Scott Ryan (President) Share this | Link to this | Hansard source

We will now move to business of the Senate notice of motion No. 1, standing in the name of Senator Roberts, pursuant to order. Senator Roberts, you are free to move your motion, and I understand that it is subject to a debate of up to 30 minutes.

Malcolm Roberts (Queensland, Pauline Hanson's One Nation Party) Share this | Link to this | Hansard source

I move:

That the following legislative instruments, made under the Corporations Act 2001, be disallowed:

(a) the ASIC Corporations (Banking Code of Practice - Revocation of 2018 Approval) Instrument 2019/662 [F2019L00877]; and

(b) the ASIC Corporations (Approval of Banking Code of Practice) Instrument 2019/663 [F2019L00878].

As a servant to the people of Queensland and Australia, I speak to my motion to disallow a regulatory instrument approving the 2019 Banking Code of Practice. This motion disallows the 2019 code and restores the 2018 code. That should have been a simple process. But we did run into a problem. The 2018 code of banking practice was submitted in a legislative instrument by the Australian Securities and Investments Commission, ASIC. Then it was defended in this place by the government from a Greens motion to disallow. The problem is a simple one. The 2018 code of banking practice did not exist. The banks knew that, of course, and kept using the 2013 code. If this motion succeeds, the 2013 code will be restored. The public will not be left without protection; the public will have protection.

You don't have to take our word for it. We asked for an opinion from the Law Council, which I circulated today. This opinion is very interesting reading: 'ASIC approval of the code may simply be seen as an endorsement of the code. A disallowance would not have the effect of withdrawing the code; it would simply withdraw ASIC's approval of the code.' I continue quoting from the Law Council: 'Should the royal commission's recommendations regarding enforceable code provisions be implemented, then legislation would be required to introduce the legally enforceable provisions.' The Morrison government has not implemented the recommendations of the royal commission. As a result, the code is not enforceable. If the banks are not following it and ASIC is not enforcing it, what good is the code?

The authority for the Banking Code of Practice is provided by the Corporations Act, chapter 1101A(1), which says:

ASIC must not approve a code … unless it is satisfied that … persons who hold out that they comply with the code will comply with the code …

How many breaches of the code would be needed to show that banks are not complying with the code? I ask you: 10, 20, a hundred, a thousand? It turns out that Australian banks failed to comply with the Banking Code of Practice not 10 times or 20 times, not a hundred times, not a thousand times—it's way worse than that. In 2017-18 Australian banks breached the Banking Code of Practice 10,123 times, creating 3.4 million individual breaches. Certainly, some of those were administrative breaches. But how many instances of failing to comply does it take for this government to actually refuse to reauthorise this voluntary code and, instead, implement the recommendations of the royal commission? Does this government ever keep its promises?

We need real action to correct these terrible failures in this new code. No. 1: this code fails in the most basic of functions of a voluntary code: to provide customers with procedural fairness. No. 2: this code removes any tangible guarantee on privacy and data integrity, allowing banks to harvest and sell customers' data at will. No. 3: this code removes customers' right of access to their whole file. Documents so obtained have been a major source of embarrassment and a legal liability to the banks over the years, so that clearly had to go. No. 4: this code removes the requirement on the banks to have an ISO quality dispute resolution system. That provision had been in since 1993—gone. Banks refused to implement an ISO system, because it introduces a layer of accountability and was likely to cause a higher number of complaints being resolved in the customer's favour. ASIC failed to enforce this provision, despite it being a clear legal requirement of their own regulatory guideline 165. The banks asked to take it out, because it might cost them money, and ASIC said, 'No worries, mate; we'll take it out.' No. 5: this code allows the banks to vary or terminate a loan at any time for any reason, with no warning, under what they call a universal variation clause. This they do frequently, even if the loan is paid up. This allows banks to conduct risk management in an industry or geographic region exposed to external forces, like a live cattle ban or a drought. This code fails to provide any protection for the customer against universal variation clauses.

No. 6: this code removes the obligation on the banks to be a responsible lender and replaces it with the phrase:

… we will exercise the care and skill of a diligent and prudent banker.

There are basic fiduciary duty implications in this approach that need further investigation.

No. 7: the code fails to provide customers with protection from the conflict of interest that a bank often has when appointing closely related valuers, receivers and agents. These entities are professionally required to act on behalf of the customer, not the bank. The code gets around that by permitting a conflict of interest to ensure that these people act for the bank, not the customer. No. 8: the code does not implement the recommendations of the Hayne royal commission.

Let me talk for a moment about honesty. Until 2003, the code included a clause that banks should act honestly. Then it was gone; it disappeared. Why? Because that clause is legally binding on the banks. They put the word 'honest' on the front page of the code, but what they did not mention was that front page motherhood statements are not part of the binding code; they're just words. It's just a facade. There is not a single mention of the banks being honest in the entire code anywhere that binds banking behaviour. Let's look at some banking scandals and ask ourselves if the banks have acted honestly, fairly and according to the law.

In 2017 I chaired the Senate Select Committee on Lending to Primary Production Customers. We travelled around Australia and heard many horror stories about what the banks were doing to everyday Australians from the north to the south, to the west and to the east. They were everyday Australians like the Bradshaws, a hardworking family near Charters Towers, who had two farms worth $9 million and a debt to Rabobank—yes, the international criminal outfit known as Rabobank—of $5 million through a rural overdraft facility secured by a mortgage. Affected by the drought and Prime Minister Gillard's ABC-directed knee-jerk decision to ban live cattle exports, the Bradshaws had trouble meeting their repayments. Rabobank cancelled the facility. On 16 June 2017, despite having complaints and disputes unresolved, Rabobank appointed receivers, Ferrier Hodgson, who just sold the Bradshaws' farms, 2,500 head of cattle, large quantities of hay, plant and all their machinery for around $7 million. That was $2 million under valuation—because, well, what the hell do they care? The agent worked for the banks. Remember that conflict-of-interest thing that I talked about earlier? After paying the bank back, they still had $2 million to start over, except Rabobank never gave it back. They called it a fee and kept it—$2 million.

But, wait, there's more: there were on the farm 200 head of cattle which belonged to a third party, with eartags to prove that. Rabobank's agent sold the cattle and that money was never returned to the actual owners of the cattle. That was another conflict-of-interest issue. The agent should have been working for the young couple who had their cattle and their start in life stolen, but they worked for the bank instead. There was a time in this country when cattle duffing was a capital crime—not apparently nowadays if a bank does it. The code allowed Rabobank to act like this. Clause 77 states: 'We may give you … no notice', of termination of a facility, if, 'based on our reasonable opinion, it is necessary for us to act to manage an immediate risk—that is, a risk to the bank's money, which may be an external risk. Then there is clause 78, which states: 'If you have an … on-demand facility, we may not be required to give you any notice when we require repayment' of the whole facility. Another risk to the bank's profit was contained. The customer lost everything but the code allowed it. It's nothing personal; it's just modern banking.

Let's talk about Michael Sanderson. The Bank of Queensland relied on a non-monetary default clause in Michael Sanderson's loan agreement. It allows the banks to declare a loan to be in default even if the borrower is up to date with their repayments, as Michael Sanderson was. In Mr Sanderson's case, it was due to his change of circumstances, which was a fall in value of Perth property—risk management rears its ugly head again. The Bank of Queensland had too many loans in Perth, prices were falling and their risk needed to be managed. Michael Sanderson lost his house.

ASIC considers the use of these clauses by the Bank of Queensland, owned by Westpac, and the Bendigo and Adelaide Bank so egregious that ASIC is suing those banks for using them. ASIC says that it's an 'unfair' abuse of the significant power imbalance, and that it gives 'banks a one-sided discretion to alter the terms—without the consent of the borrower'. Why then has ASIC just authorised a banking code of practice that includes these very same provisions?

In what amounts to Orwellian double-speak, the Australian Banking Association promotes the 2019 code as a 'rule book for the banks with strong protections for you'. Where were those strong protections for Sam Sciacca from North Queensland, who had a profitable prawn farm until it was hit by Cyclone Larry? Sam had a $20,000 overdraft and a $1.8 million mortgage financed against $6.5 million in assets, yet the ANZ refused to provide half-a-million dollars to repair the farm and tried to force immediate foreclosure, because they were risk-managing businesses in the cyclone area and his farm had to go. Executive bonuses were probably on the line. In two years, the $20,000 overdraft had grown to $450,000 because ANZ charged Sam default fees, penalty fees and interest on his fees. They just kept charging him fees. They're good at it.

Sam, being an enterprising fellow, got the funds to rebuild elsewhere without borrowing. He rebuilt and grew a new crop of prawns, sold those and paid out his overdraft. Seven hundred thousand dollars was deposited with the ANZ, but the ANZ just kept that money. The ANZ refused to put it against his overdraft and foreclosed anyway. In came the receivers—PPB Advisory, now PricewaterhouseCoopers—and Sam was booted out. Over the next year, the receivers acting on behalf of the ANZ had a party, literally. When the farm was eventually sold, the new owners found beer bottles, prawn shells and marijuana plants on the property. What a hell of a party! Let me look at the code again. Here it is. Clause 49 says that banks will 'exercise the care and skill of a diligent and prudent banker'. Skill at what? Rolling joints? Let's call that code breach number 10,124, shall we? By the way, Sam never got back a cent from the ANZ.

Last week, we heard from ASIC Commissioner, Sean Hughes, that one in 10 mortgage borrowers experienced difficulty paying their mortgage within the first year. Isn't there a responsible lending provision in the code to stop that happening? Chapter 17 is entitled 'A responsible approach to lending'. It does not actually say the bank is required to lend responsibly. If ASIC is calling on the banks to lend responsibly and then they sign off on a code that takes out the requirement to lend responsibly, who is at fault? The banks or ASIC?

Why would ASIC produce such a crook code? Well, ASIC did not write the banking code of practice. I'll say it again: ASIC did not write the banking code of practice. The banks have been allowed to write their own code since 2004. ASIC just rubberstamps it. For too long, ASIC has acted more like a lapdog than a watchdog. ASIC is rolling over and playing dead—rolling over and allowing a banking code of practice that has no legally enforceable codes of practice.

Prime Minister Morrison heard about the revolting criminal behaviour that was brought to light in the financial services royal commission. Then he responded by doing virtually nothing. This government has failed miserably to provide leadership on banking regulation. On the Prime Minister's watch, NAB, Westpac, the Commonwealth Bank, ANZ, Rabobank and others have been allowed to run free—free to tear apart hardworking honest Australians; free to tear apart rural and small businesses; free to tear apart families and communities. What is their motivation? Greed and control—an insatiable desire to extract every last morsel for themselves. They are credit creators and asset strippers.

What about the idea of having long-term relationships with customers as real people, real humans? Sadly, that has passed into banking folklore, remembered wistfully by old-timers in moments of self-awareness. The idea of treating customers as human beings was unacceptable to Commonwealth Bank chairman, Ian Narev, who famously instructed an executive expressing such an opinion: 'Temper your sense of justice.' I would submit that ASIC have allowed the banks to do more than just temper their sense of justice; they have allowed banks to dig a hole and bury it. This document is supposed to protect customers, and yet all it does is protect and enable bad banking behaviour.

As I look out at my colleagues in the ALP, I wonder when their 'light on the hill' went out. I wonder when they stopped defending the rights of everyday Australians in favour of serving the interests of wealth and power. One Nation presented our case to the ALP, and they initially expressed interest and then refused to support this motion. They refused to stand up for everyday Australians. They refused to stand up for small businesses and farmers. If the ALP vote in this place today to protect the banks, they will be declaring their transformation is complete—no longer the party of everyday Australians but, rather, the party of global wealth and power. This vote will say more loudly than any before that the ALP is no longer the party of everyday Australians. One Nation is. I ask of this place these simple questions: who runs Australia; and for whom do they run Australia?

Jonathon Duniam (Tasmania, Liberal Party, Assistant Minister for Forestry and Fisheries) Share this | Link to this | Hansard source

I'll be only very brief in responding to Senator Roberts, putting on record the government's opposition to this disallowance motion and just outlining some of the steps that have been taken.

The new Banking Code of Practice contains protections for small businesses and consumers over and above what's already in place and required by law. It's mandatory for all Australian Banking Association members to be signatories to the code. The code has been developed and assessed in a transparent way by ASIC, and, as part of the assessment, ASIC engaged with all relevant stakeholders, including consumer and small business groups, over a period of several months. ASIC has imposed specific conditions on its approval of the code and has the power to revoke its approval of the code at any time, including if it is not satisfied with compliance. Breaches of the code by signatories are reported to the Banking Code Compliance Committee, an independent code-monitoring body established to monitor and oversee compliance with the revised code.

Further, the government is taking action to strengthen the approval framework for industry codes, as a result of the findings of the financial services royal commission. In particular, the government will amend the law in order to provide ASIC with additional powers to approve and enforce industry code provisions. The government is committed to consult and introduce legislation by 30 June next year. The regime will provide that a breach of an enforceable code provision will constitute a breach of the law. The law will also be amended to provide for remedies that may follow such a breach. Once this regime is in place, the government will support ASIC and the ABA taking all necessary steps to have the provisions that govern the terms of the contract designated as an enforceable code provision.

Jenny McAllister (NSW, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

Labor won't be supporting this motion by Senator Roberts. We acknowledge many of the issues that are raised by the community in relation to bank practices, and later in my remarks I will speak a little about some of those issues and the ways that they were revealed in the royal commission. But we know also that the current Banking Code of Practice as approved by ASIC is far from a perfect document, and it doesn't go far enough in protecting the interests of customers or small businesses. However, this code is a strict improvement on the 2018 Banking Code of Practice that it replaces. It provides, amongst other things, additional protections against fees for no service being charged to deceased customers, and we note that a rejection of the approval instrument risks taking these protections away from consumers. So, while we don't support the motion, we do urge ASIC and the ABA to work together to support the Banking Code of Practice, and the government to more rapidly implement the findings of the Hayne royal commission.

Community groups, rightfully, are angry—angry about the banks and their conduct. At the royal commission, we found out that the customers of the major banks were being charged fees for no service at all. We found out that the Commonwealth Bank, through their insurance arm, had misled the Financial Ombudsman Service and withheld medical opinions to avoid paying insurance fees to an individual who had suffered a heart attack. We found out that the National Australia Bank had seen widespread noncompliance amongst its financial advisers in relation to proper witnessing processes. We found out that the ANZ had fallen short of community standards in applying responsible lending obligations to home loan customers. We found out that Westpac had not complied with its responsible lending obligations when increasing credit card limits. Those are only a handful of the stories that were heard at the RC. It is not surprising that the community is fed up and the community wants things to be better.

This version of the banking code is an improvement, but our view is that it does not meet the standards set out by Commissioner Hayne. Commissioner Hayne recommended that the ABA amend the code to provide that banks work better with customers who are not adept with English. This new code does not address that recommendation. Commissioner Hayne recommended that the banking code incorporate provisions relating to default interest on loans secured by agricultural land in a drought area. Even though much of the country remains gripped by drought, this new code does not address that recommendation. I understand that the ABA is working to improve the code, and I urge them to rapidly implement those recommendations made by Commissioner Hayne.

The ABA is not alone in being slow to implement all of the commissioner's recommendations. Labor introduced legislation back in February to end the practice of grandfathering conflicted remuneration, but the government only passed legislation to do so in late October, and the government's legislation takes effect a full year after the Labor bill would have. The government has put off action on hawking until sometime in 2020, even though the issues with the hawking of insurance products were clear well before Hayne reported. The government has yet to issue exposure draft legislation on the removal of the claims handling exemption, even though its own road map claimed they would introduce legislation to the parliament by the end of 2019. There are only eight days left.

So it is not surprising that the community is concerned that the government and the banks are not taking the royal commission seriously. There is a lot to be done, and improving the banking code of practice is part of that task. As I noted earlier, although this code of practice is not perfect, rejecting it—which is what we are being asked to do today—risks taking protections away from consumers. That is why Labor will not be supporting this motion.

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

Just yesterday, the ABC reported that AMP had been caught out charging a dead person. The reason they got caught out was the executor of the deceased estate happened to be Ms Naomi Halpern, who some people in the Senate may well remember from the Timbercorp inquiry. She was a very prominent victim of financial crime in this country. By complete coincidence, after her best friend passed away and she was managing his deceased estate, she noticed that, after six months and after having contacted AMP to let them know the details of his passing, they were still charging fees to the deceased estate. AMP have claimed that they have quickly remedied this and apologised and said that it was an oversight. It does make you wonder whether, if someone had not had the gumption to follow up and prosecute this, that kind of practice would have continued—or how widespread it still is.

This voluntary banking code of conduct is designed purely to increase community trust and confidence in the banking sector following a disastrous decade in Australia—a decade of parliamentary inquiries and a decade of royal commissions. In November last year, I moved to disallow the previous version of this regulation. While I acknowledge that this is an improvement on the previous regulations that came before the Senate, I want to highlight to anybody who might be listening to this debate that, normally, regulatory instruments make changes to the laws of the land. That is what they do. We can do it through legislation or we can do it through regulation. But this regulation is different. This is a regulation that does not regulate. This is a law that has no effect in law. This is a code of practice that has no practical effect. This is the twilight zone of regulatory instruments. It is perhaps why Senator Malcolm Roberts has been attracted to this debate today! Do not ask me why but, when I watch re-runs of The Twilight Zone on 9Gem, channel 92, you do come to mind, Senator Roberts. I have to work on my thinking around that!

This is an unenforceable code. Let me remind the Senate what Royal Commissioner Kenneth Hayne had to say about the banking code of practice in his interim report. He said:

Contravention of … a provision of the … Code may be a breach of contract but otherwise it is not, and will not be, a contravention of law. The Code stands as a set of promises made by the banks enforceable only at the behest of an aggrieved customer. …

The Code is not subject to … the Competition and Consumer Act …

I listened with interest to Senator Duniam's contribution and I will look, with interest, at any changes to that next year. But, as it stands now, the code stands in sharp contrast to generally similar industry codes of practice. In other words, because the financial sector is not regulated under the Competition and Consumer Act, this code is therefore unenforceable by the regulator. Yet ASIC have given this their stamp of approval. I find that very odd, considering ASIC are essentially giving the banks a leg up in terms of their image and their PR campaign.

We agree with Labor on the point that this is an improvement on no code of conduct, but we want to make a very clear statement today: codes of conduct should be mandatory, they should be properly regulated and they should be enforceable in law. We've fought really hard in this chamber, and I'm very proud of the work we've all done in here to hold the big banks and financial services to account. We are hopefully seeing a golden era of legislation and new financial services regulations coming before the Senate in this parliament. I very much look forward to that in the coming years. I urge the Senate to support One Nation's disallowance today and to bring this back as an enforceable mandatory code of conduct.

Cory Bernardi (SA, Australian Conservatives) Share this | Link to this | Hansard source

The question is that the motion moved by Senator Roberts be agreed to.