact breakdown of the four major banks that, of course, are looked after and regulated by ASIC. The Commonwealth Bank controls 23 per cent of the market while Westpac controls 20 per cent, ANZ controls 21 per cent and NAB controls 18 per cent. On page 7 of the report is a very interesting diagram which shows how many of these large banks are structured, which gives us a good insight into exactly how the financial services industry in Australia is working between these four major providers.

At the end of the Productivity Commission report, there are a great many recommendations—quite a few going across a whole range of areas which I think are very important. As I say, I'm pleased to see that the government has taken a lot of these things very seriously—things like data access to enable consumer choice, which is common sense; making sure that broker reporting accords with consumer choice as well; more transparency around broker commission structures; the idea of a principal integrity officer at Australian credit licensee and financial service licensee entities; and the list goes on. So, as I said, a huge amount of work has gone into the preparation of this bill and the integrity of the financial services sector. Consumers' faith in this area is incredibly important, but I think, as Senator Williams said as he finished his contribution, there is a need in this community, in this country, to ensure that young Australians in particular are educated with regard to financial literacy.

In the Productivity Commission report, it talks about a blizzard of like products and people not being able to differentiate between this product or that product. I'm not an economist—I don't have a commerce degree and I've never worked in a bank—so, when I look at a lot of these things, I can read and discern what's good and what's bad, but I think it would be helpful for our education system to help gear up people for the future. Indeed, families should take some responsibility as well, if they have the capacity to do so, to educate their children about how to save, how to manage their money and the pitfalls of taking out a credit card. There's the scary prospect of people being able to get a personal loan through their iPhone—for instance, through their CommBank app. Within a matter of 24 hours, through whatever they've done on their iPhone, they might be $50,000 richer. It's very easy to gain access to credit, and we need to make sure that if people need to do that they can, but the appropriate safeguards need to be in place that our financial institutions are doing the right thing by consumers. Education is a key part of that.

It was an absolute delight to speak on this piece of legislation this evening. I think it is a sign of the commitment by the Morrison government to ensure that the future is bright in the financial services sector. I commend the bill to the Senate.