Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

I table a revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Every day, ordinary Australians rely on the Australian financial system. It is essential to many of the biggest decisions Australians make, whether that's borrowing for a house, saving for retirement or investing for their family's future wellbeing.

The financial system is also crucial to our day to day lives – whether that's buying a coffee, paying your bills, or running a small business.

This makes the financial system unique. Australia has many vital economic sectors, but few are so unavoidable and critical to the lives of every day Australians.

The stability of our financial system is also central to the successful operation of the Australian economy.

That is why it is crucial that the Government ensures the Australian people get the high quality, safe and secure financial system they deserve.

So what does Government expect of our financial system?

We expect a system that is not only unquestionably strong but operates with utmost integrity and is unquestionably accountable. Given the social licence under which the banks operate, we expect a system which is prudently managed serving the interest of the customers who use the system and the well-being of their community.

We expect the system to be robustly competitive, driving prices down and fostering innovative new product offerings. We expect a system that is overseen by world class regulators, which have all the necessary tools at their disposal to execute their mandate.

Over recent years, the system has not always met these expectations. Time and time again, we've seen scandals demonstrate that some in the system are more invested in their own interests than their customers and the community they are supposed to serve.

Now, Australians are fair minded and sensible. Businesses are supposed to make a profit, that's the point. Indeed, many Australians are shareholders in our financial sector institutions. A profitable, well capitalised financial industry is in the interest of the Australian community and our economy.

But where these objectives are pursued at the expense of the integrity or stability of our financial system, then the broader national and community interest is not advanced. Too often, Australians have not been given a fair go by some in the financial system. What's worse, the actions of some are damaging the reputation of the system as a whole.

So what should a responsible Government do in these circumstances?

It takes action.

And that is precisely what the Turnbull Government is doing.

We have increased the power and resources of ASIC to deal with malfeasance in the sector.

We have introduced the Major Bank Levy, which ensures our largest banks pay their fair share, in recognition of the advantaged and protected position they hold in our financial system.

We have banned excessive surcharges on credit card transactions, delivering real savings on Australians' every day transactions.

We have introduced a new alternative way to handle complaints and disputes, so there can be fairer avenues to have issues resolved.

We have requested the House of Representatives Standing Committee on Economics to regularly inquire into the Australian banking and financial system, including how the major banks balance the needs of borrowers, savers, shareholders and the wider community.

The bills I introduce today build on these actions, and represent a seismic change in the accountability of the banking system and the executives who run it.

These measures represent world best practice.

The measures in this package will enhance the integrity, stability, resilience and competitiveness of the financial system.

The package I introduce today includes measures that will comprehensively overhaul APRA's powers, including powers to impose consequences under the Banking Executive Accountability Regime, enhanced APRA crisis management powers, and new rule making and data collection powers for APRA over non-bank lenders.

Together, they represent the most significant overhaul of APRA's powers since its creation by the Howard Government.

Financial markets cannot operate efficiently unless participants have confidence in the stability and integrity of the system – and this package gives reason to have that confidence.

The package will also increase the competitiveness of the banking system by opening doors to innovative new entrants and levelling the playing field by opening access to the term 'bank' to all licensed banking businesses.

Competition and innovation are the keys to improving the customer experience for all Australians. Alongside this measure, Government has also encouraged APRA to enhance its licensing processes and APRA has now rolled out a new licensing regime that will encourage innovative new entrants. Building on this strong start, the Government will have more to say about competition in the financial sector in coming months.

Finally, the package builds on our reforms to the consumer credit card experience by introducing a measure which will improve competition in the credit card market and help prevent vulnerable consumers from building up excessive credit card debt.

I will now turn to the Bank Executive Accountability Regime or BEAR.

Earlier, I explained why the financial system is so integral to the wellbeing of the Australian people. Banks occupy a particularly central and privileged role within that system.

Given the critical roles banks play within the community, bank directors and executives need to be held to an especially high standard of accountability.

So what makes banks so special?

First, it is virtually impossible for an Australian to go about their daily lives without a bank account. It's how we get paid, and increasingly, how we make payments. We can choose which bank we want to bank with, but it is very difficult not to bank at all. Given Australians are locked in to dealing with banks, it is appropriate that bank executives are held to a higher standard by the community.

Second, banks benefit from an extraordinarily privileged regulatory environment. Virtually all depositors in Australian banks are protected by a government guarantee, known as the 'Financial Claims Scheme' or FCS. This makes it much easier for banks to attract depositors, because depositors know that their money will be protected if anything goes wrong. To understand how significant an advantage this is, consider what an equivalent would look like for the car industry – it would be like providing a free warranty on new cars.

Third, banks are fundamentally important to financial stability, and financial stability is fundamentally important to Australia's economic wellbeing. History has shown that crises that begin in banking rarely end there – they will infect the entire economy. Our Australian banking system performed well during the global financial crisis as a result of good stewardship and forward thinking regulator by the then Treasurer Costello. The Government is once again taking a proactive approach in ensuring that the regulatory framework continues to protect the financial well-being of the Australian community and the economy more generally.

Banking executives share responsibility for the stewardship of the Australian economy and they make decisions that impact upon the lives of ordinary Australians who have no choice other than to engage with the system they help run. As a consequence, the community reasonably expects higher standards of accountability and integrity of banking directors and executives.

The BEAR ensures that where these community expectations are not met, appropriate consequences will follow. It makes clear individual accountabilities so that it is clear where the buck stops in decision making and responsibility.

I would now like to turn to the provisions of the bill.

Schedule 1 to the bill imposes new heightened accountability obligations on banks, as authorised deposit-taking institutions, or ADIs, and their accountable persons. The definition of accountable persons will encompass both a prescribed and principles-based approach and will capture the most senior directors and executives within authorised deposit-taking institution (ADI) groups, that is, those who influence the overall conduct and culture of the group.

ADIs will be required to register their accountable persons with APRA and clearly allocate responsibilities to accountable persons via accountability statements and accountability maps. These steps will provide clarity of responsibilities and ensure that APRA has greater visibility of the most senior persons in ADI groups in order to more easily assign accountability should there be a breach of the BEAR obligations.

To support these new accountability obligations, the bill increases consequences for ADIs and accountable persons who do not meet their obligations.

ADIs will be required to defer minimum amounts of their accountable persons' variable remuneration for a period of four years. The amount to be deferred will vary with the size of the ADI, so that smaller ADIs will not be disproportionately impacted in their ability to attract senior talent. Mandating deferral of variable remuneration, combined with provisions in the bill requiring that remuneration policies include provisions for reductions in variable remuneration where an accountable person fails to comply with their accountability obligations, will increase incentives for these people to focus on the long-term outcomes of their decisions.

The bill also provides APRA with enhanced disqualification powers. APRA will be able to disqualify an accountable person directly, without needing to apply to the Federal Court. Importantly, given the significance of such a decision for an individual's career and livelihood, accountable persons will be able to seek merits review and judicial review of APRA's decisions. These new powers will ensure APRA can more easily respond where an accountable person has failed to comply with their accountability obligations, while ensuring appropriate external oversight.

For ADIs, the bill introduces substantial new civil penalties, of up to $210 million for large ADIs, $52.5 million for medium ADIs and $10.5 million for small ADIs, where an institution breaches any requirements of the BEAR that relate to prudential matters.

Finally, Schedule 2 to the bill includes a number of provisions that provide APRA with the power to examine witnesses. These provisions broadly replicate existing powers that APRA has in relation to other institutions, including in the superannuation sector. While these powers will apply to the Banking act generally, they will support APRA's enforcement of the BEAR.

The 2017-18 Budget provided APRA with $4.2 million over four years to implement the BEAR. A further $1 million per year will be provided to APRA to enforce breaches. This funding will be offset by a corresponding increase in the Financial Institutions Supervisory Levies.

Full details of the measure are contained in the explanatory memorandum.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

This bill establishes the government's Banking Executive Accountability Regime, or what is now known as the BEAR. This was one of the government's many desperate attempts last year to distract from the urgent need for a royal commission into the banks. When the Treasurer introduced this bill into the House on 19 October 2017 he spoke, as he often did, about his taking-action-now approach to the banks. In media releases, speeches and press conferences, the Treasurer proclaimed how he was 'taking action now' with the banks. Of course, what he really meant by taking action now was avoiding the most crucial action that was needed, and that was a royal commission into the banks.

The government fought Labor's calls for a royal commission for over 600 days. They threw up all sorts of distractions. They ignored the stories of Australians being wronged. They ignored victims. They ignored whistleblowers and they ignored bank staff. Instead, this government offered a confected and piecemeal response to problems in the banks. Then, as we all know, on 30 November last year, in one of the biggest backflips of all, the Prime Minister and the Treasurer begrudgingly capitulated. Labor is pleased that the Prime Minister finally bowed to pressure from Labor on a royal commission. And I note, while I'm at it, the work that was done by the National Party, especially by a senator across the way there who said a banking royal commission was needed. Senator Williams was so important in this approach, and I'm glad, Senator Williams, that you've finally—along with Labor—forced your Prime Minister to do the right thing.

Labor is pleased that this royal commission has been set up. However, it's a shame—even when he was announcing a royal commission the Prime Minister called it 'regrettable'; what an insult to all those victims of the banks who were not even consulted on the terms of reference. This is a Prime Minister who spent more than 600 days fighting Labor's call for a royal commission. They spent 600 days ignoring stories of customers being ripped off, 600 days ignoring small-business owners losing their livelihoods, 600 days ignoring retirees losing their life savings and 600 days ignoring life insurance policyholders being denied justice. They spent 600 days ignoring stories of staff being placed under intense and relentless pressure to push products that customers couldn't afford—a culture that stopped bank staff from looking after customers. It says everything about the Prime Minister's values and priorities that he agreed to Labor's royal commission only when the banks told him he had to. He ignored the plight of ordinary Australians, but when the big banks wrote him a letter he folded on the same day. Even then, we know he doesn't fully believe in a royal commission, saying it was 'regrettable'.

The bill itself will introduce a new accountability framework for the banks and senior bank employees. It will introduce the fair remuneration obligation for senior managers of the banks and a civil penalty regime for breaches of these obligations. Labor will support this bill. That said, there are a number of concerns with the bill. It's a rushed bill. It became clear from the Senate inquiry that the implementation of this bill has been rushed, because the government was desperate to distract from the need for a royal commission when it developed this legislation. It has rushed the implementation. The bill was introduced in October 2017. The government failed to bring it on for debate in the House until February this year. Notwithstanding that, the government originally announced a start date of 1 July 2018.

Throughout the Senate inquiry, stakeholders raised serious concerns about the time frame for implementation. APRA, the regulator, said:

Following passage of the legislation, both APRA and the banking industry will have a great deal of work to do to implement the accountability regime by the scheduled commencement date of 1 July 2018. APRA expects that this timeframe will be challenging; for this reason, the legislation provides some additional transition arrangements in some areas.

The Australian Shareholders' Association said:

While we acknowledge the government’s desire to implement the legislation as soon as possible, we are of the view that ADIs will need time to undertake changes to policies, contracts and systems.

The Australian Institute of Company Directors said:

We reiterate our view that the BEAR’s implementation date should be deferred, so that it commences on 1 January 2019. This will enable all ADIs to prepare their affairs to be in full compliance with the BEAR, and enable APRA to provide the industry with sufficient guidance.

As we also know, the government's own Office of Best Practice Regulation said that consultation on this legislation was 'a significant departure from best practice'. Well, it seems to me, in other areas of responsibility that I have, this is not just simply a departure from best practice; it is the modus operandi of the government. They fail to consult, they fail to understand the issues and they fail to take into account the needs of the Australian people when they are dealing with legislation.

Labor welcome the fact that our amendments in the House to defer the start date for small and medium ADIs by a year have been accepted by the government. You need to tell this government what to do. This is the government that claim they are such great economic managers and yet all of the regulators and all of the banking industry are pointing out how incompetent they are. They are an incompetent government with an incompetent minister and a Prime Minister with a lack of any courage.

These amendments give small and medium banks, credit unions and building societies more time to implement the new requirements. This is consistent with what Labor said should happen when we looked at this bill in a Senate inquiry. A one-year extension for small and medium ADIs to 1 July 2019 was the recommendation made by Labor senators on the economics committee. The government senators on the committee also recommended the delay of one year, but for all banks. Labor moved these amendments in the House because what was especially concerning was the impact of the implementation time frame on the smaller and medium banks. Small and medium banks are essential for ensuring that there is adequate consultation against the big banks. Implementing the BEAR will require a lot of work from the regulators, and the banks will have to implement new reporting structures, policies, contracts, systems, accountability maps, processes and procedures to comply with the new law. While we believe that big banks have the resources to handle this, forcing small and medium banks to scramble to implement the BEAR could have serious and disproportionate impacts on them and take resources away from other projects.

The Customer Owned Banking Association, which represents credit unions, building societies and mutual banks, points out that the banks have:

… vastly greater resources and capacity than their smaller competitors to cope with new regulatory obligations.

The Customer Owned Banking Association has asked for 'sufficient time to plan and prepare for the BEAR'. Strong small and medium banks, mutual banks, credit unions and building societies are very important in making sure there is competition against the big banks. The big banks have the money and resources to implement this policy, but, for these smaller banks, having to rush to implement this could have a negative effect on them and their ability to compete. It would be concerning if this bill, which is supposed to increase accountability for the banks, actually ended up increasing the big banks' competitive advantage.

The Senate inquiry also showed that the big banks had something of a head start. According to the explanatory memorandum, the major banks were involved in talks with the government from around February 2017 about accountability gaps before the BEAR was announced on budget night in May. The Customer Owned Banking Association, which represents credit unions, building societies and mutual banks, told the Senate inquiry that they had no involvement in these discussions and knew nothing about these meetings with the big banks. We think it is only fair that, given the big banks got a head start, smaller and medium banks and mutual banks, credit unions and building societies get the additional time that they need to properly implement this bill. That's why we moved amendments to give small and medium ADIs an additional year to implement the bill, and we are glad that the government has agreed to accept these sensible amendments.

While we are supportive of this legislation, there are other shortcomings with it that came to light in the Senate inquiry. No clear answers were offered to say that the BEAR regime would have had any impact on recent banking scandals if the BEAR legislation had been in place at the time that those events occurred. Representatives from the Consumer Action Law Centre and Choice told the Senate committee that the legislation would do little for consumer outcomes. The Consumer Action Law Centre said:

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.

So, basically, what they were saying was that the government was looking after the banks, coming after the banks a little bit, but ignoring customers. Choice called this bill 'a bit of a teddy bear'. The BEAR is focused on prudential matters, and not matters that affect customer outcomes. Despite all the Treasurer's rhetoric, it is unclear how much the BEAR will actually help customers of banks.

This shows once again how inadequate the government's alternatives to a royal commission were. This also ties into issues about the blurring of responsibilities between APRA and ASIC. The Treasurer and the government have very much framed the BEAR as a solution for conduct issues, yet the BEAR is administered by APRA. The actual legislation seems to be focused on prudential matters. ASIC, who would usually deal with bank conduct matters, will not administer the BEAR. That says it all. Indeed, the APRA chairman was asked last year about whether the BEAR would have applied to a number of previous scandals. These scandals included the CommInsure scandal, the NAB's failure to pay 62,000 wealth management customers the amount that they were owed, CBA's poor administration of hardship support, ANZ's OnePath improperly collecting millions of dollars in fees from customers and ANZ improperly collecting fees from 390,000 accounts that have not been properly disclosed. The APRA chairman, Mr Byres, indicated that these kinds of scandals may not be covered by the BEAR because they were conduct issues and not prudential issues of the kind that APRA would have responsibility for. Mr Byres said:

The particular issues that you talked about would be dealt with by ASIC's equivalent, the Financial Conduct Authority, in the UK, not by the APRA equivalent in the UK … Ours is, as initially proposed, a banking regime for prudential matters.

It is not about looking after customers.

What has been shown through separate Senate inquiries and committees is that there is a disjunct between the government's rhetoric on the BEAR and the impact it will actually have. As Labor senators found when looking into this bill, it is concerning:

… that decisions for the BEAR regime to cover prudential matters only and to have APRA be responsible for its enforcement have not been clearly outlined by the Government. Given ASIC requested additional powers to hold managers to account, it seems strange that the BEAR would be developed with little consideration for ASIC's role in managing conduct as well.

To conclude, Labor will support this legislation. However, we note the difference between the government's rhetoric about this bill and the reality of it.

We note concerns that arose in the Senate inquiry that the BEAR won't have any impact on bank conduct as the government has been proclaiming. We note concerns that the BEAR is focused on prudential matters and won't be focused on addressing the conduct issues of the kind that have impacted on too many Australians in recent years. We welcome the fact that the small and medium ADIs will get more time to implement the BEAR, given there was evidence that the rushed implementation schedule could have had serious impacts on these institutions. We welcome the adoption of a Labor recommendation and Labor amendments in the House.

While we support this bill as a measure to make some improvements to accountability of the banks, it remains clear that this bill was no substitute for a royal commission into the banks, and I'll tell you why. It is because the coalition are internally divided on this. Good people, people who want to look after Australians, people who want Australians not to be ripped off, like Senator Williams, have to contend with others in the Liberal Party who, basically, see this as an attack on the free market. So you look after ordinary Australians, and what's been put by some Liberals is that this is an attack on the free market.

The free market should be allowed to rip. The free market will fix itself. And we'll get South Australian Liberal Nicolle Flint, a former policy adviser to the Australian Chamber of Commerce and Industry, saying the bill 'adds yet another layer of regulation to the ever-growing compliance faced by our financial institutions, adds another detractor to our competitiveness'. What does this Liberal member think? That you should be allowed to rip off pensioners? That you should be able to rip off investors to be competitive? That's not the definition of competitiveness that I know. This is an absolute nonsense. We've got all these right-wing Liberals saying the market will fix everything, even if it rips apart families, even if it rips apart communities, even if it leaves some Australians destitute after a lifetime of hard work. That's what these Liberals stand for. That's why a banking royal commission was so essential.

South Australian Liberal Nicolle Flint says that government regulation costs businesses of all sizes time and money. It means they are less productive, less profitable and less able to focus on expansion and innovation. She wants the big banks to get bigger. That's why this government's given big business $65 billion in tax cuts. At the same time, workers who are relying on the banks to give them good advice, who are battling with lower wages—stagnant wages—and who are trying to build a future are being told by these right-wing Liberals that you should let the market rip, that you should let the banks become bigger and that you should not intervene with the banks. That's why Labor said we need a royal commission. It is only Labor that has been arguing to the Liberals and the Nationals this point that we should deliver a fair business system in the banking sector.

I just can't understand that we've got other Liberals arguing this point. Russell Broadbent, Sarah Henderson and Tim Wilson are also criticising support for customers over the big banks. It's an absolute nonsense. (Time expired)

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

Before I call Senator Whish-Wilson, I will remind senators of the ruling from the previous President, Senator Parry, that we refer to others by their official titles.

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

This legislation before us today, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017, is called BEAR—banking executive accountability and related measures. If this legislation before us today is to hold senior executives at the big banks to account, to make their decisions transparent and to put in place a punitive measures regime to actually see that they follow through with that accountability, then it really is nothing but a fig leaf. I will admit that it is the opening of a door—a crack in the edifice of the neoliberalism of the coalition. It's only slight, and it's not going to fix the cultural issues that we see at the big banks, that many senators know all too well and that Greg Medcraft, the ex-head of ASIC, the Australian Securities and Investments Commission, talked about ad nauseam in his time at ASIC. It's not going to fix the cultural problems, but it is the opening of a door that we can exploit today in this chamber in this parliament to take a big step in fixing the problems. I'll tell you why we can do that and how we can do that shortly.

Let's frame it up. The banks have behaved very badly in this country for well over a decade now. None of us would disagree with that, and I think if you were to step outside this building very few people would disagree with that assumption. Underlying that bad behaviour has been a culture across the financial services industry. Sometimes it's hard to pin down exactly what that culture is for many people, but for me it's actually quite simple. It's been a culture of making as much money as possible. It's a culture of greed and of chasing profits at all costs, a culture of putting profits before people, profits before customers, profits before many employees at the big banks. As custodians of the financial services system, these banks have failed, to use the words from the legislation before us, 'higher standards of accountability and integrity' that are expected of them by the Australian people.

But it is also recognition that the big banks have failed to respect that their very existence in this country is a privilege not a right. Go and have a look at the Banking Act. This is actually tied to our country's Constitution. The very first clause of the Banking Act talks about banks being issued a licence to operate by the government for the Australian people. So there's this privilege of being able to operate in an industry where every individual and business is a customer and, given the importance of the industry—and this has been locked in since the GFC—these businesses are now insured by the government and the Australian people. They're too big to fail. Guarantees have been put in place. We've seen this all around the world, but it's officially a policy in place here in Australia. So they are issued a licence to operate by the Australian people—it is literally a licence to print money—and they're insured against failure by the Australian people.

And what do they do? They make massive profits. I acknowledge that those profits do go to shareholders and that many Australians are stakeholders in the banks through shareholdings through their superannuation funds, but these senior executives—exactly the kinds of people that this legislation is designed to hold to account—pay themselves obscene amounts of money. It is totally unjustifiable. Once again, go outside this chamber. Ask anyone in the lobby who is visiting Parliament House. Go outside the walls of this place. Walk down the mall in Civic or go to my home town of Launceston or wherever and ask people, 'Do you think bank CEOs are paid too much?' I would be shocked if someone said no. It is possible but very, very unlikely.

The Treasurer, in his explanatory memorandum, says that this legislation is designed to help hold bank executives to account, to meet 'community expectations'. Where is the community expectation that a CEO at Commonwealth Bank can be paid $12 million, 100 times the average weekly earnings for your ordinary Australian and many more times the basic minimum wage? What about the CEO of Macquarie Bank, who was paid nearly $30 million in one year, 300 times what the average Australian earns? These are businesses set up by the government and licensed by the government and the Australian taxpayer, and guaranteed by the Australian taxpayer. Quite frankly, these CEOs are taking the piss. They are taking the piss out of the Australian people.

Anne Ruston (SA, Liberal Party, Assistant Minister for Agriculture and Water Resources) Share this | Link to this | Hansard source

I beg your pardon?

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

Proverbially speaking. We have the opportunity to do something about it today through this legislation. I flag that the Greens will be moving amendments in the committee stage and an amendment to the second reading motion. We'll be moving an amendment today that will be a giant step in not only matching community expectations in the remuneration of banking executives but fixing the toxic culture that has got the banks in so much trouble and undermined the trust that the Australian people have in their banks and their financial system.

I'm sick and tired of going through ritual mouthings every time I speak to a journalist when they call me about the banks' results or make a comment on bank CEOs' pay or when a scandal erupts. Senator Williams would know. He probably would be the first person to be dialled by most journalists. How do you fix a culture that's set up to make lots of money and a culture that puts profit before people? It's fairly simple. This is where I disagree with Greg Medcraft. He once said you can't regulate for culture. I don't agree with that. We can regulate for the culture in this sector by capping the salaries of bank CEOs, in line with community expectations. We have the right to do that because our parliament and our Australian people give them their reason for being and their licence to operate, and we insure them against failure.

This legislation before us today is an admission, even by this government, that we need to take more measures to hold bank executives to account. As Senator Cameron outlined, they are predominantly around prudential measures and risks within the financial system, but they should also be in line with meeting community expectations and getting the balance right between a bank's social licence from the Australian people—which is more than just a pun in this case; it's actually real—and the bank's commitments to other stakeholders such as their employees and their shareholders, and their customers, many of the people they've ripped off over the years.

Why would capping bank salaries go a long way to fixing the culture in the banking industry? The Greens have always said that the culture of any organisation starts at the top. I don't think many people would disagree with that. As the head honcho, the head fat cat at a big bank, if your remuneration, fixed salary and variable component, share options, issued shares, derivatives, whatever it happens to be, is based on your profits—and I will say they are also based on other metrics, but profits are definitely the major component of how they are remunerated, their return on capital, the benchmarks that are set for them—then it is logical that you are going to put pressure on the person on the next rung down the ladder, and the next person and the next person, until you get to the teller, the lowest paid worker in the bank or the financial services company. And that pressure will be to make as much money as possible.

As I have written in my dissenting report to the committee that looked into this, this profit at all costs or profit pressure down the ladder has led to the cutting of staff, the sacking of workers, the closure of branches, overcharging fees, cross-selling of products, the culture of conflictive remuneration in meeting sales targets, and unethical and illegal conduct, because people are under pressure. I've worked in banks. I've worked in a sales culture. I used to live for my bonus; I have admitted that in this place a lot of times. I know what it's like. I absolutely know what it's like and I know the pressure some people are under. It puts people under pressure to behave badly, to cut corners, to ignore the law and to take shortcuts. And, unfortunately, these costs—if these employees are caught—are borne by the employees, as we've seen in some of our inquiries, although I don't believe necessarily that a lot of the penalties have been enough, and they are seldom ever borne by senior management. That is one thing I hope this royal commission really looks into.

I hope it looks at all the communications between senior management and lower management and staff around these issues. Who's been passing the buck? Once again, it is not just a pun in this case. Who has been passing the buck? Well, it hasn't really affected the salaries of senior management at any of these banks, let me tell you. And the other costs are the duress and loss of quality of life for victims of financial crime and, of course, the systemic risks that we see in our market, which, by the way, is exactly what led to financial contagion and the biggest financial catastrophe this modern society of ours has ever seen: the global financial crisis.

If you're a small government and you don't believe in regulation, well ask yourself: how did the GFC happen in the first place? It happened because of a lack of regulation and a lack of resources. Who could say that the opportunity costs, the direct costs, of that financial crisis weren't severe? They are still being borne by taxpayers all around the world. Very few bankers have ever borne any of those costs. There is plenty of literature around to support that.

If we cap executive salaries in the banks, would we be the first parliament to do it? Well, it might surprise some senators in here that other parliaments have looked at this. Other countries have looked at this. But one country started looking at this in 2010 and brought in legislation in 2012 that put more onerous restrictions on executive accountability, including remuneration. Eventually, in 2016 they brought in the first laws in the world that capped total remuneration for banking CEOs. That was Israel. In 2016 Israel capped salaries for bank CEOs at a multiple of 44 times the salary of the lowest worker of the company, or 2.5 million shekels, which is about 460,000 pounds a year. Our amendment looks at capping salaries at 10 times average weekly earnings—that's about eight hundred grand—and five times for variable remuneration, so you're looking at about $1.2 or $1.3 million. That is almost in line with what Israel have capped their total executive salary at. Let me read to you why the Israelis did this:

The legislation was pushed through by the finance minister, Moshe Kahlon, who, before last year’s parliamentary elections, ran on a platform of lowering the cost of living and reforming Israel’s banks.

The Israeli parliament voted unanimously 56-0 to cap executive salaries at banks. The article said:

Bankers' pay is a sensitive issue in Israel, especially since banks make large profits partly from a wide variety of fees on such things as deposits and withdrawals.

Bank salaries were unjustifiable and had been going through the roof for some time. Mr Kahlon said:

There is a moral significance beyond the economic significance in this law. It symbolises narrowing pay gaps, solidarity and consideration for the weak—

and the poor. He goes on to talk about how this is one way Israel has tackled inequality in its country.

It may appear symbolic because we're not talking about a very large number of executives, but it's really, really important. We could actually do it today if the Senate supports the Greens' amendment. We could do what Israel's done and take a quantum leap in narrowing the gap on inequality. It is the most sensible thing we can do to actually change the culture in a large financial services company. How many Australians wouldn't agree that 10 times average weekly earnings, or five times average weekly earnings, for a bonus—15 times—is still not an incredible amount of money? That's a lot more than we're paid, and rightly so. It's three or four times what the Prime Minister in this country is paid. There's no justification for the salaries that these CEOs are taking.

I will go through our amendments in more detail in committee and will continue to push the Greens' case for why we should be reforming executive remuneration. Let me say: this legislation does actually attempt to do something about executive remuneration. That is why there are some Liberals in this place and in the other place who have been complaining that this is a fundamental breach of faith with Liberal Party principles—the fact that the government is reaching its hand into regulating remuneration for banks. But all this legislation does is potentially defer the tens of millions of dollars that these CEOs are being paid for risk-taking behaviour for between one and four years. If I've got $10 million in deferred pay for four years, there are some opportunity costs for me not investing that money, but it's hardly even a slap on the wrist. We can go a lot further and actually fix this today.

I do want to move a second reading amendment on behalf of the Australian Greens. I move:

At the end of the motion, add "but the Senate calls upon the Government to initiate a review by the Council of Financial Regulators, within two years of the commencement of the Act, in respect of whether the Act provides adequate regulation to directly protect consumer outcomes, and whether the scope of the Act should be expanded to cover the entire financial sector."

What we're looking at there is simply saying, 'Let's see how this goes.' Similar systems to what we're debating today have been put in place in other countries. Let's see how it goes and then let's expand it to the rest of the sector. I hope that's not something that anyone would disagree with. It's a perfectly reasonable suggestion. I will go through my other amendments in more detail when I get to them in the committee stage.

I just want to reiterate that even the Harvard Law School has done a forum on this. It said:

The issue of executive compensation has been on the forefront of corporate governance discussion around the world in the past [decade].

We need to represent our communities in here. We need to actually take action that will help fix the problems that we have in our financial services culture. I'm proud to be part of a party that has worked with Senator Williams and the Nationals and with the Labor Party—and I recognise the work that Senator Dastyari did, especially before he left this place—in helping to get a banking royal commission in place. That kicks off next week. I hope that's a thorough investigation. I've told the CEOs of the banks directly myself, 'If it's not, if this is a whitewash, then, if you think this has been a big political issue until now, wait and see what happens going into the next federal election.'

This needs to be a proper investigation. We need to make sure that we learn from the lessons of history, that we don't have a repeat of what we've seen in the last 15 years and that we don't go through another GFC caused by excessive greed and putting profits first before people. The untold damage that that kind of behaviour has caused—not just in the US or Australia, but around the entire globe; it is the entire contagion that we've seen throughout our economic system—is still being felt today.

And we should not be taking our foot off any throats. We should be looking at new ways to make sure that kind of risk-taking behaviour doesn't happen again, and that people who are representing us in what is an essential industry—the banking and financial services industry—do it properly and do it with standards, so that we can all have trust in them, trust in our financial planning and trust in the future wealth of our nation.

The single biggest thing we can now do is support this Greens amendment to cap executive salaries. The Israeli parliament did it. It took them 10 years of debate to get there. It may take 10 years of debate here to get there, but we are floating this idea today. There'll be more legislation to come on this. It's not going to go away. It's a bloody good idea. Everybody should get behind it.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

Following on from Senator Whish-Wilson, I find it a little ironic that the Greens are following Israel. That's something different! Anyway, I rise to support the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. I wish we didn't have to. I sincerely wish this legislation was not in front of us, but there have been many problems.

Can I start by saying that when Senator Cameron made his contribution he was saying how the government would not support a royal commission. I remember back in 2013 when Senator O'Neill was in government and Senator Cameron was in government. It was actually Senator Cameron who came to me during Senate estimates when I asked Mr Peter Kell, the deputy chair of ASIC, 'Mr Kell, why did it take you 16 months to pay attention to the whistleblower Jeff Morris and the ferrets from Commonwealth Financial Planning?' Mr Kell said, 'We got a great result. We got an enforceable undertaking.' I said, 'I didn't ask what sort of results you got; I asked why did ASIC take 16 months to act?' He said, 'The enforceable undertaking is working really well.' I turned to the chair, Mark Bishop, a former Labor Western Australian senator and a good bloke, and said, 'Chair, how do you get an answer out of these people?' And the then senator Mark Bishop said, 'Well, Senator Williams, I can't tell them how to answer their questions, and we'll leave it at that.' I think the chair had a few words to ASIC after that, but Senator Cameron came in behind me. I remember him saying, 'Mr Kell, don't give me the run-around like you gave Senator Williams; I can give you the drum now.' Senator Cameron went right off at them, and we had a chat outside the room. It was Senator Cameron's idea that we have an inquiry into ASIC and how they perform—how they do their job.

I've been frustrated with ASIC for many years around liquidators' issues and things that I thought people were doing wrong and were never brought to account for. ASIC were too slow to move, and so on. We did that through the whole liquidators' inquiry, where we recommended stripping the management of liquidators—the insolvency practitioners—off ASIC. Anyway, we had the inquiry, and what did that inquiry recommend through Senator Bishop? It recommended a royal commission. Who was in government? The Labor Party was in government. Did they endorse the recommendations of the committee? No, of course they didn't. Yet, Senator Cameron stands here now and says, 'We've been pushing for the royal commission for years.' No, when you were in government you had the opportunity and the recommendation from the Economics References Committee.

We should have had this years and years ago. I remember the Greens and Senator Whish-Wilson moving motions that the Senate call for a royal commission into the banking industry. I crossed the floor. I sat over there with you.

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

It's called a stunt!

John Williams (NSW, National Party) Share this | Link to this | Hansard source

It was never a stunt. The Greens wouldn't move a stunt in this place, would they?

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

No!

John Williams (NSW, National Party) Share this | Link to this | Hansard source

No, not likely. But, you see, I'm a member of the National Party. And my friend here, Minister Ruston, sitting in front of me, is a member of the Liberal Party. On this side of the chamber, you're free to vote where you like. I exercised that freedom to cross the floor and vote with the Greens. Many Liberals and many National Party senators and MPs have done that over a long period of time. On this side of the chamber, we're very proud that we are free to vote where we wish to vote. But, of course, Senator Cameron and Senator Dastyari voted over there with the noes. You'd remember that, Senator Whish-Wilson. They wouldn't back their arguments up. They wouldn't come over and vote with us going for a royal commission. So, I think it's just a little bit over the top that Senator Cameron goes on with his spiel here about royal commissions into the finance sector. He was in government when they could have done it—he could have come and voted with us when the Greens called for it, but he didn't.

However, we move on. As I said, I'll speak about this legislation in summary, but I wish we weren't bringing it forward. When was the last time Australia had a royal commission into the banking sector? I'll tell you when it was: it was the early 1930s. There was an election. The United Australia Party did not secure the numbers to govern. So they went to the then Country Party's Sir Earle Page and said, 'We may have to form a coalition to form government.' Sir Earle Page said, 'That's fine. We went to the election promising a royal commission into the banking sector'—the then Country Party did; it is now, of course, the National Party. So they had the royal commission. Out of that came the licensing of banks and the transparency on declaration of their profits. That was driven by the Country Party, demanded by that coalition forming government. History does repeat itself, doesn't it, because you know very well my colleague Senator Barry O'Sullivan—who, I must admit, and I'm his whip, can't be pushed around in this place very easily—pushed strongly for this royal commission. But I wish we didn't have to have it.

Back in the seventies, I grew up in Jamestown. You know very well where that is, Mr Acting Deputy President Bernardi; it's in your electorate. I remember that Malcolm Axford, son of farmer Rex Axford and Mrs Axford, was appointed to a job when he left school—I think leaving was the year, not matriculation—with the local bank. That was the talk of the town, to get appointed to the bank. It was, 'Well, you're the luckiest person in the district! It's a job for life; a very proud job; a very respected job.' In the seventies, when I was a young feller shearing sheep, driving trucks and working on my father's and brother's farm, the most respected person in the town was the local bank manager. Of course, in a little country town like Jamestown in the mid-north of South Australia, everyone knew the bank managers—everyone.

Sadly, that is not the case today, because I believe this culture of profit, where the loans officers have to meet so many targets for lending each month, and where the investments officers also have to meet targets, perhaps has led to wrongdoing. When we launched the inquiry into ASIC, out of that came all the financial planning wrongdoing, and of course that followed on from where it all started, back with the first inquiry into Storm Financial—the PJC on corporations and financial services, kicked off under former Labor MP Bernie Ripoll. Out of that came the FOFA, the Future of Financial Advice, agreements. And the ASIC inquiry, of course, brought out a lot more. So it went from one incident to another.

We met with people who had been severely damaged. To go back to Storm Financial: it was destined to fail from day one. If we'd had Storm Financial today, with the last two nights of the stock market in America and now in Australia tumbling, those trigger points would not have been met. But people were told, 'Mortgage your house. Gear up.' If you had a house worth, say, $1 million, you'd borrow $500,000 against your house and use that as a deposit on a $3 million loan. You had $3 million worth of shares. That's how Storm Financial worked. Those $3 million worth of shares would pay you a retirement fund of, say, $50,000 a year and meet the commitments on your $3 million loan. Well, that's all fine while the market's going up and the dividends are going up. But, just like aeroplanes, they can go up but they have to come down to refuel at times. We see that in the stock market often.

When the 2008 global financial crisis crash came along, it was brought about by bad banking in America. It was President Bill Clinton who caused the changes in the rules. A bank could have five per cent subprime loans; the rest had to be prime loans. So they kept the five per cent, but Mr Clinton altered the legislation, the rules, so that the bank could sell off their five per cent of subprime loans—and they were not good loans at all; history will tell you that. Then, when they sold them off to local councils in Australia investing money or to people in Europe or wherever, they'd have another five per cent of subprime loans, and then they'd sell them off.

Of course, it all turned to tears when the real estate industry in America got into trouble. The stock market crash came and we had the case of Storm Financial and many other wrongdoings being carried out. Since that time, we've seen the mess in the financial planning industry. I must give ASIC credit—something I don't do very often—because last year they banned 46 financial planners, which is a big improvement in the job. We have the register up and running now. We have new training laws in place to lift the standards of financial planners. The people I really feel sorry for are those thousands and thousands of good financial planners in Australia, who have done the right thing, who have put their clients first and put them into safe investments. But it's always a minority. Of the small percentage of bad financial planners who were banned, one in particular comes to mind. Ricky Gillespie pleaded guilty to criminal charges just recently. He was fined $3,000 and no conviction was recorded. What about the clients he destroyed? I think he got off very lightly. However, we'll leave people to form their own opinion on that.

Senator O'Neill, who's sitting opposite me, and I have been winding up a long parliamentary joint committee investigation into life insurance. The committee will probably report next week, I'd imagine, Senator O'Neill. It's a big report. Why was it brought about? By life insurance companies doing the wrong thing, cheating outdated medical qualifications and criteria, where people who'd had a heart attack were not paid their trauma insurance. We heard all about that, and I'm sure Senator O'Neill will have more to say about that next week when the report comes out.

We've got the bank bill swap rate, where ASIC, to their credit—I'll give them credit again—have taken NAB, Westpac and ANZ to court. Westpac are fighting the case and I'm not going to comment on that; I'll leave that for the courts to decide. But there have been settlements with NAB and ANZ; I think a total of $100 million between them. One would think that banks don't throw away $50 million if they think they're on very sound legal ground. It's not normal for them to do that. Then, of course, we've got AUSTRAC. This is the biggest concern of all—the 53,000-plus cases of breaches of AUSTRAC regulations that are in front of the court now, where money was deposited in the Commonwealth Bank's IDMs, their internal deposit machines. Apparently, the settings on the machines were wrong and they were breaching the law in not reporting on deposits over $10,000. Where was that money going? We don't know. Time will tell, but it is alleged that some of that money was going overseas to drug lords, some even going overseas to finance terrorists—terrorists who want to kill ordinary, innocent human beings. It is very scary.

Who's to blame for all this? As I said to one senior bank officer, you've only got yourselves to blame if you have a royal commission. It's this culture of profits before people no matter what, and people meeting targets and getting bonuses—'Can we get a bit of money out of this to increase profit?' I know it's tough for the big institutions. If you've got 40,000 or 50,000 people working for you, it's extremely difficult to keep an eye on each and every one to see they're doing the right thing. Crime's been going on for a long, long time. As I said, it is disappointing that we have to bring this legislation forward. I wish we didn't have to.

I will go through some of the ASIC media releases of the last few weeks. There was 'ASIC reports on how large financial institutions manage conflicts of interest in financial advice':

The review found that, overall, 79% of the financial products on the firms' approved products lists (APL) were external products and 21% were internal or 'in-house' products. However, 68% of clients' funds were invested in in-house products.

The approved product lists—we're familiar with those through our life insurance inquiry. I'm sure Senator Ketter and Senator O'Neill are very familiar with those. On 18 January: 'ASIC acts against ANZ for breaching responsible lending laws in its former Esanda car finance business.' Civil penalties are proceeding. On 18 January again: 'ASIC bans former Commonwealth Financial Planning adviser for 5 years.' I won't name the lady. She's probably embarrassed enough now, but if what ASIC's done is right, she's only got herself to blame. On 17 January: 'Suncorp refunds $17.2 million in add-on insurance premiums.' That is another issue. On 19 December last year: 'NAB refunds $1.7 million for overcharging interest on home loans.' Why? On 14 December last year: 'Westpac refunds $11 million to interest-only customers.' This is some of the work that ASIC has done. I do believe they've lifted their game.

This legislation is basically saying, 'You, at the top, are responsible'. That's how it should be. If one of my staff make a mistake in the media or on one of my entitlements or my travel claims—it's almost hypothetical, because I have very good staff, the same four staff, who have been with me for 9½ years. That situation is probably pretty rare around here. They know their job. But if one of them makes a mistake, the buck stops with me. I can't blame my staff. I'm the boss. It stops with me. Likewise with these institutions, the buck stops with those at the top. They are responsible for the culture, the management and those underneath them. That's what this BEAR legislation is doing. It's saying, 'Righto, you at the top: lift your game.'

I was only saying to Ross Greenwood on 2GB last week, a very good bloke and a very decent business reporter: 'I have confidence in Catherine Livingstone at the Commonwealth Bank. I think she, as the chair, is determined to see that the wrongs are righted, the culture is changed and their reputation is repaired.' That is likewise with many institutions, not only the big banks. There's one person—I won't mention his name—who's been charged for $100 million that's disappeared on the Gold Coast. As a good friend of mine once said: 'Years ago, robbers rob with a pistol or a gun; now they rob with a biro.' That seems to be the case, and we need to clean this up for future generations.

I hope the royal commission brings out all the wrongdoings, and those who've done wrong are punished or made to pay restitution. Hopefully we have a royal commission where everything's squeaky-clean. Hopefully that'll be the case, because we need to return confidence back to our finance institutions, whether they're financial planners, life insurers, advisers, whether they're lending us money, investing our money or whatever. I think this whole culture of profit—look, don't get me wrong; profit is a very good thing. If a business doesn't make a profit, it goes broke and then everyone loses their jobs, but you have to make your profit fairly and honestly.

I am very grateful that we have strong financial banks in Australia. Each and every one of us—probably the whole lot of us—needs a bank at some stage of our lives, whether it be a credit card, personal loan, home loan, car loan or whatever. We depend so much on the banks. We virtually can't exist in this day and age without assistance from the banks and the service they provide. I hope they remain profitable and strong, but they have to do it in the right fashion and change their reputation. As I said, it's disappointing we have to do this legislation. I support it, but it's a case of saying: 'Righto, you at the top, see that your business is doing the right thing. See that you do the right thing in the future.'

With a royal commission now proceeding, there'll be a lot of submissions, no doubt. I've been talking to some people who are having a few problems. I'm not going to disclose them here and now. Let's hope that the culture does change, that the reputation changes, that the banks, life insurance companies and planners et cetera do the right thing for the future. Let's hope we can look forward to decades—not just years, but decades—of total confidence in our financial institutions, that their reputations are repaired, that people's faith in them is restored and that they have good, honest leadership to see they do the right thing. With that, I commend the legislation before us.

Deborah O'Neill (NSW, Australian Labor Party, Shadow Assistant Minister for Innovation) Share this | Link to this | Hansard source

I rise to commence my remarks before we go to question time in response to the piece of legislation that's before the chamber at the moment, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018, commonly known as BEAR. I do wonder about the names that are given to some of the legislation around this place. You have to think that some bright spark must have decided the image of a bear—a great, fierce animal, standing up to the banking sector—might make for a good name for this bill and said: 'If we want to look like we're a tough, hardworking government and we're going to look after the banking sector and protect ordinary Australians, we'll call our legislation something fierce; let's call it the BEAR bill.' Well, that's what we've got.

Let me take you to a source that I think Australians should trust a lot more than the language games and the legislative games of this government. I want to take you to some comments by Choice, that very important consumer advocacy organisation in our society. This is what Choice had to say about what is really going on with this legislation that's before the chamber to be voted on probably at some time today. In asking the committee to assist them, Choice 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.

We hope that the requirement for accountable persons to pay due regard to the interests of consumers and treat them fairly can be added to the BEAR. As it stands, what we've got is a bit of a teddy bear.

And that is the reality of what this government is putting forward today here in this parliament.

If those who are joining me here in the chamber were able to sit still and listen to the most recent contribution from the government, from Senator Williams, they would have heard a free-ranging and, I think, very honest assessment of the multitude of problems that have beset the banking sector across this nation. It has been a litany of failures. Every major bank that trades in this country, every single one of them, got a mention in Senator Williams' speech. What we didn't get from Senator Williams was anything about the teeth that are required to actually call that sector to account.

This is a cover piece of legislation, the sort of legislation that you might call a Clayton's piece of legislation that makes you look like you're doing something when you're not really doing it. This government are alive to the fact that Australians are very concerned about what's been going on in the banking sector. They want to look like they are doing something even when they aren't. We know that, in the last budget, this government announced that they proposed to introduce this legislation and they claimed it would enhance the responsibility and accountability of, in particular, the directors and executives.

The way that I feel about this legislation as a Labor senator is the way that parents often feel about the children that they love when they don't quite meet their expectations, where they've got enough love there in the relationship that they go, 'Well, it's not exactly what I was hoping for, but you've got pretty close to the mark, and that'll be okay.' This piece of legislation excuses the banks from genuine accountability. We have never, ever thought, for one moment, that what's proposed in this piece of legislation is adequate to do the job that needs to be done to provide proper protection for Australians through their banking sector.

Labor has long called for a proper banking royal commission and, when we return to consider this bill a little later, I will be making some extensive remarks about the way in which this government was dragged kicking and screaming to institute fake terms of reference for dealing with a banking royal commission. They haven't gone to the heart of the matter. Instead of taking on terms that Labor had out for public discussion for a long period of time, this government has provided a set of terms of reference that were essentially written by the banks themselves. So this piece of legislation is the best that the government can do, but it is nowhere near adequate to meet the needs of the Australian banking sector.

Debate interrupted.