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Banking and Financial Services Commission of Inquiry Bill 2017

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2016-2017

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

SENATE

 

 

 

 

 

 

BANKING AND FINANCIAL SERVICES COMMISSION OF INQUIRY BILL 2017

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

(Circulated by the authority of Senators Whish-Wilson, Hanson, Hinch, Lambie, Roberts and Xenophon)

 

 



 

BANKING AND FINANCIAL SERVICES COMMISSION OF INQUIRY BILL 2017

 

OUTLINE

 

This Bill seeks to establish a parliamentary inquiry into the banking and financial services sector that reports to Parliament on particular matters.

 

The Bill responds to episodes of misconduct that have been uncovered in the banking and financial services sector in recent years. The most conspicuous of these are instances of misconduct within the wealth management arms of vertically integrated banks, particularly instances of retail customers having been given wrong and inappropriate financial advice, including being sold highly risky financial products.

 

Allegations have also arisen regarding wrongfully and fraudulently denied insurance claims, and court action has been initiated regarding the manipulation of overnight interest rates and improper mortgage lending.

 

These issues have arisen sporadically, usually as a result of the actions of whistle-blowers from within institutions or as a result of investigations by regulators. Inquiries of parliamentary committees and government have also helped examine these matters. However the full extent of misconduct with the banking and financial services sector has not been discovered, particularly given the limited time and resources available to committees of the parliament, and the inability to utilise expert legal cross-examination and forensic analysis.

 

This Bill seeks to ensure that the extent of misconduct with the banking and financial services sector is exhaustively examined and that the impact on victims of misconduct is fully understood. This Bill appoints a Commission to establish the causal factors for this misconduct, including misaligned incentives, culture, inadequate regulation and regulatory power, and ‘moral hazard’ extending from government guarantees.

 

This issue is of concern given the size of the banking and financial services sector, and its importance to the functioning of the Australian economy.

 

NOTES ON CLAUSES

 

Part 1—Preliminary

 

Clause 1: Short title

 

1.         This clause provides that the Bill, when enacted, can be cited as the Banking and Financial Services Commission of Inquiry Act 2017 .

 

Clause 2: Commencement

 

2.         This clause provides for the Act to commence on the day after it receives the Royal Assent and the day that the Consolidated Revenue Fund is appropriated to fund the Commission of Inquiry. Both of these conditions have to be satisfied to enable commencement.

 

Clause 3 - Schedule(s)

 

3.         This clause specifies that each Act specified in a Schedule to this Act is amended or repealed as is set out in the applicable items in the Schedule. Any other item in a Schedule to this Act has effects according to its terms.

 

Clause 4 - Act Binds the Crown

 

4.         This clause stipulates that the Act will bind the Crown in all its aspects.

 

Clause 5 - Definitions

 

5.         This clause specifies the meaning of terms within the bill. All of the definitions are self-explanatory; however Financial service entity defines a class of financial service entities for the purposes of the application of the terms of reference. Namely, this covers authorised deposit taking institutions (banks), insurance companies, superannuation funds, credit providers (including payday lenders), financial advisors, financial product retailers, or any other financial services license holder.

 

Part 2—Establishing the Banking and Financial Services Commission of Inquiry

 

Clause 6 - Establishment of Commission

 

6.         This clause specifies the name of the Commission to be the Banking and Financial Services Commission of Inquiry (the Commission), that the Commission be constituted of one member appointed by resolution of the Senate, and that this Commissioner must be or have been a Judge.

 

Clause 7 - Terms of reference

 

7.         This clause specifies the terms of reference for the inquiry that will guide the work of the Commission. The terms of reference are drafted broadly and without reference to any particular industry bodies so as to provide for the Commission to examine any and all relevant matters, and not to be limited to any particular sub-sectors or any particular corporate entities.

·          A detailed explanation of Clause 7(1) is as follows:

o    Clause 7(1)(a) provides for the discovery of misconduct within the sector, and for an examination of the effect of any misconduct on the financial system and broader economy,

o    Clause 7(1)(b) provides for an examination of incentives for individuals and incentives within corporate structures, and the role of these incentives in relation to any misconduct within the sector,

o    Clause 7(1)(c) provides for an examination of the risk borne by the Commonwealth as an implicit guarantor to the sector should a significant event impact on the banking and financial sector, and the risk borne by the sector itself,

o    Clause 7(1)(d) provides for an examination of the efficacy of existing rules and regulations in defining, investigating and penalising misconduct,

o    Clause 7(1)(e) provides for an examination of the efficacy of existing consumer complaint handling and restitution,

o    Clause 7(1)(f) provides for an examination of the funding and performance of regulators and the extent, if any that regulators are in any way captured by those entities they regulate.

o    Clause 7(1)(g) provides for an examination of the influence of lobbying activity on behalf of and donations from the sector on the impact of regulatory settings or overarching public policy decisions, and

o    Clause 7(1)(h) is required to cover any areas of investigation that are incidental to the matters listed above.

·          Clause 7(2) ensures that the conduct of this inquiry does not adversely interfere with any current investigation by ASIC, or any matter before the courts; and

·          Clause 7(3) allows the Commission to prioritise its investigation and reporting to those areas of the Terms of Reference, that in the Commissioner’s opinion would have the greatest actual or potential harm to the public good.

 

Clause 8 - Report to the Parliament                     

 

8.         This clause specifies that the Commission is to report to both houses of Parliament within one year of commencement of the inquiry. This reporting time period can be extended through resolution of the Senate. Once the report is provided, the Presiding Officers are required to make this report public as soon as practicable.

 

9.         The report is to contain findings of fact and make recommendations considered relevant, and back this up with by a record of evidence.

 

10.       The Commission may also submit a separate report detailing any findings or recommendations that may prejudice current criminal proceedings or investigations; that may disclose confidential sources; or that may prejudice or endanger a person.

 

11.       This separate report and statement of opinion would not be tabled in Parliament, but would be issued to the Offices of the Presiding Officers who will have authority over those separate reports.

 

Part 3—Powers of the Banking and Financial Services Commission of Inquiry

 

Clause 9 - Hearings

 

12.       This clause provides for the Commission to hold hearings anywhere in Australia. Hearings are to be public unless otherwise determined by the Commission, in which case the Commission can hold closed hearings. People appearing before the Commission can be represented by a lawyer.

 

13.       The Commission has the power to provide direction relating to the publication of proceedings of the inquiry, and must ensure that any publication does not prejudice or endanger a person, or interfere with a fair trial.

 

Clause 10 - Counsel assisting the Commission

 

14.       This clause provides for the Commission to appoint lawyers assisting, either in general or in relation to particular matters.

 

Clause 11 - Power to summon witnesses and take evidence

 

15.       This clause provides the Commission with coercive powers to compel a witness to attend a hearing, to produce evidence and to answer questions. Counsel assisting the Commission may also cross-examine a witness as well as people called to give evidence or their legal practitioners.

 

16.       The Commission also has the power to compel the production of documents or things, irrespective of whether they have been called to give evidence.

 

Clause 12 - Arrest of witness failing to appear

 

17.       This clause provides the Commission with the power to issue an arrest warrant to bring a witness before a hearing or hold them in custody until ordered by the Commissioner.

 

18.       The execution of the warrant will be carried out by the Australian Federal Police or a police officer of a State or Territory who will have legal access to premises.

 

Clause 13 - Search warrants

 

19.       This clause provides the Commission with the power to issue a search warrant to obtain relevant material if they have reasonable grounds to suspect that the documents or material would be concealed, lost, mutilated or destroyed if summonsed.

 

20.       The execution of the warrant will be carried out by the Australian Federal Police or a police officer of a State or Territory who will have legal access to premises.

 

Clause 14 - Access to certain material held by ASIC, APRA or RBA

 

21.       This clause provides the Commission with the power to obtain relevant material from the three financial regulators, the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA).

 



 

Clause 15 - Powers of Commission in relation to document and other things

 

22.       This clause provides the Commission with the power to retain and inspect documents in its possession for as long as deemed necessary. It also requires the Commission to return these documents when finished or no longer needed.

 

Clause 15 - Powers of Commission in relation to document and other things

 

23.       This clause provides the Commission with the power to retain and inspect documents in its possession. It also requires the Commission to return these documents when finished.

 

Part 4—Offences

 

24.       This section sets the penalty regime for various offences relating to the conduct of the inquiry.

 

 

Clause

Title

Penalty

16

Unauthorised presence at hearing or publication of evidence

6 months imprisonment

17

Failure of witnesses to attend or produce documents

6 months imprisonment

18

Refusal to be sworn or give evidence

6 month imprisonment

20

False or misleading evidence

5 years imprisonment

21

Destroying documents or other things

2 years imprisonment

22

Intimidation or dismissal of witnesses

5 years imprisonment

23

Preventing witnesses from attending

12 months imprisonment

24

Bribery of witness

5 years imprisonment

25

Fraud on witness

24 months imprisonment

26

Contempt of Commission

12 months imprisonment

 

25.       Clause 19 clarifies that each act or omission under Clause 17 constitutes a separate offence.

 



 

Part 5—Operation of the Commission

 

Clause 27 - Death or incapacity of a member

 

26.       This clause stipulates that should the Commissioner have to step down due to death or physical or mental incapability, notice be provided to the President of the Senate and that the new appointment will be made by a resolution of the Senate.

 

Clause 28 - Remuneration and allowances

 

27.       This clause sets remuneration and allowances as though they are a Federal Court Justice. This clause also stipulates that they will cease to be remunerated from 7 days after they have provided the report to the Presiding Officers of the Parliament.

 

Clause 29 - Staff of the Commission

 

28.       The Commission will have authority over hiring the relevant number of staff and setting their terms of appointment and remuneration and that staff must conduct themselves in accordance with the directions provided by the Commission.

 

Clause 30 - Protection of member and others

 

29.       The protections and immunities of the Commissioner will be the same as though they are a Justice of the High Court. Similarly a legal practitioner has the same protections as a Barrister appearing in the High Court.

 

Clause 31 - Legal and financial Assistance

 

30.       For witnesses that would undergo financial hardship for the retaining of legal practitioners, this clause provides that legal expenses can be covered where the circumstances of the person’s particulars require it. An application by the Commission has to be approved by the President of the Senate.

 

Clause 32 - Reimbursement of witness expenses

 

31.       Witnesses that are not part of a financial service entity are entitled to reimbursement according to existing scales and programs that operate in the High Court.

 

Clause 33 - Commission may communicate information

 

32.       The Commission is empowered to communicate to relevant regulatory and law enforcement authorities any information regarding actual or potential illegal acts where, in the Commission’s view it is appropriate to do so.

 

Clause 34 - Rules

 

33.       The Minister is able to issue rules to assist the functioning and operation of the Commission of Inquiry. The boundaries of the Minister’s powers are clearly set out in subsection (2).

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Banking and Financial Services Commission of Inquiry Bill 2017

 

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill:

This Bill seeks to establish a parliamentary inquiry into the banking and financial services sector that reports to Parliament on particular matters.

 

The Bill responds to episodes of misconduct that have been uncovered in the banking and financial services sector in recent years. The most conspicuous of these are instances of misconduct within the wealth management arms of vertically integrated banks, particularly instances of retail customers having been given wrong and inappropriate financial advice, including being sold highly risky financial products.

 

Human Rights Implications:

This Bill engages the legal rights of witnesses who are summonsed to appear as witnesses or surrender documents or information to the Commission. All the relevant protections afforded to witnesses in Royal Commissions and judicial trials are replicated by this Bill.

Evidence that threatens the safety or reputation of witness, exposes the identity of a confidential source, would prejudice a fair trial or an investigation shall not be publicly disclosed. Similarly, the Commission has the power to hold private hearings to ensure the rights of witnesses are protected.

Conversely, the establishment of the Commission ensures that those who have undergone financial hardship due to another’s unlawful misconduct will have access to justice and a platform from which to pursue their rights.

As such the Bill does not infringe any of the applicable rights or freedoms.

Conclusion:

This Bill is compatible with human rights.

 

Senators Whish-Wilson, Hanson, Hinch, Lambie, Roberts and Xenophon