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Corporations and Financial Services Committee
- Parl No.
Marshall, Sen Gavin (The ACTING DEPUTY PRESIDENT)
- Question No.
Cormann, Sen Mathias
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QUESTIONS WITHOUT NOTICE
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- QUESTIONS WITHOUT NOTICE: ADDITIONAL ANSWERS
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- Arbib, Sen Mark
- Evans, Sen Christopher
- Abetz, Sen Eric
- Xenophon, Sen Nick
- Brown, Sen Bob
- Brown, Sen Carol
- Brandis, Sen George
- Hanson-Young, Sen Sarah
- Lundy, Sen Kate
- Fifield, Sen Mitch
- Cormann, Sen Mathias
- Bernardi, Sen Cory
- Williams, Sen John
- Fierravanti-Wells, Sen Concetta
- Cash, Sen Michaelia
- Polley, Sen Helen
- The PRESIDENT
- Arbib, Sen Mark
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- Australian Landcare Council
- AUDITOR-GENERAL'S REPORTS
Thursday, 1 March 2012
Senator CORMANN (Western Australia) (12:49): I thank our deputy chair, Senator Boyce, for allowing me to make a contribution to this debate. The financial services industry across Australia provides a very important service. It helps people with their financial health and wellbeing. It helps Australians to better manage their financial risks and to maximise their financial opportunities. But, of course, in doing so, the financial services and financial industry does deal with other people's money. So it is important for us to have an appropriately robust regulatory framework in place.
From time to time, as happened with the collapse of Storm Financial and various other incidents of that nature, things go wrong, and it is appropriate for us as policymakers to take a step back, to have a proper, strategic and comprehensive look at the regulatory framework and the policy framework, and to consider whether there are things that we can do better to make sure that these sorts of events which end up hurting Australians and impacting on the retirement savings of Australians can be prevented in the future. Having said that, let me make the broad observation that being stress-tested in the context of the global financial crisis, overwhelmingly, the Australian financial services sector performed rather well. But, of course, there were these instances where clearly things had gone wrong.
The Parliamentary Joint Committee on Corporations and Financial Services, which was then colloquially referred to as the Ripoll inquiry, did do a very comprehensive inquiry into Australian financial products and services. That committee reported back in November 2009. It made a whole series of widely supported and very sensible recommendations which would lead to important improvements in the regulatory framework for the financial services industry that would improve consumer protection while still providing that appropriate balance between effective consumer protection and making sure that access to high-quality advice remained available and affordable for all Australians.
But, of course, rather than take the recommendations of an inquiry chaired by a member of the government, Mr Ripoll—rather than take those 11 recommendations which were broadly supported by the industry and which had broad bipartisan support in this parliament—this Labor government did what they always do: they overreached. They went for the regulatory overreach. They allowed the agenda to be hijacked by vested interests. They allowed the agenda to be hijacked by one segment in the financial services market that they are particularly close to—union dominated industry super funds. They attached a whole series of other proposals to the FOFA changes which has meant that the whole process has been derailed, delayed and essentially not progressed for the last two years.
The inquiry that the Parliamentary Joint Committee on Corporations and Financial Services did over the last couple of weeks assessed the two pieces of legislation that we now have before us. The conclusion of coalition members on this committee's second inquiry are that if the future of financial advice bills were to be passed by the parliament in their current form they would unnecessarily increase red tape and increase costs for both businesses and consumers by reducing choice for consumers and reducing competition and diversity across the financial services industry. We in the coalition are always constructive on these issues. We think they are important changes and reforms that need to be made. But they have to be made in a balanced way, in a way that appropriately balances the need for more effective consumer protection with the need to ensure that access to financial advice remains available, accessible and affordable.
Minister Shorten, while he talks about wanting to remove conflicts from the financial services industry, is very conflicted himself. He is too close to one segment of the financial services industry to be able to come up with a balanced regulatory reform proposal. That is why we are having these contentious debates, in the context of something that started off with a bipartisan set of recommendations on how the financial services industry's regulatory framework could be sensibly improved.
Constructively the coalition has made a series of recommendations, 16 of them, in our dissenting report on how FOFA can be progressed from here so that these important reforms that are part of the FOFA package can finally be implemented. I urge Minister Shorten to very seriously consider the recommendations that we have made to improve the future of financial advice package of legislation. He should seriously and carefully consider our recommendations and he should act on them. Specifically, he should remove the contentious parts of FOFA and proceed swiftly with the important and rightly supported FOFA reform proposals. He must conduct a proper regulatory impact assessment before doing anything else.
The important point here is the government themselves have a process which they call the best practice regulation process. It is tested and scrutinised by the government's own Office of Best Practice Regulation. The government's own Office of Best Practice Regulation found that Minister Shorten's FOFA proposals were not compliant with the government's own best practice regulation requirements. The government's own Office of Best Practice Regulation has said that the FOFA proposals failed to meet the government's own standards when it comes to best practice regulation. Why? Because Minister Shorten failed to properly assess the costs and the benefits that come from the proposals before us. The costs are significant. Evidence before our committee from industry was that the costs to industry would be about $700 million to implement and about $350 million per annum for ongoing compliance. These are all costs that are going to be passed on to consumers, which means that access to financial advice will become less affordable for many.
By way of recommendations, we urge the government to remove the opt-in proposal, which just adds unnecessary red tape for questionable additional consumer protection. If there is appropriate transparency around fees and if there is a best-interest duty in place which we support then the consumers have all of the tools in order to make a judgment as to whether they want to continue in a particular financial advice contractual relationship or they want to discontinue it. They do not need the government to impose additional red tape and additional costs in a nanny-state way to try to protect people from themselves.
Minister Shorten should remove the opt-in proposal and the retrospective application of the additional annual fee disclosure requirement, which came out of nowhere at the last minute. He should improve the drafting of the best-interest duty. He should further finetune the band of commissions on risk insurance inside superannuation. And he should delay the implementation of FOFA to 1 July 2013 to align it with the MySuper changes. Senator Boyce made a very important point on this: the government has two very significant reform proposals on the table. Both of them have significant implications for IT systems changes which are very costly to execute and implement. Again, all of these costs will have to be passed on to consumers.
If you are going to pursue major changes like this, surely you would want to let business make all of these changes in one go, rather than forcing them to make them once in the lead-up to 1 July 2012 and then do the whole thing again in the lead-up to 1 July 2013 in relation to the same IT systems areas. This government seems to not really appreciate some of the practical realities that come with running major businesses. The reasons are there for all to see: clearly none of the people on the Labor side of parliament have adequate business experience to make these sorts of judgments.
If the government refuses to take on board our recommendations, it will be up to the parliament to pass judgment on that. Labor is in a minority government situation, as we all know. It does not have a majority in its own right in either house of parliament. The coalition calls on crossbench members of parliament, both in the House of Representatives and in the Senate, to carefully consider the recommendations that we have made on how FOFA can be improved to a point where we could support it in a bipartisan way.
The ACTING DEPUTY PRESIDENT ( Senator Marshall ): Order! Senator Cormann, your time has expired.
Senator CORMANN: I seek leave to continue my remarks later.
Leave granted; debate adjourned.