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Monday, 14 August 2000
Page: 16233

Senator CHAPMAN (3:52 PM) —I present the report of the Parliamentary Joint Statutory Committee on Corporations and Securities on the draft Financial Services Reform Bill, together with the Hansard record of the committee's proceedings, tabled documents and submissions.

Ordered that the report be printed.

Senator CHAPMAN —I seek leave to move a motion in relation to the report.

Leave granted.

Senator CHAPMAN —I move:

That the Senate take note of the report.

The draft bill is the culmination of an extensive reform program of the regulatory requirements applying to the financial services industry. The objective of the reform program has been to promote business and market activity leading to important economic outcomes, including increased employment, by enhancing market efficiency, integrity and investor confidence. The reform agenda has been based on the key principles of market freedom, investor protection, information transparency, cost effectiveness, regulatory neutrality and flexibility, and business ethics and compliance.

The draft bill is the legislative outcome of a number of recommendations of the financial system inquiry—the so-called Wallis report. It proposed that there be a single licensing regime for financial sales, advice and dealings in relation to financial products; consistent and comparable financial product disclosure; and a single authorisation procedure for financial exchanges, clearing and settlement facilities. The aim of the regime would be to achieve a competitively neutral regulatory framework which provides more uniform regulation, thus reducing compliance and administrative costs and removing unnecessary distinction between products. Further, consumers will enjoy a more consistent system of consumer protection.

The draft bill proposes a regulatory framework for the financial services industry that facilitates innovation and promotes business, while at the same time ensuring adequate levels of consumer protection and market integrity. The draft bill covers a wide range of financial products including securities, derivatives, general and life insurance, superannuation, deposit accounts and non-cash payments. The regime will apply to the activities of existing financial intermediaries such as insurance agents and brokers, securities advisers and dealers and futures brokers, as well as any other person carrying on a financial services business.

Following release of the draft Financial Services Reform Bill, the Parliamentary Joint Statutory Committee on Corporations and Securities resolved on 8 March 2000 to hold an inquiry into the draft bill. The committee advertised nationally inviting submissions from interested parties. Written submissions in all totalled 67. The committee held three public hearings. From the submissions and hearings, the committee concluded that there was general support for the principles and objectives of the draft bill, especially its uniform requirements within a single comprehensive framework. Several submissions referred to the draft bill as a milestone or a watershed for Australian financial services. Almost all submissions, however, included detailed comments on individual provisions in relation to their application or technical drafting.

The committee isolated six main issues arising from the submissions and hearings in relation to the draft bill which highlight the more significant aspects of the practical implementation of the draft bill and some broader questions relating to financial regulation. The committee concluded that the draft bill imposed requirements on approved deposit taking institutions which would have a devastating effect on the services offered by agencies of these institutions in country areas. Forcing all counter staff in banks, credit unions, building societies and their agents to be trained to the level of a financial adviser is an onerous burden in terms of both cost and time, and one that will place undue pressure on banks to close their branches, particularly in regional Australia. This runs directly counter to the government's policy and programs supporting regional services. It is unacceptable that there should be a legal requirement for tellers who give information and advice about basic banking products such as savings accounts to be trained to the level of a financial adviser. There is no issue of consumer protection, real or imagined, requiring this draconian imposition on financial institutions whose customers will bear the ultimate costs.

In addition, such a requirement moves the policy thrust of the Financial Services Reform Bill away from the recommendations of the Wallis report, which identified the need to differentiate between basic deposit products and investment products when developing a consumer protection regime. That is why a specific amendment is proposed in the committee report to make this differentiation. My proposed amendment restores the integrity of the Wallis recommendations. It explicitly removes basic deposit taking products from the training and conduct regime that covers investment products, thereby removing an unnecessary obstacle for credit unions, building societies, regional banks and the big four to service regional Australia. The amendment will also ensure that small business people in regional Australia are not discouraged from entering into commercial arrangements to deliver basic banking services for the communities in which they reside.

In the committee's view, the e-commerce and other issues raised by Telstra and the important issues relating to the international competitive position of Australia and its role as a global financial centre raised by the Australian Stock Exchange should be addressed directly in the final bill—if appropriate, in that legislation or at least in the regulations or policy statements. In particular, it may be appropriate to reconsider the proposed commencement date of 1 January 2001.

The committee concluded that the disclosure of commissions on risk insurance products has the potential to impact unfairly on small business. The committee also concluded that the concerns expressed by the Law Institute of Victoria and the accounting bodies in relation to their members whose involvement in financial services is incidental to their main activity are valid. The committee believes that the final bill or the regulations should address these issues.

The committee noted that the draft bill fails to recognise that a typical Australian financial corporate structure is a conglomerate. The committee believes that no conglomerate should be exposed to additional costs, disruption or, especially, capital gains tax as a result of this apparent deficiency in the draft bill. The committee, therefore, concluded that the final bill should expressly provide exemptions in relation to the operation of related entities within a conglomerate.

The committee decided to report as early as possible to enable the government to include its response to the report in the final bill as presented to parliament. I thank my government colleagues and also Democrat Senator Andrew Murray for their support for the report's findings and recommendations. However, it is disappointing that Labor committee members are so blinded by their interventionist commitment to regulation that it takes a higher priority than ensuring a commonsense, workable arrangement to ensure the maintenance of over the counter banking facilities to the maximum extent in rural areas. Senator Conroy is quoted in the Adelaide Advertiser this morning on this issue as saying that banks want to:

... keep their dollars pushing financial products across the counter, but not have their staff trained to an appropriate standard.

The fact is that to require bank tellers and other counter staff, not to mention the staff of pharmacies, newsagents and supermarkets providing deposit-taking type services, to be trained to the level of financial adviser as defined by ASIC's policy statement 146 and as provided in the draft bill is not an appropriate standard. It is unnecessary and costly overkill. The consequence will not be better consumer protection. The consequence will be even greater removal of banking services from rural areas. Labor really are out of touch with the concerns of Australians if they think they can legislate for banks to train all their staff to this unnecessary level. They will simply remove these basic services. If this is Labor policy then country people should understand the consequences. It is no wonder we have not heard much from Country Labor lately on this issue or, indeed, on any other matter.

Before I conclude, I would like to thank all of the individuals and professional bodies that made submissions and witnesses who appeared before the committee. My special thanks is offered to David Creed, secretary of the committee, and his staff for their tireless work in supporting the members of the committee during this inquiry. I commend the report to all honourable senators.