Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

My question is to Senator Minchin, representing the Treasurer. I refer to the Westpoint scandal in which thousands of Australians, many of whom are elderly and retired, have lost up to $400 million of their savings. Can the minister confirm that the Westpoint scandal is the largest financial scandal to hurt Australians since the collapse of HIH? Given the investment product of Westpoint entities was in the form of so-called promissory notes, can the minister explain why the Liberal government failed to regulate this type of financial product as it does all others?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

The collapse of Westpoint is something that concerns all Australians who are genuinely worried about the impact of these financial collapses on ordinary investors. It is true that a number of the property development projects operated by Westpoint have run into financial difficulties, and a number of retail investors who lent money to the projects are at risk of losing their investments.

From the federal government’s point of view, I can confirm that ASIC, the relevant authority, started considering Westpoint’s fundraising activities as far back as 2002 and first took regulatory action in 2003. ASIC’s action against Westpoint is still before the courts, and a further ruling is expected very shortly. At the same time, ASIC started an investigation into the promotion of high-risk debt investments, offering higher than normal yields to retail investors. As part of that action, ASIC issued a number of warnings to the public on the dangers of entering into such investments. The first such warning was released as long ago as May 2003. ASIC’s ongoing investigations are extensive and may result in regulatory action against the individuals and firms targeted. Because the matter is subject to vigorous ongoing action by ASIC, it would be inappropriate for a member of the government to speculate on possible outcomes just yet.

The question of how these investments were promoted to retail investors, and the potential liability of financial advisers for misleading or negligent advice, has emerged as one of the key issues in this case. The law requires that all the risks associated with a particular investment must be disclosed to retail clients. Financial advisers promoting Westpoint investments were also paid higher than normal commissions of 10 per cent or more. The law again requires that any commission payments must be disclosed to clients. It appears likely that certain financial advisers did not follow the legal requirements as to the disclosure, investment risks and commission payments in promoting these Westpoint Investments.

ASIC has announced that it will be investigating the activities of a large number of licensed and unlicensed individuals in this regard and that disciplinary action will be taken where breaches of the law are found. It has been reported that a class action on behalf of investors against certain financial planners, and possibly the directors of the Westpoint entities involved, will be started soon, based on breaches of the Corporations Law relating to disclosure and ‘know your client’ requirements. I think this does show that the investor protection mechanisms in the law are working as they were designed to do.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Didn’t the minister answer every question that I did not ask? I would like to ask again—

Government Senators:

Government senators interjecting—

Amanda Vanstone (SA, Liberal Party, Minister for Immigration and Multicultural Affairs) Share this | Link to this | Hansard source

Senator Vanstone interjecting—

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

This is very serious. Thousands of investors have lost up to $400 million, Senator Vanstone; you might like to think about that.

Paul Calvert (President) Share this | Link to this | Hansard source

Order! Do you have a supplementary question?

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

What about that lot?

Paul Calvert (President) Share this | Link to this | Hansard source

Ignore the interjections.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Given that the Treasurer received urgent and specific warnings on Westpoint from the West Australian government in mid-2002—more than 3½ years ago—why did the Liberal government fail to act on those warnings and regulate the product? Why is the Liberal government so weak in protecting hardworking Australians’ savings?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I thought I did answer that by indicating that ASIC, as the responsible federal authority, has been actively involved in this issue since 2002. It issued public warnings in 2003 and it has been actively involved in investigations of breaches of the law. It is a matter for ASIC, properly established by this parliament, to conduct those regulatory activities and to prosecute breaches of the law where they are occurring. It is a well-funded organisation to undertake that.

We deplore any breaches of the law or any deliberate deception of ordinary Australians in relation to their investments. It is tragic, it is unacceptable, and it is something that this government certainly will not tolerate. ASIC is well funded to ensure that it pursues every potential breach of the law like that.