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Thursday, 15 September 2011
Page: 6287


Senator BOYCE (Queensland) (18:54): I rise to take note of the report of the Parliamentary Joint Committee on Corporations and Financial Services on their oversight of ASIC. I had intended to speak when this report was tabled earlier this week, but unfortunately there was not time. As deputy chair of the committee I am delighted to have the opportunity to do so now. I will resist the urge to continue the diversions of the last few speakers except perhaps to note that it is my great hope that we will actually continue to have some corporations in this country for ASIC to oversight, given the rate at which companies are being forced to close by the actions of the current government.

Section 243 of the ASIC Act directs our committee to inquire into and report on ASIC's activities and to bring those activities to the parliament's attention. We report to parliament regularly on ASIC's activities. This is the third report for this calendar year, and it was tabled in the other place by Mr Bernie Ripoll on 25 August. He addressed some of the issues we had covered in our report, which include ASIC's supervision of the stock market, their strategic framework and their regulation of Australian financial services licences. I would like very briefly to mention the recommendation on that topic that came out of the report, which was that ASIC amend their website to include an explanation of the meaning and significance of holding an Australian financial services licence and that they perhaps put this onto the MoneySmart website as well.

One issue with financial services licences issued by ASIC is that ASIC have quite narrow terms under which to decide whether or not someone gets a licence. These are simply that the application complies with the law and the people who have made the application are fit and proper people—that is, they have not been prosecuted, made bankrupt or something like that. There is nothing in the receipt of an ASIC financial services licence to suggest that ASIC thinks the scheme proposed by the applicant is a good or sound financial scheme, yet on a number of occasions people have used the fact that they have an ASIC approval for their licence to add credibility to the service that is being provided. That is the reason for the recommendation that ASIC explain that the fact someone is granted a financial services licence says nothing at all about the probity of the service that is being offered; it simply says the form was sent in properly and the people running the service have been checked to ensure they are not crooks.

I would like to focus particularly on ASIC's use of coercive powers and their role in relation to frozen funds. ASIC's coercive powers are often a topic of some considerable conversation and concern. ASIC were granted regulatory and enforcement powers consistent with their responsibility to enforce law, and these powers include the power to enter premises, the power to seize documents and the power to compel witnesses to appear before ASIC to answer questions under oath. We had heard there had been some criticism around the transparency of the use of the coercive powers, and for this reason we were pleased to note that ASIC has recently reviewed its policies and procedures to improve trans­parency and accountability. In our view it is best practice for regulators to exercise their powers only to the extent necessary to fulfil their regulatory responsibilities and to exercise them in a transparent and accountable way.

We also considered that regulators should exercise these powers cautiously. A key way to achieve this, we believe, would be for ASIC to make available, through its annual reports and on its website, data regarding the incidence of its use of its coercive powers, the kinds of powers that it used and the outcomes of the use of these coercive powers. We will be further examining the transparency and accountability of this in ASIC's upcoming annual report. On the topic of the freezing of investors' funds, this has been a matter that the committee has followed with keen interest since the global financial crisis, and since the Rudd government's handling of the financial crisis led to a number of funds being forced to freeze the money under management because of the way the bank guarantee was likely to cause a flight of funds into banks. It has been a key interest for the committee to track the outcomes of the effect of the GFC on Australia's economy and financial markets. That includes the significant number of illiquid managed investment schemes that were frozen in accordance with the requirements of the Corporations Act 2001.

During the most recent hearings, we heard that as of November 2008 the value of funds that were frozen was the highly significant amount of $22½ billion. That fell to $18.2 billion in June 2011, so $4 billion has basically been taken out of that system. The committee was further advised that while the funds continued to be frozen, some of them were providing limited access to money. We were told that a significant increase in illiquid funds, along with the resulting increase in the number of frozen funds, had affected market behaviour. In response, ASIC is consulting on measures to promote a more robust sector for the future. It is in the process of issuing a new regulatory guide to improve product disclosure statements in relation to investment, particularly in mortgage funds.

We especially endorsed this approach and it is consistent with the legislative requirement to promote 'confident and informed participation of investors and consumers in the financial system'. ASIC's functions must include disseminating information about the possibility that particular types of funds might be frozen and what the options for investors should be should this occur. We believe the significant volume of funds frozen as a result of the GFC provides a substantial opportunity to assess whether the rules about frozen funds are operating properly and we will continue to watch this matter very, very closely.

Mr Medcraft, the Chairman of ASIC, advised us that the sector is trying to restructure because it wants to win back the trust and confidence of investors. We would certainly hope that this is the case and that ASIC has a part to play in investors knowing what they are getting themselves into when they buy into these funds, such as the mortgage funds. We will be holding our next hearing with ASIC in October. I conclude by thanking the secretariat for its assistance, not only in the preparation of this report but also in the finding of other witnesses. I seek leave to continue my remarks later.

Leave granted; debate adjourned.