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Monday, 13 March 2000
Page: 12576

Senator CONROY (12:34 PM) —The Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 2) 1999 represents the third stage in the series of the Wallis reforms, which Labor has broadly supported. Although Labor will move amendments to a number of sections of the bill, we nevertheless support this bill. In particular, we are supportive of: extending the deadline until 30 June 2000 for qualification for tax relief for foreign authorised deposit taking institutions transferring assets and liabilities between branches; reforms which will allow the electronic lodgment of information by superannuation funds in accordance with the government's wider objective of establishing a business entry point; reforms to exempt APRA from paying sales tax on the goods it purchases and to amend the secrecy provisions of the APRA act; reforms which reduce compliance costs on businesses, increase flexibility and remove unused provisions of the Financial Corporations Act 1974; and reforms which provide a mechanism, in response to concerns raised by industry, to ensure adequate disclosure to members prior to an ADI affecting a demutualisation.

Before I comment in detail about our concerns about this bill, I will briefly comment on amendments that Labor has already successfully moved in the House of Representatives. In the original drafting of this bill, the Treasurer would have delegated his powers to the Reserve Bank under section 63 of the Banking Act. This would have included the power to consent to bank mergers. Given the Commonwealth Bank's proposed merger with Colonial, the effect of the original drafting would have been to allow the Treasurer to delegate his power to the Reserve Bank on this type of merger. It was only because of the diligence of Labor in reviewing this bill that an amendment could be made on the floor of the House.

That is very important because, as we have said, in the last few days we have seen the Commonwealth Bank-Colonial merger. That is a merger that involves a lessening of competition, particularly in Tasmania, and the prospect of thousands of job losses in rural and regional Australia—something which this government has said it will do everything it can to prevent; it will, to use the Prime Minister's words, put the red light on a further reduction in services provided to the bush. If the government had got its original way on this bill, that red light could not have been flagged. But that red light can be flagged now because of the original amendments to this bill. The Treasurer and the ACCC should ensure that they have a very, very good look at this, and the Treasurer should be seeking commitments on the impact on competition and job losses in regional and rural Australia.

Let me now examine in detail our concerns with this bill. Firstly, we object to provisions which attempt to water down the restoration of superannuation benefits in the event of theft or fraud. Secondly, we object to the proposed provisions giving the Reserve Bank the power to exempt a corporation from complying with an information provision standard it makes under the Financial Corporations Act 1974. We believe that these provisions should be subject to the scrutiny of parliament, and we will therefore be moving an amendment to make them a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

This bill proposes reforms to the Superannuation (Financial Assistance Funding) Levy Act 1993 that set out the circumstances in which superannuation funds which suffer losses due to theft or fraud will be eligible for grants of financial assistance. It was a Labor government that introduced this act. The Treasurer at the time, Mr John Dawkins MP, said in introducing substantial superannuation reforms:

The Government is concerned that there is some protection available to members in the event of fraud or theft. This will be achieved by giving the Government the power to impose a specific levy on the industry in the event a fund suffers losses arising from fraud or theft.

Labor's Superannuation Levy Act was about ensuring that the superannuation nest eggs of all Australians were kept safe. If employees lose their superannuation through no fault of their own, they should be entitled to expect that the government and the financial services industry will act collectively to ensure they do not suffer loss.

The Superannuation Levy Act puts responsibility on the whole of the superannuation industry to manage superannuation funds in a prudential way to minimise the risk of fraud or theft. Where a superannuation fund is able to identify problems with the practices of other superannuation funds that could create opportunities for fraud and theft, then it has a responsibility to raise these issues directly with the fund and the industry. The introduction of Labor's Superannuation Levy Act has meant that all superannuation funds collectively bear the responsibility for ensuring good industry practice. Our understanding is that the government has never been required to levy superannuation funds to reinstate benefits lost as a result of theft or fraud. This is a strong indication that the system is working, that there are appropriate standards in place which ensure that the industry is diligent in removing any opportunities for fraud.

In examining provisions relating to the restitution of superannuation funds lost through theft and fraud, the Wallis inquiry concluded that there is an issue of `moral hazard' in respect of superannuation funds. The argument offered by Wallis was that superannuation fund members would not have an adequate incentive to be diligent to protect their superannuation funds if they got all their money back in the event of theft or fraud. Wallis recommended that the total restitution available to members of a super fund which had suffered loss as a result of theft or fraud be capped at 80 per cent.

There are a number of issues in respect of the moral hazard argument. Whilst it is clear that the moral hazard argument applies to car insurance where a driver is in control of their own car, it is difficult to make the same argument that superannuation fund members have the same control over their funds. The moral hazard argument only applies when an individual has the direct ability to limit risk by their own behaviour. Given that the most that a superannuation fund member can generally do to control the administration of their fund is to elect a trustee, it is difficult to see how the fund member can exert direct influence.

The Treasurer tabled documentation in association with a statement to the House of Representatives on 2 September 1997 on the Wallis report in which the government accepted the recommendation to limit restitution to 80 per cent of the entitlement of beneficiaries. Whilst the government has not legislated to cap restitution at 80 per cent, it has introduced amendments in this bill which attempt to limit the restitution provisions by, firstly, restricting restitution to funds which have only suffered loss at the hands of `persons directly or indirectly responsible for their administration'; and, secondly, requiring the Treasurer to seek and consider the advice of the Australian Prudential Regulation Authority before making a decision to levy super funds for restitution.

There is potential that APRA could advise the Treasurer to put a cap on restitution—in so doing giving effect to Wallis's original recommendations. I think some of the members of the Wallis committee might be on the board of APRA, and that would mean it is probably likely they would get that recommendation! This allows this parliament to say, `We don't agree.'

We are seeking to make the Treasurer accountable for his written request to APRA for advice in relation to any application for assistance. We will also seek amendments which will remove the limitation on restitution to persons directly or indirectly responsible for administration of a super fund.

In respect of the second area of our concern—that is, proposals to exempt a corporation from complying with an information standard it makes under the Financial Corporations Act 1974—Labor will be moving an amendment to make the exemption a disallowable instrument. This will allow parliament to scrutinise the exercise of the Reserve Bank's powers. This is important in improving the openness and quality of information that is available to parliament.

Let me now turn attention to the levy bills which accompany this bill. Labor is supportive of the levy bills that are coupled with the financial sector reform bill. We support the principle of user pays—that is, the industry should contribute to the running costs of APRA, ASIC and the ATO. But let me make a couple of points in regard to these bills.

After some sections of the financial services industry expressed concern at the level at which levies were to be imposed, the Minister for Financial Services and Regulation, Mr Joe Hockey MP, announced the terms of reference of a review into financial sector levies on 3 August 1999. Announcing the review, the minister stated:

The review is required to evaluate the current levy arrangements' ability to provide an effective funding mechanism for the supervision of prudentially regulated institutions... The timetable for the review is tight. The review will need to provide recommendations to me by early October 1999 in order to ensure any decisions to make changes can be reflected in legislation in time for the 2000-01 levies.

Despite the minister's own tight time frame, to this date the minister has yet to announce the outcome of the review. Is this another example of the government asleep at the wheel?