Australia Needs a Stronger Corporate Regulator - Terri Butler MP, Labor for Griffith

Australia Needs a Stronger Corporate Regulator

You can read the full speech below

Of course I rise to support the general thrust of this bill, because it will add to the governance of the Australian Securities and Investments Commission, but I want to make some comments arising from the second reading amendment that the member for Kingsford Smith moved. I think it's important at this juncture, as we reflect on the evidence that's been elicited through the royal commission into the banks and some of the commentary that's been around in respect to that evidence, to give a bit of context around a few things we should have learnt from recent and slightly less-recent circumstances.

There are a few things we should have learnt from the global financial crisis. There are a few things we should have learnt from fees-for-no-service scandals. There are a few things we should be learning now from the banking royal commission. One of those is that we need a strong regulator. Another is that we need strong regulations. A third is that we need to address the power imbalance between consumers and banks. Deputy Speaker Irons, how many times have you heard—and I'm sure it's quite a few, given that you're the chair of the Parliamentary Joint Committee on Corporations and Financial Services—people saying to you, 'You just can't beat the banks'? That's what people in my electorate say to me. They feel powerless in the face of banking misconduct and, more broadly, in the face of banking power. You can see why people might feel that way when you hear scandals like fees for no service or just the everyday price gouging, the fees in relation to ATM use or the very high credit card interest rates. It's no wonder people feel powerless in the face of banking and financial services in Australia.

The reason I want to talk about these three things is that we are dealing with a bill that arises—belatedly, admittedly—from the financial systems inquiry report that was handed down in mid-2014. I know the government gave its reply in October 2015, more than 12 months after the report was handed down. I also know that we are just now, in 2018, looking at some implementation of the recommendations, in respect of banking and financial services regulation, that were made in that 2014 report. I want to make the point that the answer to the problems of neoliberalism, problems like instability and predatory practices, is not more neoliberalism. This is an experiment that has failed.

We are today seeing the legacy of decades of neoliberalism across this world. We are seeing its legacy here in Australia. We are seeing its legacy in the United States and the United Kingdom. And we are seeing its legacy from the global financial crisis that shook the world and became what is known outside Australia as the great recession. Of course, it's not known as that here—because we didn't go into recession during the global financial crisis in Australia. But every other major economy did. The world very briefly started to learn the lessons of that financial crisis and started to turn to greater regulation of financial services. Unfortunately, we have already lost that motivation and momentum to look at greater regulation. That is a very grave shame. If we look back at what's happened in the intervening decades since the global financial crisis, we should all be very worried about the propensity of current systems to lead to further crises.

I want to talk about three things I think we need: a strong regulator, strong regulations for the regulator to enforce, and empowered consumers. I have heard some members of the Liberal and National parties suggesting that somehow it can be laid at the feet of the Australian Securities and Investments Commission that banking and financial services misconduct has been occurring in this country. We all want to see ASIC step up, be a great regulator and enforce the law very well. But let's not make any bones about it, this is a regulator that has had its funding cut. The 2014 budget cut $120.1 million from ASIC over five years. Dribs and drabs of funding have been restored to ASIC since then, but not enough to make up for the cuts that were made in 2014.

We also saw the attempt to remove ASIC and other white-collar regulators from the use of telecommunications data, the metadata regime, when it was overhauled. It was Labor that fought to have white-collar enforcement agencies like ASIC included in the regime. And not only has ASIC been deprived of resourcing; they have also been deprived of the regulatory tool kit that has been recommended for them. One of the things that was recommended in the financial systems inquiry was some additional powers for ASIC, not just for enforcement but for making regulations. And we're finally seeing now, in 2018, almost four years after the financial services inquiry report was handed down, some implementation of those additional powers in relation to the creation of design and distribution obligations and in relation to temporary product intervention. So the government has not only sought to tie ASIC's hands behind it back by reducing resourcing; it has failed to equip ASIC with the tools that even the government's own financial systems inquiry—it was conducted independently but it was commissioned by the government—recommended would be required for ASIC to be able to be a better regulator.

And it's not just that the government has failed to properly deal with the cuts that were made back in 2014, it's not just about the very slow movement when it comes to equipping ASIC with those powers that were proposed in the financial systems inquiry. It's also that the government has basically said to ASIC: 'Keep your hands off the banks'—in big glaring letters. In 2014 the then new government gave ASIC a statement of expectations. What was in that statement? The very final concluding paragraph summarised what the government wanted from ASIC. It said that the government wanted ASIC to 'reduce compliance costs for business'. That's what the government wanted ASIC to do.

That statement of expectations had very little to say about consumer protection but a lot to say about 'risk based enforcement'. Risk based enforcement means: 'Don't enforce the law against everyone, just go after some big fish.' It also spoke about 'principles based regulation'. That means: 'Hands off, light touch, be general, don't be prescriptive.' So with those three things in it—the direction to reduce compliance cost for business, risk based enforcement and principles based regulation—and the failure to have a focus on consumer protection, the statement of expectations basically said to ASIC: 'Be a light-touch regulator. Hands off. Let the market do its work. Work with the regulated population.' Of course ASIC should have a relationship with those it seeks to regulate, of course it should understand the industry; but there's always a trade-off, isn't there?

The closer you get to industry the better you may understand it, but the closer you are to an industry the more difficult it can become to be a tough cop on the beat in respect of that industry.

ASIC was told to engage in this very light-touch, hands-off approach by the then Treasurer in 2014. For this government to now stand up and say, 'Well, ASIC should have been a firmer hand; it should have been a stronger regulator; it should have been a tougher cop,' sits a bit ill in the mouth of a government that failed to create a statement of expectations that told ASIC to do those things. The Financial System Inquiry recommended a new statement of expectations be issued back in 2014, and in 2015 the government said, 'Yes, we'll do that by mid-2016.' When was it announced? It was announced in March 2018. That's when that new statement of expectations was announced. The government, having been dragged to looking at the actions of ASIC by the royal commission into the banks and by the work of Labor and others, finally got around to saying, 'We're so happy to make an announcement. We've finally settled on a new statement of expectations.' Well, that's great. That's fantastic—you were told about this in 2014! Four years is a long time for people to have to wait for the government to finally take some action on that.

Do you know what it reminds me of? It reminds me of the government's approach to the banking royal commission. We had 601 days of excuses, delays, obfuscations and refusal before we finally got a banking royal commission. After Labor campaigned so hard for it and kept pushing for it in this parliament and after members of the community demanded it, we finally got a banking royal commission—and thank goodness we did. I know there would be people out there watching it very closely and seeing some of the stories—stories about charging fees to people after they have died, more stories about misconduct and more stories about poor behaviour.

I'm very pleased that we finally have a banking royal commission. I'm sad that it took 601 days. I think it was pretty gobsmacking for the Prime Minister to say, 'I'm sorry; it obviously was a political mistake to oppose the royal commission.' How out of touch do you have to be to think that the main problem with refusing to support the royal commission was the political cost to the government? This isn't about the government. It's not about the polls. It's not about how popular the government is. It's about the fact that this conduct could have been exposed sooner, that this royal commission could have commenced sooner, that this pressure to finally take action to enforce the law, to equip the regulator with powers, to work on creating the competition mandate—another thing that's been under discussion for a very long time—and to work on creating the product intervention powers and the disclosure and distribution obligations could have commenced sooner. The pressure to do all of the things that the government said back in 2015 that it would do could have come on sooner if the banking royal commission had started a little sooner.

These ideas about how to make our regulator stronger have to be situated within the broader context of changing the way we think about financial services and banking regulation. The light-touch, hands-off approach isn't working. It's certainly not working now, if it ever worked. I'm pleased to see that the competition mandate has been conferred on ASIC. I'm pleased to see that ASIC will be explicitly required to consider whether there is enough competition in the banking and financial sector. As you know, Deputy Speaker, the previous chair of ASIC said very clearly before our committee that he didn't think there was enough competition within the banking and financial sector.

I'm very pleased that there will be a specific focus on competition, but it's not enough, is it? With the size of this market and the regulation that we have now, we will tend towards an oligopoly. We know we will, because we have—we can see the evidence before us when we look at the financial services sector. We have to take a new approach, and that means saying, 'In Australia, we believe that the banking and financial services sector should serve the people.' It's an industry that is so important to our entire economy. It's important, of course, as an export. It's important that we reach out to other nations with the great financial services that we can offer. But, most importantly, it's important for our domestic economy that we have confidence in the financial sector. To have confidence, we need regulation that will ensure that the banking and financial sector acts in a way that serves the interests of the community. We need to remove perverse incentives to engage in wrongdoing, misconduct or just garden-variety predatory behaviour.

As I said at the outset, we need consumers to be stronger. It's time for a much stronger consumer protection focus. It is just a nonsense to say that a small-business owner can negotiate on equal footing with one of the big four banks. It is just a nonsense to say that a pensioner can negotiate on equal footing with one of the big four banks. It is just a nonsense to say that a kid out of high school can negotiate on equal footing with one of the big four banks. We need to improve consumer protection in this country. Consumer protection should be at the heart of what we do when we look at how to improve the way that ASIC operates, that banking and finance regulation operates and that general approaches to the market in this country operate. It's not good enough to say: 'We'll leave it to the invisible hand of the market. People's enlightened self-interest will lead to optimal outcomes.' It's not the case. We know it's not the case because we've got decades of neoliberalism to look back on in this country. We know it's not the case because of the evidence that's coming out before the royal commission right now. I appreciate the bill, I respect the moves for greater governance and I hope that things get a little better.

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