Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

This chamber has seen some fireworks on this bill over the last seven years since I've been here. It's a bit sad to see this go through with such a fizzer tonight, with hardly anyone on the speaking list and with not even a full time allotment taken up by the Australian Labor Party, considering the pedigree of the legislation we're dealing with and all the debate that we've seen over the years, both in the House and here, culminating in a royal commission, with $77 million of taxpayers' money going into looking at the financial services sector and what many of the senators had known for years needed to be thoroughly reformed.

Let me say, tonight, I welcome the first piece of legislation from this government following the Hayne royal commission. I look forward to, as I understand it, over 20 pieces of legislation that are likely to come before the 46th Parliament.

This issue we're dealing with tonight, conflicted remuneration, has been at the heart of the problems that we've seen in the financial services sector in Australia. I've openly admitted in Senate inquiries going back to 2012 through to the debates we had in 2016-17, that I was part of that culture. I worked in a financial services company for many years. I understood that sales based culture within newly vertically integrated companies—that is, banks, like the Commonwealth Bank and the National Australia Bank, and a whole range of other financial services companies. They had seen the chance to grow their earnings and grow their profits by bolting on new businesses, new platforms, allowing their customer bases to be their main asset and being able to cross-sell a whole range of different products to their customers and of course reap the profits from doing that.

But of course that raised the fundamental issue about what happens if you have a sales based culture in your organisation—that, by the way starts at the top; it starts with the CEO. The Greens have put forward a private senator's bill in this place, incidentally, to cap CEO pay. And Senator Bragg: I may bring forward the legislation again in a slightly changed form so we can have that debate again. The sales culture starts with CEOs, and—pardon the use of this term—it trickles down to the staff and the salespeople on the booths, all the way down the banks. It's about driving revenue. It's about meeting targets. The problem with that, while it might be good for the banks, is that it hasn't always been in the customer's interests. I can say from my experience working in financial services and having seen what I've seen over dozens of Senate inquiries that it often isn't necessarily in the customer's interests.

So what exactly is conflicted remuneration? It's 2019, and this issue was raised squarely and firmly in the Ripoll report in 2009—nearly 10 years ago. The Ripoll report identified significant structural tensions in the finance industry that give rise to conflicts of interest and affect the advice consumers receive. The report says:

On one hand, clients seek out financial advisers to obtain professional guidance on the investment decisions that will serve their interests, particularly with a view to maximising retirement income. On the other hand, financial advisers act as a critical distribution channel for financial product manufacturers, often through vertically integrated business models or the payment of commissions and other remuneration-based incentives.

The Ripoll report then noted different ways in which advisers can be paid or remunerated directly or indirectly by product manufacturers for their clients' financial decisions, concluding:

These payments place financial advisers in the role of both broker and expert adviser, with the potentially competing objectives of maximising remuneration via product sales and providing professional, strategic financial advice that serves clients' interests.

So what did we do about this sales based culture? I remember raising this issue several times in this chamber, including during question time, and being told that what we'd seen in the financial services industry was just a few rotten apples. Well, I didn't believe that was the case. I believed that because of conflicted remuneration and because of a sales based culture this issue was systemic. I actually remember in 2015 asking Senator Brandis this exact question and asking him whether he would support a royal commission into banks and financial services. And I remember him getting up and saying, 'How dare you slander an entire industry'—that this is just a few rotten apples. Well, the few-rotten-apples excuse went out the door, and I think what we heard in the royal commission was very telling. But, to be truthful, a number of us had heard very similar stories when we'd attended multiple Senate inquiries, going back to 2012.

I want to just talk through a brief time line before I get to the royal commission and what their recommendations were. To Labor's credit, following the Ripoll report they introduced the first FoFA—future of financial advice—legislation in 2011. That was brought before this place in June 2012. At the time it was decided that changes to conflicted remuneration wouldn't be effective until 2013, but there were a number of carve outs on that conflicted remuneration, including grandfathered commissions—commissions that financial advisers and financial advice companies could keep in place. I remember the lobbyists coming into my office, as I'm sure they came into other senators' offices, at the time, saying: 'This will affect the price, for example, that we'll get if we sold our business; these contracts were entered into in good faith,' et cetera.

Because the conditions placed on FOFA in 2012 were voluntary—they weren't mandatory until 2013—we saw a change of government and therefore a change to the approach of FOFA. We saw legislation brought before this place by the Abbott government called the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. That didn't pass this place because there was significant resistance from Labor, the Greens and the crossbench. But, before I get to that resistance, I do want to point out that the banks, especially the big banks—I remember questioning the Australian Banking Association in a Senate inquiry. And, having worked in finance myself, I asked why the banks hadn't changed their front-end systems and their back-office systems to account for the FOFA laws if they knew they were coming from 2012 to 2013. The ABA spokesperson at the time said, 'Senator, that's because we had a deal with both Labor and Liberal that, after the election, the FOFA laws would be changed.' In other words, they were pretty confident that those FOFA laws were going to be weakened and diluted in their favour. While Labor got their mojo back and went hard at trying to regain the ground on the FOFA legislation and years of their hard work going back to the Ripoll report, the coalition did bring before this place both a bill, as I mentioned, and regulations to weaken the FOFA laws, the Future of Financial Advice laws.

That was one of the more colourful times that I remember of my short seven years in the Senate. I actually felt the wind change in this chamber when we defeated those regulations. I remember Senator Muir came on board. That was maybe the first time he'd ever voted against the government. Recently, it's been written in about books just how much pressure the crossbench were under from Senator Cormann to make sure we didn't disallow those FOFA regulations. But, in the end, to his credit, Senator Dastyari rounded up the troops and got everyone together, including Senator Xenophon and the Greens. We formed an alliance—which had quite a rude acronym, which I won't mention in the Senate today—that was designed to try and defeat the weakening of these FOFA laws, and that's exactly what we did. I think things changed for the Palmer United Party after that. We saw Senator Lambie leave the Palmer United Party. We saw Senator Muir stand up, and we started to actually have a real opposition in this chamber, especially to weakening financial advice at a time when we could all see, through multiple Senate inquiries, the evidence and testimonies from victims and the scandals which were breaking weekly in the financial news, by journalists like Adele Ferguson and others. And a number of whistleblowers came forward.

To provide a backdrop for this, we had a campaign for a royal commission. I'm only saying this because I heard Labor mention this several times in their contribution. Let me get it on record again that the Greens were the first political party to campaign for a royal commission into the banks and financial services. I was on the original inquiry, with Senator Mark Bishop, when the committee recommended as one of its 90 or so recommendations that the Senate consider a royal commission. The problem for Senator Bishop was that, while he had his heart in this, the Labor Party squarely didn't. And, while Senator Williams had openly called for a royal commission into the banks because of his experience before he became a senator, neither his party, the National Party, nor the Liberal Party had their hearts in a royal commission into the banks. So the Greens took on the role of agent provocateur. We pushed and we pushed. And Labor in this chamber voted against Greens' calls for a royal commission. They like to highlight how the Liberals voted against their cause over in the other place, but it took the Greens two years, working with the crossbench, to get Labor to support the cause for a royal commission into the banks. And I think it's the best thing that Mr Bill Shorten did when he was Leader of the Opposition, and it very nearly won him the 2016 election.

Once we had a Greens private member's bill pass this place—it was certainly the first time that a private member's bill of mine passed the Senate—and it was not a bill for a royal commission, because we can't call for a royal commission in parliament but we can call for a parliamentary commission of inquiry, which is a royal commission that reports to parliament and not the executive. It has only ever been used once in Australia's history. The UK parliament had a similar look at the use of parliamentary commissions of inquiry around the Iraq war and also issues with their financial services industry. The Greens private member's bill passed the Senate and it bounced around in the House. It was looked at by a number of Nationals, renegade LNP members of parliament and a whole range of people who wanted a royal commission. Senator O'Sullivan, in the end, threatened to put up his own bill for a parliamentary commission of inquiry, but, if the Greens hadn't discovered that, explored that, normalised that and got it through here, it would never have happened. And, may I say, the terms of reference for that parliamentary commission of inquiry that were put up by the Nationals pretty much copied the Greens' terms of reference, and the final terms of reference for the royal commission put up by Senator O'Dwyer were pretty much exactly the same as the terms of reference for the Greens' parliamentary commission of inquiry.

So I would say it was the team effort of everyone involved in this place to try and get a proper probe into the banks and the financial services industry—into the rotten heart of why we'd seen so much fraud, deception and misconduct. What was one of the key recommendations of the royal commission? To remove grandfathered commissions. There were many recommendations and this one, no doubt, has been fairly easy to legislate. But I will say on record too that the Greens voted against the original FOFA legislation that allowed the grandfathering of these conflicted remunerations, because we felt they needed to go.

Here, tonight, we finally get to put an end to what I think has been a very sorry saga and chapter in Australia's financial services history. A number of people I know, including friends, are financial advisors, and, having worked in this industry myself, I understand the critical importance of good financial advice. Indeed, the financial services industry was hoping to get good legislation in place and get a new start so that there could be increased confidence in the services that it wants to offer Australians—services that I feel are absolutely critical for all of us to better understand how we plan for our retirement and how we budget.

The royal commission noted that certain arrangements made before the FOFA reforms came into force in July 2013 that would have otherwise fallen within the ban on conflicted remuneration remain excluded from the definition of 'conflicted remuneration'. According to Justice Hayne:

... despite it being recognised that the grandfathered forms of remuneration are conflicted remuneration (because they could reasonably be expected to influence the choice of financial product recommended by a licensee or representative to retail clients, or could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative), charging and receiving these exempted forms of remuneration has been permitted to continue.

And:

At the time the grandfathering arrangements were first introduced, participants in the industry could say that sudden change in remuneration arrangements may bring untoward consequences for countervailing benefits that would not outweigh the harms of disruption ... Even if the arguments relied on to justify the grandfathering exception were valid when that exception was introduced, it is now clear that they have outlived their validity.

This is obviously not going to fix all the problems that we've seen in the financial services industry emerge in recent years and there's a number of other things we have to do. I noted this morning the Treasurer's call to the ACCC to probe the banks. That's certainly something the Greens are going to support because the Greens actually wrote to Justice Hayne in a 90-page submission, and we've been calling for the ACCC to regulate the banks and take over from ASIC the retail role in the regulation of the banks—keeping ASIC on the wholesale market side of the equation and having the ACCC regulate the banks on the retail side of the equation. They're a fearless, trusted watchdog, and that's no doubt why the government has appointed them to this probe.

But I can't help being a little bit cynical that the Treasurer's popular—dare I say populist—zeal to make sure that interest rate cuts are passed on in full looks like a very neat distraction from the signal, or the warning or the message, that continued cuts to record-low interest rates are telling us: the economy is in trouble. It's very convenient to distract away from what we should all be discussing, and that is if we're getting to a point where monetary policy is becoming ineffective. I remember my lecturer at university saying, 'Once it reaches that point, it's like pushing a piece of string.' It's very difficult to get it to work for you.

There are other things we need to be doing in this country if we're sailing into such strong headwinds. It seems to me that not only is the Treasurer talking about the banks not passing on interest rates a good distraction from the warning that we should all be feeling from cuts to record-low interest rates but also it's an attempt to continue to inflate the housing market and talk up the housing market. All this money in the economy is going to unproductive investment in the housing market when it could be going to productive investment like long-term infrastructure projects. For three years now, the Greens have been banging the drum on this. In 2016 we not only took a policy to significantly increase infrastructure spending but took a policy for an infrastructure bank on how we would finance it—a government-run infrastructure bank.

While I've got a minute and 12 seconds left, let me say that, while we're on the subject of mortgages, why don't we have tracker mortgages, or mortgage trackers if you like? Mr Greg Medcraft used to talk about this a lot. Why can't we offer products like that through the Reserve Bank or through a people's bank, a publicly owned bank? There are so many things we could do to fix this problem rather than just hold an inquiry into the banks. We know the government is not going to legislate the banks to pass on full interest rate cuts, so what's the point?

There are really good alternatives. You copied our idea on bank portability. We're very happy about that. You came onboard with the call for a banking royal commission. You came onboard with the Greens' 10-year campaign to get a levy on the banks. Why not increase the levy to 20 basis points? Give equal risk weightings to all banks, rather than penalising the smaller banks that don't have that too-big-to-fail guarantee. There are so many good things we can do in this chamber if we work together. So I'm glad this has happened tonight. This has been a seven-year-long road for me, but an even longer road for others. I commend this bill. (Time expired)