Sue Boyce (Queensland, Liberal Party) Share this | Link to this | Hansard source

I present the report of the Parliamentary Joint Committee on Corporations and Financial Services, Statutory oversight of the Australian Securities and Investments Commission, together with the Hansard record of proceedings.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

This report follows a public hearing on 18 June 2008. At the outset I would like to record my appreciation to the former members of this committee who left when the new Senate term began on 1 July. The committee is very appreciative of the work of former senator Grant Chapman, who was the deputy chair of the committee, and former senators Andrew Murray, Linda Kirk and Ruth Webber. Under the Australian Securities and Investments Commission Act 2001 the committee is charged with parliamentary oversight of the Australian Securities and Investment Commission and its panel as well as the operation of Australia’s Corporations Law scheme.

Our committee’s most recent report focused on five aspects of the operations of ASIC. These were: the regulation of financial markets, particularly issues relating to short selling and margin loans; ASIC’s strategic review; ASIC’s response to recent property investment scheme collapses such as the Westpoint-style property investment schemes; the regulation of financial planners and the introduction of professional indemnity insurance by financial planners for negligent advice; and the regulation of banking and credit providers and the implementation of the government’s green paper proposals.

I think we need to look at this report in the context of ASIC’s response to the collapse of margin lenders such as Opes Prime and Lift Capital. In particular there is a very widely held misunderstanding, it seems, about the nature of margin lending schemes and the unsecured nature of the products they purport to promote. The committee was deeply concerned about the disclosure rules that apply to short selling and margin lending. We heard from ASIC about the commission’s own concerns about the risk disclosure obligations of these organisations. This of course is a matter that is currently in the hands of the government and subject to the green paper. The committee strongly holds the view that ASIC should continue to press for improvement in the disclosure laws and the way they function, but we note in our report that the improvement of the disclosure rules and warning about potential misconduct will not, of itself, have a radical or discernible effect. The committee believes that the tightening of the disclosure rules must be accompanied by a closer working relationship between ASIC and the Australian Stock Exchange on instances of insider trading and market manipulation.

On a personal note, I draw the Senate’s attention to current moves, which I certainly think are positive, to consider ending the Australian Stock Exchange’s monopoly on stock trades and regulation. I also draw the Senate’s attention to a couple of other aspects in the committee’s report. We heard from ASIC about their internal restructuring program and how the restructure was designed to improve and streamline the agency’s ability to meet their responsibilities. The committee certainly approves and supports ASIC’s restructuring plans but there is a certain level of concern about how they are going to go about resourcing those additional responsibilities. We heard that ASIC is able to accommodate the extra expenditure it will incur to achieve its statutory obligations and objectives in the 2008-09 budget year by reorganising its priorities and through this restructure. But ASIC admitted that its level of resources may not be sustainable beyond 2009-10. This is particularly the case, we were told, if some of the Australian Stock Exchange’s market supervision responsibilities are shifted to ASIC in the near future. Given the current concerns about disclosure and the agency’s ability to monitor activity in the market, this is of particular concern.

I would also like to draw the Senate’s attention to the committee’s comments regarding aspects of the regulation of high risk property investment schemes. The collapse of Westpoint, Fin Corp, ACR and similar schemes must be a very real concern not only to Australian investors and regulators but also because of the effect that they can have on the Australian economy, particularly regarding the confidence they drain out of the investment environment in Australia. The committee heard from ASIC that it had responded to these collapses by implementing more stringent measures to protect consumers, but the committee was concerned about ASIC’s tardiness in addressing some of the problems associated with this sector.

I also draw the Senate’s attention to some of the responses that arose out of questions that I asked of ASIC during a public hearing. In evidence that was given to the committee, ASIC advised that their restructuring would see a reduction of 13 senior members of management. On top of this they also have the two per cent so-called efficiency dividend that the government has required of departments and agencies. We have an agency that has been given increased functions and that has undertaken, very rightly I believe, to put a far greater emphasis on assessing systemic risk and future systemic risk within their strategic review. You now add to that the loss of a very large group of senior managers within a budget that has been far more constrained by the government’s requirement of an efficiency dividend. We also have a reduction in the corporate knowledge and expertise that ASIC will have as a result of these changes to its structure. I think we have reason to be rightly concerned and very vigilant that ASIC will be able to undertake the tasks that it has set itself for the next 12 months and into the future.

As a member of the Corporations and Financial Services Committee, I will be paying very close attention to this issue to ensure that ASIC’s restructure, the reduction in the number of managers and their increasing focus on looking at systemic risk for the future does not adversely affect their ability to monitor this market and to carry out their functions.

Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

I rise to speak briefly on the Statutory oversight of the Australian Securities and Investments Commission report. As the newly appointed deputy chair of the committee, I am pleased to have the opportunity to contribute to better regulation of corporations and the financial services industry in Australia. It is an area of great interest to me. I was very interested in Senator Boyce’s comments and her presentation and the issues that she raised in relation to this report. I also want to pay tribute to the hard work of former members—they have been mentioned of course by Senator Boyce—as well as give a little note of consideration and of appreciation to the secretariat. They always do sterling work. In this particular case we have Senate legend Cleaver Elliott standing in for Geoff Dawson, together with Andrew Bomm as principal research officer and Ms Laurie Cassidy in the sometimes thankless task of executive assistant. I look forward to working closely with them over the hearings of this committee, wherever they may be held.

As I have only very recently been appointed to the committee, I was not involved in this report’s preparation or deliberations. Nonetheless, I am pleased that the committee has given consideration to issues that are of enormous significance to the proper functioning of the share market and the regulatory surveillance that is necessary to achieve this. The turmoil in the share market in February certainly highlighted some of the regulatory gaps that exist in how Australian markets are regulated. Concerns that undisclosed covered short selling—where shares are borrowed, sold, repurchased at a lower price and returned for a profit—is affecting market transparency and encouraging illegal market manipulation have been raised at numerous times over the year to date. This report identifies the issues surrounding margin lending and short selling in Australia, especially in light of the collapse of Opes Prime and Lift Capital due to investors not being aware of the unsecured nature of their holdings.

During the public hearing on 18 June this year, ASIC were questioned on whether they were monitoring margin lending and short selling adequately. ASIC told the committee that they had issued public warnings about false and misleading rumours on share trading and recommended improved disclosure rules on short selling. The committee’s view was that ASIC should maintain greater cooperation with the ASX to prevent insider trading and market manipulation.

Following ASIC’s strategic review, it was decided they could more effectively function if they restructured their operations. This includes restructuring the organisation from four silo directorates to 17 outwardly focused and outward-facing stakeholder teams. ASIC’s restructuring plans will provide a greater emphasis on understanding and conducting surveillance of financial market activities. ASIC have also been pursuing tougher restrictions on debenture advertising to reduce the chances of another Westpoint style property investment scheme collapse as well as monitoring the availability of insurance cover in the marketplace since the introduction of compulsory professional indemnity insurance for financial planners.

With the government’s looming federal takeover of corporate regulation, as mooted in the government’s green paper, a number of queries about the effect it will have on ASIC were raised. As the options outlined in the green paper have not yet been finalised, ASIC reported that the effects are not yet known; they can only anticipate what they might be. I do look forward to seeing Senator Sherry’s finalised proposals with much interest.

Finally, reverse mortgages were again raised with ASIC. Although there have been few complaints to the regulator about reverse mortgages, ASIC anticipates that a number of problems with these products may yet surface. The coalition supports the committee’s comments that ASIC should continue to use all avenues available to it to educate consumers about the risks associated with reverse mortgages. The committee is of the view that coverage in the mainstream press is far more effective than on ASIC’s website and thus media coverage should be a significant objective for ASIC to aim for to help ensure better outcomes, particularly for the elderly.

I anticipate and apprehend that comments in respect of further reports may be a bit more comprehensive than my comments in relation to this report, but I do commend it to the Senate and I look forward very much to participating in future debates and reporting the committee’s deliberations to the Senate.

Question agreed to.