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Thursday, 26 June 2014
Page: 4092

Senator WHISH-WILSON (Tasmania) (15:53): I would like to echo what Senator Williams just said to Senator Bishop while he is here in the chamber. He certainly deserves to go out on a high note on this. It has been a long inquiry, and I would thank you for allowing me to participate. I would also like to thank Senator Williams, who I bumped into in the corridors in July last year and who asked if I would be interested in getting involved in this ASIC inquiry, given that I had worked in the financial services industry. Following the September election, I got the consumer affairs portfolio.

It has certainly been a very interesting inquiry parallel to the inquiries into the FoFA reforms. I think the critical point is that among the very strong recommendations from the inquiry, which the Greens support, are a large number of recommendations related to cultural practices at institutions like Commonwealth Financial Planning. I think the word 'culture' is really important. The chairman of ASIC, Greg Medcraft, has used this word himself in relation to the Commonwealth Bank, and it refers to more than just a few bad eggs. While it is very clear that we had some rogue financial planners who were falsifying documents and acting illegally and inappropriately—and I do not like using the word 'inappropriate' after Senator Bishop made it very clear on Four Corners that it is way beyond inappropriate—it was the management and culture within the organisation that kept it buried.

When we look at things such as conflicted remuneration or putting the client's best interest ahead of that of the adviser, we do not really stop and question whether we are also putting the client's best interest ahead of that of the institution as well as the adviser. Or whether conflicted remuneration relates directly to what an adviser receives in a conflict of interest by providing advice, or whether the institution is also involved in conflicted remuneration because they have set up a structure that pools bonuses and continues to push a sales based culture.

The Financial Planning Association in the FoFA inquiry said it would take generations to change the culture in this industry, and I think this inquiry has made a very good start at that. It has been very hard-hitting and has been followed by the media, including the Four Corners documentary in which Senator Bishop featured very prominently. It has certainly put this into the public's mind.

When I think about the ASIC inquiry and what has been uncovered, it is very clear to me that this country, like every country around the world, has just been through one of the largest financial crises in living memory. The complacency that Senator Bishop talked about in his speech has come from the development of a culture around making profits, because those profits were made for a very long time—for decades. I was in this industry during the boom years leading up to the Asian crisis; I was there during the dotcom boom, and I got out just before the global financial crisis, and during that time there was a long period where customers on one side were making increasing returns every year on their super funds and financial investments, and companies and advisers were making obscene amounts of money. Then we got a disturbance, an exogenous shock that has really shaken up the system. It is appropriate and timely to have an inquiry like this which looks at the resilience of our system, and how a regulator such as ASIC and the management of a corporation such as Commonwealth Financial Planning respond to these crises and at the systems they have put in place. I would agree with Senators Bishop and Williams that hindsight can be 20-20 vision. With that hindsight we can see that ASIC should have responded much more quickly, strongly and decisively in how they regulated the disturbance we saw at Commonwealth Financial Planning which has left a lot of people out of pocket.

I would also say that where one inquiry finishes another starts. Yesterday Senator Xenophon and I sponsored a motion for an inquiry through the economics committee into the damage and the culture around managed investment schemes which will look at how the system has failed thousands of Australians in relation to these schemes. It will also look at the role that government has to play in this and at how it ties into the appropriateness of financial advice. Another thing that has become very clear to me is that we have a large number of recommendations and a big wish list that we want ASIC and the government to enact at the same time that we are cutting funding to the Australian Securities and Investments Commission. Greg Medcraft was very clear that the funding cuts will mean ASIC will now have to be a lot more limited in what they do and do not do and that they will have to be a lot more focused. He said you basically get what you pay for—that was the exact comment he made at estimates.

This committee has done fantastic work with this inquiry. I would also like to commend the committee staff for all of their hard work—because I am very new to this, I am only now starting to work out just how much work they do. We have made this long series of recommendations that we all hope will be listened to by the government, but on the other hand there has been a funding cut to the same institution we are expecting to go in quicker and harder to take on white-collar crime in this country. Clearly there is a disconnect.

One thing that makes me more hopeful is that ASIC were clear during the inquiry about wanting a new funding model. They want to have a user-pays system in line with what we see with regulators overseas. I hope that the government, as the committee recommends, acts very quickly to implement that new funding model—because ASIC needs more funds, not less, if it is going to do the job we want it to do. In my opinion, that is absolutely essential.

I feel very strongly about higher standards for financial advisers. Similarly to Mr Medcraft, I did my exams to become a financial adviser in the US—Series 7 and Series 63. It is a six-hour sudden death examination where you press a button at the end of 300 multiple-choice questions—it had a very low pass rate. Quite often, even individuals I worked with at Merrill Lynch had to do it four or five times before they got their licence. Setting the benchmark high is a good place to start. It is not going to catch every bad egg, but I think the financial planning industry in Australia has been treading water on this for too long. You will never get the perfect situation, but we do need something along the lines of the US Series 7 and Series 63 examinations in this country if we want to achieve that uniform standard across the financial planning industry. Having said that, I met a lot of financial planners during this inquiry. I talked to 15 in Tasmania. Most of them are smaller financial planners who have been in business for a very long time, have fantastic relationships with their clients and do a very good job. It was interesting to get their perspective on this.

I was also pleased that Senator Bishop and the committee recommended that issues relating to the whistleblower within ASIC, James Wheeldon, be investigated by the Commonwealth Ombudsman. I think that is a good start. ASIC themselves are always talking about the value of whistleblowers and how important they are, yet we had a whistleblower situation arise within ASIC. The details were explored during the inquiry. In relation to this and to recommendation 33, I like the idea of ASIC keeping a register of their secondments. It is something, I think, Treasury should also think about. I raised this with Mr Parkinson at estimates—where their secondees go. They go, for example, to lobby groups like the Australian Bankers Association. He did not seem to think that was a good idea. In fact he thought it was offensive, yet this committee has recommended this for ASIC. I think it is something all government departments should look at.

Lastly, the only dissenting view the Greens have on this very large and excellent report is in relation to penalties for white-collar crime. We would have liked to have seen specific recommendations about penalties. The committee has recommended that goes to another inquiry. My suggestion would be that the economics committee adopts that as a second inquiry and gets that work done—not leaving it to the government. We need stronger penalties for white-collar crime in this country.

I seek leave to continue my remarks later

Leave granted; debate adjourned.