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Wednesday, 8 February 2017
Page: 360


Senator FIERRAVANTI-WELLS (New South WalesMinister for International Development and the Pacific) (17:43): I move:

That these bills be now read a second time.

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

Leave granted.

The speeches read as follows—

CORPORATIONS AMENDMENT (PROFESSIONAL STANDARDS OF FINANCIAL ADVISERS) BILL 2016

Today I introduce a Bill that will amend the Corporations Act. It will raise the education, training and ethical standards of financial advisers by requiring financial advisers to hold a degree, undertake a professional year, pass an exam, undertake continuous professional development and comply with a Code of Ethics.

In introducing this Bill today, we are implementing our commitment set out in the Government's response to the Financial System Inquiry (FSI). With its introduction, we are also responding to recommendations made by the Parliamentary Joint Committee (PJC) on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and education standards in the financial services industry.

This Government is committed to ensuring Australia has a financial services regulatory regime that enhances confidence and trust by fostering an environment in which financial firms treat customers fairly.

Creating a holistic professional standards framework to raise the competency and professionalism of financial advisers is an important part of our commitment.

Raising the professional standards of financial advisers will play a significant role in improving consumer trust in the financial advice industry, which has had repeated instances of inappropriate behaviour.

Reduced trust acts as a barrier to consumers seeking financial advice, which is an extremely poor outcome for both consumers and industry.

We probably shouldn't be surprised then, that right now only one in every five Australians seeks financial advice.

Appropriate financial advice can significantly improve people's financial wellbeing. That's why we simply must improve trust in the industry so that consumers can have confidence in the advice they're seeking - so they can have recourse to the kind of strategic advice, expertise and knowledge that most everyday people don't normally hold.

Equally important is the sustainable future of the financial advice industry, which is integral to our economy.

I note that the proposed reforms follow important steps already taken by the Government to improve the transparency and accountability of financial advice.

We have already established a register of financial advisers that allows consumers to verify the credentials of financial advisers and be confident that they are appropriately qualified and experienced.

We are also progressing reforms to life insurance advice remuneration structures. These reforms are an important step in addressing concerns that remuneration incentives are affecting the quality of advice provided to consumers and encouraging the unnecessary turnover of policies.

The Government has consulted extensively on the measures in this Bill, which build on the model proposed by the PJC on Corporations and Financial Services, chaired by my colleague Senator David Fawcett, and the recommendations of the FSI. This is an excellent example of different segments of industry working together to build a workable model.

I note that both the FSI and PJC reviews identified that the existing professional standards for financial advisers are too low and do not ensure that all financial advisers have the necessary skills to provide high-quality advice to consumers.

These reviews recognise that the current regulatory framework was not enough to build professionalism in the financial advice industry and has not encouraged this industry to take a greater lead in setting standards.

It is clear that the current framework lacks the incentives to encourage industry to go above and beyond the minimum.

For example, under the current law, advisers can become qualified to provide financial advice after just four days of training, and there are no specific ongoing training requirements beyond that.

There is now widespread support among industry, consumer groups, the Government and Parliament to raise education, training and ethical standards of financial advisers.

It is clear that the time is right. We must take advantage of this momentum.

The establishment of the standards body will be the first important step on the road to professionalism.

Under this proposed legislation, we will establish a standards body, as a Commonwealth company limited guarantee, to set education standards, professional year and continuing professional development requirements.

The body will also develop an exam and a comprehensive code of ethics for all financial advisers.

Establishing the standards body as a Commonwealth company will balance the body's independence with industry and consumer engagement.

It will also minimise the Government's footprint and allow for the possibility of easily transferring the standards body back to industry once trust and confidence in the sector is restored.

The Government will have no direct control over the entity's day-to-day operations, but, should the body not comply with its obligations, the responsible Minister may give the body a written direction.

Such a direction would only occur in very exceptional circumstances.

The Government will be responsible for all appointments to the board, which will comprise an independent chair, three industry representatives, three consumer representatives, an academic and an ethicist.

Industry will have a key role in the proposed model and will be consulted extensively as the body sets standards.

This is critical because industry must have a stake in the standards-making process if it is to truly professionalise and develop standards above the minimum.

Under the reforms, financial advisers who provide personal advice to retail clients on more complex products will need to meet the new standards.

Financial advisers who are only authorised to provide general advice or personal advice on less complex financial products, such as general insurance, will not be required to comply with the new standards.

The Australian Securities and Investments Commission will continue to set education and training standards for advisers who are only authorised to provide general advice or advice on less complex products.

New financial advisers will require a degree, while existing advisers will need to meet a standard equivalent to a degree set by the standards body.

While the detail will ultimately be set by the new standards body, it is important to note that not all existing advisers will have to return to university and complete a three-year degree program.

Some may not, but a majority are likely to receive credit for the education or training that they have already completed and will only need to gap-fill or undertake bridging courses to meet the standard required.

Existing advisers have from 1 January 2019 to 1 January 2024 to meet the new education standards.

While I commend the actions of some licensees who have already introduced a degree requirement for their financial advisers, Government action is necessary in this space to ensure minimum standards apply across the whole industry.

The FSI found that low adviser competence was a factor in many of the recent high-profile instances of consumers receiving inappropriate financial advice and contributed to the low demand for financial advice.

The fact that an adviser could reach accreditation in four days has given the industry a bad image.

That's obviously not good enough and there is clearly room to do better if the industry is to reach its true potential.

A core feature of these reforms is the requirement that all advisers complete an exam set by the new standard body.

Such a requirement already exists in the United States, Britain, Canada, Singapore and Hong Kong.

New advisers will need to complete the exam from 1 January 2019. Existing advisers will have from this date until 1 January 2021 to pass the exam.

Collectively with the other measures in this Bill, the exam will play a significant role in improving professional standards of financial advisers.

It will objectively test and strengthen the practical and ethical knowledge of existing advisers with immediate effect and will help renew confidence in the industry without significant lag times.

From 1 January 2019, all new entrants will need to undertake a professional year set by the new standards body.

This will involve at least one year of work and training to ensure that new entrants are mentored and assessed before they are fully authorised to provide unsupervised advice to clients.

Under the reforms, new entrants who have completed their degree and passed the exam will be able to provide advice on a supervised basis during the professional year.

The professional year trainee will be required to disclose to clients that they are completing the professional year and that they are not permitted to give advice unsupervised.

The Register of Financial Advisers will clearly show that the person is completing their professional year and only authorised to give advice under strict supervision.

A supervising adviser will need to ensure that the new financial adviser is appropriately supervised and take responsibility for all advice given by the new financial adviser during the professional year.

The standards body will develop guidelines on what constitutes 'appropriate supervision'.

Existing advisers will not need to undertake a professional year.

All advisers, both new and existing, will be required to undertake continuing professional development.

The new standards body will determine the requirements for continuing professional development, including the number of hours that advisers need to complete and which courses satisfy the requirements.

This requirement will ensure financial advisers are keeping up-to-date with relevant training, information, skills and knowledge to remain competent in providing advice to consumers.

Roy Morgan reported in its 2014 State of the Nation report that only 25 per cent of Australians rate financial planners' standards of ethics and honesty as 'very high' or 'high'.

This percentage must improve if the financial services industry is to meet the expectations of consumers.

In a more recent survey, up to 85 per cent of practicing financial advisers indicated that they support the introduction of a single, unified code of ethics.1

It is clear that financial advisers are hearing these concerns.

On the back of these concerns and the recommendations by the PJC, the Government is requiring all financial advisers to subscribe to a code of ethics by 1 January 2020.

The new standards body will establish a single, uniform code of ethics that will set out principles designed to help financial advisers conduct business honestly and with integrity.

All financial advisers will need to be covered by an ASIC-approved compliance scheme, which will set out how the Code will be monitored and enforced.

The compliance scheme will set out the arrangements for monitoring compliance, the sanctions for breaching the Code, the process for consumers to make complaints, and the process for resolving disputes between the monitoring body and the financial adviser.

The compliance scheme will specify which 'monitoring body' is responsible for enforcing compliance - this could be either a professional association or a third party who is independent of the licensee.

It is important to note the significant role that professional associations, independent third parties and licensees will play in implementing these reforms.

These institutions will be directly responsible for ensuring financial advisers comply with the new standards.

Professional associations are likely to offer training and education services to their members, to assist them to prepare and meet the new standards.

I note that many of these associations, particularly those in Industry Consensus Group, have been instrumental in the development of these reforms.

I would like to thank Senator David Fawcett and the members of the PJC for their important contributions and I also wish to acknowledge the work of my predecessors.

It is anticipated that the new standards body will be established by mid-2017.

The new education, exam, professional year and continuing professional development requirements apply from 1 January 2019.

Existing advisers will have until 1 January 2021 to pass the exam and 1 January 2024 to meet the degree equivalent requirement.

The provisions relating to the Code of Ethics take effect from 1 January 2020.

In closing, I note that these reforms represent a necessary and valuable change to the current regulatory environment for financial advisers, and are important steps in professionalising the industry.

Not only will they deliver significant benefits to consumers, they will also help maintain trust and confidence in the financial system.

1 Heggen, C., Kerry, M., Raftery, A., & Singh, H., 2015, 'Relevant' Training and Professional Standards of Financial Advisers in Australia: Views from Practice: Paper presented at the Personal Finance and Investment Symposium, Brisbane, QLD.

STATUTE UPDATE (A.C.T. SELF-GOVERNMENT (CONSEQUENTIAL PROVISIONS) REGULATIONS) BILL 2016

Today I introduce into Parliament a Bill that will ensure that relevant Commonwealth law will continue to be applied to the Australian Capital Territory.

The Bill will also - in the spirit of red tape reduction - simplify the legislative framework and reduce the amount of legislation users need to consult.

The 'Statute Update (A.C.T. Self-Government (Consequential Provisions) Regulations) Bill 2016', which I am introducing today, will provide for relevant Commonwealth legislation to more clearly apply to the ACT.

As it currently stands, text of applicable Commonwealth law relies on the 'ACT Self-Government (Consequential Provisions) Regulations' (the Regulations).

While the text of some Commonwealth law does not refer to the ACT, a court currently reads that it does because the Regulations make modifications to a number of Acts to ensure they are interpreted as applying to the ACT.

This Bill will repeal certain provisions of the Regulations and modify legislation to remove the complexity associated with the use of the Regulations, simplifying the legislative framework and making it easier for users to interpret and apply the legislation.

The risk of continuing to rely on the Regulations - which are due to sunset in 2018 - are that users of legislation may only consider the Acts, and omit the Regulation's function to include the ACT.

Given the impending sunsetting of the Regulations in 2018, this Bill will make sure the Acts continue to apply to the ACT.

If the Regulations sunset, and the Bill is not passed, the legislation will no longer apply to the ACT.

The function and application of the law itself, will not change.

The Bill will simply change the text of the applicable Commonwealth law to make clear their application to the ACT.

Conclusion

The Bill will ensure that Commonwealth Acts continue to operate in the ACT and result in administrative clarity and efficiency.

I ask both Houses to show bipartisan support for the Bill and its non-controversial measures.

I thank the Office of Parliamentary Counsel and others for the time and effort that went into preparing the Bill.

With this, I commend the Statute Update (A.C.T. Self-Government (Consequential Provisions) Regulations) Bill 2016.

TAX AND SUPERANNUATION LAWS AMENDMENT (2016 MEASURES NO. 2) BILL 2016

This Bill reintroduces measures that were introduced by the Government earlier this year but lapsed when the last Parliament was prorogued.

The Bill, which contains four schedules, amends various taxation laws to improve their flexibility and effectiveness while reducing red-tape on individuals, businesses and community organisations.

Schedule 1 to this Bill establishes a Remedial Power for the Commissioner of Taxation, to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation laws.

Schedule 2 improves the flexibility of the income tax averaging rules for farmers, allowing income averaging to reapply ten years after a farmer has chosen to opt out, rather than permanently excluding them from the benefits of averaging as is currently the case.

Schedule 3 will amend the luxury car tax to provide tax relief to certain public institutions that import or acquire cars for the sole purpose of public display.

Schedule 4 makes a number of minor amendments across the tax and superannuation laws to provide certainty for taxpayers.

Schedule 1 of this Bill will establish a Remedial Power for the Commissioner of Taxation to allow for a more timely resolution of certain unforeseen or unintended outcomes in the laws under the Commissioner's administration.

The Government announced on 1 May 2015 that it would provide more certainty and better outcomes for taxpayers and reduce the regulatory burden on them by providing the Commissioner with a Remedial Power.

Taxation laws are very complex. The nature and volume of taxation law can produce unforeseen and unintended outcomes in its application.

These outcomes can result in taxpayers generating tax liabilities where this was not intended, or taxpayers being subject to record keeping or other compliance requirements that were not intended or are no longer necessary. These outcomes can create significant uncertainty and compliance costs.

The Commissioner endeavours to interpret the law to give effect to its purpose or object, but instances remain where this is not possible. For example, this can occur when dealing with new scenarios, or scenarios which were not contemplated when the provisions were drafted.

Unintended outcomes may be addressed through changes to the primary law. However, law change is resource intensive and is undertaken to give effect to the full range of government priorities. It can therefore be ill-suited to resolving smaller unintended outcomes.

The challenge of effecting primary law change is illustrated by the 92 announced changes to the tax and superannuation law that had not been enacted at the time the Government was elected in September 2013. Had the Remedial Power existed, it may have been able to address some of the smaller unintended outcomes and could have allowed constrained legislative resources to deal with more significant primary law change.

The Remedial Power allows the Commissioner to make a disallowable legislative instrument to modify the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. This will help to create flexibility, allowing the Commissioner to resolve smaller unintended outcomes.

The delegation of this power to the Commissioner must be subject to necessary checks and balances.

Importantly, Parliament has oversight of all instruments made under this power. Instruments would not take effect until after the expiry of the parliamentary disallowance period.

Safeguards are built into the Remedial Power itself. The power can only be used where:

the modification is not inconsistent with the purpose or object of the provision;

the Commissioner considers the modification to be reasonable, having regard to both the intended purpose or object of the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object; and

any impact on the Commonwealth budget would be negligible.

Any modification to the law will not apply to a taxpayer if the taxpayer would be adversely affected.

The proposed power is to be used as a power of last resort, when unintended consequences cannot be ameliorated by the Commissioner in any other way.

In the past, there have been instances where there has been a misalignment between the stated purpose of a particular provision and the technical language adopted in the legislation. In these instances the Commissioner has not been able to address these issues or administer the legislation in a way that gives effect to its intended object or purpose.

This measure provides an avenue for efficient resolution of these issues, as and when they arise and fits well with the existing commitment by the Commissioner to administer taxation legislation in accordance with the stated policy intent.

The measure will allow a smooth administration of the taxation and superannuation laws, in particular, when dealing with smaller unintended or unforeseen outcomes. This measure will assist in cutting red-tape and provide greater support for taxpayers across Australia.

Similarly, Schedule 2 amends the law so that farmers can re-access the benefits of tax averaging ten income years after they decided to opt out of the system for year to year smoothing of primary production income taxation. This change is necessary to ensure the rules do not continue to permanently and unnecessarily exclude eligible farmers from the benefits of income averaging.

Currently, a farmer who chooses to opt out of income averaging can never re-access the scheme.

Farmers' income is often volatile due to factors outside of their control, such as drought and fluctuating commodity prices. The averaging rules even out a farmer's income tax liability from year to year, so that they pay fairer amounts of tax in relation to taxpayers on comparable but steadier incomes.

The Government heard from stakeholders in consultation that the current averaging rules are inflexible and do not make sufficient allowance for changing business circumstances. A farmer choosing to opt out of income averaging may later realise that this choice was no longer appropriate for their circumstances. For example, they may not have anticipated future income volatility, acted on the basis of poor advice, or assumed they would experience many years of declining income. Currently, these farmers can never re-access the concession, even where they remain in primary production and face volatilities from market conditions and natural disasters.

While it makes sense to have rules that prevent farmers from opting in and out of income averaging simply to gain tax benefits, a permanent exclusion is longer than necessary to prevent possible abuse of the concession.

Over the past four decades, the value of agricultural output has been almost two and a half times more volatile than the average for all the major sectors of the Australian economy. Australian farmers also experience greater volatility in yield and price than most other farmers in the world. The Government recognises the need for Australia's tax system to account for the agriculture sector's operating environment.

This schedule will benefit farmers as averaging will only recommence when they are eligible for a tax offset. A farmer may always choose to opt out again if it does not suit their circumstances to remain in income averaging. Their choice will be effective for another ten income years.

This change was announced in the Agricultural Competitiveness White Paper on 4 July 2015, and is the product of extensive stakeholder feedback and consultation.

Schedule 3 amends the luxury car tax to provide tax relief to certain public institutions that import or acquire cars for the sole purpose of public display.

Currently, if a public museum or art gallery imports a car for display and it is over the $63,184 threshold, the museum or gallery will have to pay luxury car tax.

This Bill implements the 2015-16 Budget measure allowing public museums and public art galleries that have been endorsed by the Commissioner of Taxation as a deductible gift recipient to acquire cars free of luxury car tax.

Relief from luxury car tax will only be available for cars acquired solely for the purpose of public display. The cars must be exhibited or shown in an environment that is accessible to the general community, for example, display in a museum that is open to the general public.

Finally, Schedule 4 makes a number of amendments to tax and superannuation laws to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

This furthers the Government's commitment to restore simplicity and fairness to the Australian tax system, and to the care and maintenance of the law. By clarifying the law and repealing unnecessary provisions, these amendments also reduce the regulatory burden and make it easier for Australians to access current law.

These amendments include:

updating the specific listings of deductible gift recipients to reflect name changes as advised by the listed organisations, which ensures these entities continue to attract public financial support for their activities; and

repealing 45 inoperative amending Acts relating to excise, reducing regulatory burden for Australians.

This Bill is aimed at better targeting and strengthening our tax system to ensure it is fair and sustainable.

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

Debate adjourned.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.