Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download PDFDownload PDF   View Parlview VideoWatch ParlView Video

Previous Fragment    Next Fragment
Economics Legislation Committee
Australian Securities and Investments Commission

Australian Securities and Investments Commission


CHAIR: I welcome Mr Medcraft and officers from the Australian Securities and Investments Commission. It is a busy time, so we would love to hear from you, Mr Medcraft, if you could fill us in.

Mr Medcraft : Thank you for the opportunity to address the committee. In my brief opening statement, I want to discuss three things. The first is the government response to the Murray financial system inquiry; the second is the ASIC corporate plan, which I hope everyone has received—if not, we can give you a copy; and the third is the ASIC innovation hub. ASIC welcomes the government's response to the Murray financial system inquiry, which was announced yesterday. We see the government's response as very positive. A number of the recommendations actually go to increasing investor and financial consumer trust and confidence in the financial system. They provide ASIC with the right toolkit in the future to respond to the challenges to that investor trust and confidence.

Specifically, a number of the recommendations directly impact on ASIC's work. Firstly, a product design and distribution obligation will help overcome the limitations, as we all know, of disclosure and, in doing so, address the interests and the needs of consumers, paired with the product intervention power which will enable ASIC to respond to market problems in a flexible, effective and timely way. Together, those two tools, particularly with a fast-changing digital economy, will be absolutely critical for the future, so we welcome them. Secondly is raising the competency of financial advisors. We welcome the government's commitment to raising the professional, ethical and education standards for financial advisors—again, trying to build that trust and confidence in the financial advice area. Thirdly, and most importantly as well, is strengthening ASIC's funding and powers—particularly, for example, strengthening the licensing regime will allow ASIC to more effectively deal with poor behaviour and conduct.

We also note, most importantly, the government will review the enforcement regime under which we currently operate, including penalties and breach notifications in 2017 to ensure that we actually have the right deterrence in place, because we know that as a law enforcement agency the key tools we have is law enforcement, penalties and the right nudge. The government is already consulting on an industry funding model for ASIC which will be informed by the findings of the current capability review. We look forward to working with the government now on implementation of these important changes.

As I said earlier, in late August, ASIC published our four-year corporate plan, which is where we see taking ASIC in the next four years but with a particular focus on 2015-2016. The corporate plan communicates to everyone our thoughts and how our long-term strategic priorities and challenges will shape our strategy and responses over the next four years. It is our strategy for the future and builds on our strategic framework that we have had for the last five years, in terms of how we achieve our strategic priorities of, basically, investor and consumer trust and confidence, fair, orderly, transparent, and most importantly, efficient markets.

We see a number of challenges that can threaten those strategic priorities. They are fivefold: the first is conduct risk—balancing a free market system with investor and financial consumer trust and confidence goes to the heart of what we do; secondly—and, most importantly, rising—cyber resilience and digital disruption; thirdly, structural change, which is a continuum, particularly driven by the growth of superannuation, that affects market-based financing and particularly the financial advice area; fourthly, complexity driven by financial innovation; and fifthly, inevitably, globalisation—it is a fact of life.

Our corporate plan identifies the areas of focus for 2015-16, with particular immediate concerns that flow from those long-term challenges I just mentioned. The corporate plan also, most importantly, highlights how ASIC will evaluate our performance over time and strengthen our capabilities to meet the future challenges, particularly improving our data analytic skills and behavioural economic skills.

Finally, given the government's strong focus on innovation, I would like to also mention ASIC's innovation hub. This year I announced that we are setting up an innovation hub to help fintech start-ups in their engagement with ASIC. ASIC wants to encourage innovation while not compromising our strategic objectives. In our innovation hub, we have a five-point approach: first, engaging with other fintech initiatives, including the physical hub and co-working spaces already established with start-ups. Secondly, we have streamlined our process for innovative business models—that is, how we deal with them when they come to us.

Thirdly, we are establishing a new page on ASIC's website—a one-stop-shop for innovative businesses to access information. Fourthly, we have set up an internal taskforce that is chaired by Commissioner John Price, who is spearheading this initiative. Fifthly, as it is important that we engage with industry, we have set up a Digital Finance Advisory Committee, which will and does comprise people in the fintech area, to advise us on developments.

These are substantive issues. We are now happy to take questions. We have a copy of the corporate plan here, if anybody is interested.

CHAIR: Before I go to Senator Williams, fintech is a fast-moving area. I picked up The Sydney Morning Herald—that beacon of information—and noticed the article 'Lend2Fund lured to London by friendly fintech regulation'. Are we dragging our heels here?

Mr Medcraft : The one area that we have said we probably need to move fast on is the market licensing area. The market licensing regime that we have today was built basically on one stock exchange—the ASX. What we see now is a complete fragmentation of markets and platforms. We need a system that is far more proportionate. The government has been consulting on a new market licensing regime. This is particularly important when you look at things like crowdfunding or peer-to-peer lending because they are marketplaces. How they fit into that marketplace is quite important. It is critical, because this is globally competitive. Countries are competing around the world in this area. So being flexible and agile is quite critical. You have raised a good point.

CHAIR: You make a point of the issue of resources, allocation of extra resources and the government's focus every time you come here. We are talking about it more and more. The work that we are doing as a committee in our inquiries is more and more focused on the fast-moving, competitive nature of it. I am really concerned that we are not going to be able to keep up and maintain the businesses here.

Mr Medcraft : In the future you will have to be flexible and agile, and that probably means that you need laws that are more principle based rather than the detailed ones we have today. The world is changing so fast that legislators do not really have the time to catch up with them. I think the discussion these days is about principles that need to be respected and to be more flexible and agile. The proposal in the Financial System Inquiry of a product distributor-manufacturer obligation to act in the best interest, combined with product intervention, is a good example. But you are quite right: these days the ability to say, 'We will solve that problem this way'—the problem could change in two weeks.

CHAIR: The challenge for us as legislators is that you will see the issue, but we will not be able to enable it quickly enough.

Mr Medcraft : Correct.

Mr Price : In some instances, ASIC does have power to grant waivers from the law. But the market's licensing regime is an area where we do not have the same level of flexibility as in other cases. It is an area where, especially with fintech, crowd-sourced equity fundraising and a number of these platforms that effectively match interested parties, it is very important to get a level of flexibility in the market's licensing regime. That is a priority if Australia is going to be well placed to deal with some of these innovative sorts of business models.

Ms Armour : There are well-trodden examples of more flexible regimes operating in North America and Europe—

CHAIR: I am hearing from them.

Mr Medcraft : and Asia. The Koreans are focused on attracting fintech and having a flexible regime that attracts them. It is a very interesting question.

CHAIR: So you are going loud on this? I am just a backbencher.

Mr Medcraft : We are trying our best.

Mr Price : There have been some discussions with Treasury already. Some of the issues have come up through the crowd-sourced equity fundraising consultation process. Certainly, the issues are recognised. It is about making sure that we can try and deal with those in a timely way. We are seeing these business models now—robo advice, peer-to-peer lending, crowd-sourced equity fundraising, payment systems—these are things that are happening right now. We need to make sure that we are well placed to deal with those.

Mr Medcraft : This is before you think about models that are building machine-made decisions, for example. The world is moving past.

Mr Kell : Importantly, one of the recommendations from the Murray inquiry, which has been agreed to by the government, is to examine existing legislation to ensure that it is technology neutral and to give priority to addressing those parts of the legislation that might be biased against some of those new technologies. That is an important pickup, and we will be looking to participate in that process.

Mr Medcraft : We have fleshed this out a bit in the corporate plan.

CHAIR: I did not mean to hijack things. Senator Whish-Wilson, you had a follow up on that.

Senator WHISH-WILSON: I was interested in Mr Medcraft's comments about the product issuer and distributor accountability—I think it was recommendation 24—and how that is going to work. But maybe I can ask you about that a bit later.

CHAIR: Senator Williams. You have been waiting patiently in the corner.

Senator WILLIAMS: I am always patient. Thank you, Mr Medcraft and team. Thank you for your attendance. Mr Medcraft, I think our treatment of whistleblowers is disgraceful. I have seen the effects on a couple of whistleblowers I have dealt with. What needs to be done?

Mr Medcraft : We cannot regulate culture and we cannot be looking over everyone's shoulder going forward. Therefore, what we have to do is have the incentives to get the right culture in corporations and the financial system. I do think that there are probably three aspects of that that are important. Certainly, the review of penalties et cetera will be very interesting.

There are three things that could be helpful. Whistleblowers are very important intelligence. I do not think the US approach of paying bounties is the right way to go. I do not think that is consistent with our culture. However, I do think that whistleblowers should be compensated for their loss of lifetime income, potentially out of penalties, so that when those people who have a problem and go home and say, 'I'm not happy with what I'm seeing', and they speak to their spouse and say, 'I can't afford to do something, because I won't be able to get another job'—

Senator WILLIAMS: Exactly.

Mr Medcraft : that has to be taken off the table. It has to be taken off the table. To do the right thing, you should not suffer a loss of lifetime income. I do think there is a case to be made for thinking about some form of compensation out of, perhaps, proceeds of penalties. It should also be about companies rewarding whistleblowers. That is a change in culture. If you have the courage to speak up, the company should be rewarding you. I think many companies are saying that these days—what has happened with Volkswagen, for example. You think about somebody speaking up. It is what a company can do on its own, but it is also potentially what the system can do. I think it is actually quite an important change in culture.

Senator WILLIAMS: If I was to ask you to give me a breach report, what would be your response?

Mr Medcraft : They are confidential.

Mr Day : They are confidential.

Senator WILLIAMS: And I cannot FOI them?

Mr Day : You can put in an FOI application for whatever you like and we would have to consider whether or not we release it to you. The answer is: we would say no. They are confidential.

Senator WILLIAMS: I just wanted to get it on record—I have saved my time. I think it would be a waste of time.

Senator WHISH-WILSON: On the whistleblower aspect you were just talking about—you have mentioned this before, Mr Medcraft, a couple of times—have you managed to progress in any way the discussion around getting a scheme to compensate whistleblowers?

Mr Medcraft : The government have announced that they are going to be looking at penalties et cetera. This is something will be talking to government about. Another thing that we will be talking about is the idea of extending the Crimes Act. As you know, it has a provision related to a culture that enables the breaking of the law. What is most important about culture and breaking the law is making sure that individuals are prosecuted, not simply companies. At the end of the day, a company is no more than a sum of individuals. You have to make sure that those individuals who are responsible are dealt with. Some of the things the government announced yesterday around making management responsible are really important. Thinking about that is important. Thirdly, at the moment we have a Markets Disciplinary Panel that works very well sitting in judgement of peers issuing infringement notices. Perhaps it is an idea to extend that to have a financial services disciplinary panel—because your peers judging you can be quite powerful. We think there are things to think about around how you might nudge culture in the right direction.

Senator WILLIAMS: Returning to the question about seeking breach report documents, if the committee requested it, Mr Day, that would be a different situation, wouldn't it?

Mr Day : I would have to take advice. You are probably more knowledgeable about those affairs than I am, but I would have to take some advice about that.

Mr Price : I think that is right, Senator Williams.

Unidentified speaker: It is in the nature of a subpoena.

Mr Price : Yes. You need to afford procedural fairness to people who might be affected by that, but I think the Senate could ask for those documents.

Senator WILLIAMS: Mr Kell, I want to move onto a story on HSBC the other day.

Mr Kell : ASIC is certainly aware of the concerns.

Senator WILLIAMS: Did HSBC submit breach reports to you on this Mr Kwok?

Mr Kell : Yes, we did get reports from HSBC about Mr Kwok. We received material in 2014 and we considered that. Again we received some material quite recently—it came through at the end of August—and that is the subject of further communication. In relation to the 2014 material, we considered that carefully, but, given the nature and extent of the conduct, there was no ongoing consumer detriment. It was a relatively small number of consumers—fewer than 10—and they were being fully compensated. Given our limited resources, we did not take further action in relation to that matter at that time. We received more recent reports, as I said, this year, towards the end of August, and we are still actively considering those to determine whether action does need to be taken and whether further information is required around that matter. So that is still under consideration. The adviser in question is no longer in the industry and has not been since 2013. He is not on the financial advice register or on our authorised representatives register. We understand from HSBC that the relatively small number of clients are all being fully compensated. But the most recent case, just to finish very quickly—

Senator WILLIAMS: You make a good point; Mr Kwok is no longer in the industry. With our register up on a computer for the world to see now, shouldn't there be a statement there that Mr Simon Kwok, whatever his name is, left the industry and that there are questions about him and breach reports so that in 10 years time you do not find him back in the industry?

Mr Kell : It is a good question. Two points around that—

Senator WILLIAMS: I mean they do the bolt, and then that is the end of it.

Mr Kell : The first is that we are able to track those advisers now. We are able to put a red flag in our system to ensure that we are aware if he attempts to re-enter the industry, and we can take appropriate action if that is the case. In terms of whether an adviser should be listed on the register in the circumstances you describe, at the moment that is not one of the types of information that are required to be placed on the register under the regulations that govern the information that is placed on there. I think, as we might have raised before this committee, we are taking on board a range of suggestions about additional information that could go on the register, and we will be talking to government about that, including what should be the triggers to get an adviser on the register in those sorts of circumstances. Another one might be has there been a complaint to FOS about an adviser? Should that be on the register? But at the moment, no, there is no requirement.

Senator WILLIAMS: In relation to this Talos company and liquidators of controversial accounting aggregator Talos. Mr Bryers has been operating in Australia under the name of Mr Mark Ryan—you are familiar with the person? Thanks, Mr Day. Can you give the committee an update of where it is up to with Mr Bryers or Mr Ryan—whatever his name is. I always get suspicious when people change their names, even though Senator Marshall changed his name to Deputy President and that is okay. I get suspicious when someone comes to Australia, leaves a train wreck in New Zealand, changes their name, then goes and buys up companies and then it falls over. Can you give us an update of what ASIC is doing here please?

Mr Day : We are aware of allegations that Mark Bryers—as you point out, a person who is also known by the name of Mark Ryan—has managed a corporation in Australia while automatically disqualified due to a bankruptcy in New Zealand. We are aware of the allegation about that. We are also aware of a recent New Zealand court order that lifted his bankruptcy, though, in the order that lifted his bankruptcy, it continued his disqualification from managing corporations for a further seven years. By the operation of the Corporations Act, there is a cross-border recognition of those orders, so for all intents and purposes he is disqualified here as well. The Corporations Act prohibits a person from managing a corporation if they are disqualified for those reasons. We do not want to really put a lot more detail into the types of allegations or the reports of alleged misconduct we have received. We are considering matters as they are raised with us. At the moment we do not believe there are further steps we need to take at this time, but we are watching this matter and interested if the public has any other information.

Senator WILLIAMS: I want to take you to Uber. I have just been talking to the Taxation Office about it as well. The sharing economy promotes the use of private assets. Uber: private assets for commercial use on a part-time basis. In the USA, this has caused adjustment problems for the insurance industry et cetera. Is ASIC concerned about any prudential implications of the sharing economy and, if so, which ones?

Mr Price : I think generally prudential regulation is a matter that falls to APRA. I suppose we are more interested in digital disruption and new business models as they affect financial products and financial services rather than other types of services such as accommodation or transport and so forth.

Senator WILLIAMS: Would ASIC be concerned if an insurance company offered cover for a product that is reportedly illegal?

Mr Price : If my memory is right, there are some cases where you cannot actually insure for illegal purposes. So it does give rise to some potential areas of interest to us.

Senator WILLIAMS: The Australian tax industry raised this with you on 1 September. Is that correct?

Mr Price : I am not aware of that.

Unidentified speaker : We can take that on notice.

Senator WILLIAMS: Thanks. I do not think they have had a response yet. Perhaps we could respond to them. That would be good. That is it for me, Chair. I will not go near the land banking. I will leave that to Senator Dastyari.

CHAIR: Thank you. We are going to Senator Leyonhjelm before we come back to the opposition. We welcome Assistant Minister Ryan.

Senator Ryan: Don't promote me too much, Senator Edwards.

Senator LEYONHJELM: Mr Medcraft, I am not sure if you are the right person but I am sure you tell me if not.

Mr Medcraft : If I am not, I will direct you.

Senator LEYONHJELM: Thank you. In your opening statement you indicated, in exact words, that you welcomed the government's response to the Murray financial system inquiry and you pointed to raising the competency of financial advisers. Do you have a view as to how many people or what percentage of people would benefit from financial advice?

Mr Medcraft : The number of people who actually currently get advice?


Mr Medcraft : Who benefit from advice?

Senator LEYONHJELM: Yes. So you are dealing with the consequences of poor choices sometimes. I think you might be an expert at this area. I will pass over to Peter Kell who oversees this particular area.

Mr Kell : It is a good question. I am not sure that we would have an exact number for how many people would benefit from it, but we would certainly say a larger number than currently access advice—which is around 20 per cent of the adult population. Given the importance of compulsory superannuation, we would like to see that number grow. We would like to see more people accessing advice—both advice for particular financial issues and broad-based advice as well. As to what the magic number is, I am not sure. But it is considerably higher than 20 per cent.

Senator LEYONHJELM: Have you ever had a look at what determines the competency of a financial adviser?

Mr Kell : Yes. That has been the subject of considerable discussion and policy debate, most recently through the parliamentary joint committee review of adviser competency and professionalism. I think it is widely acknowledged—certainly by ASIC—that we would like to see that competency raised.

Senator LEYONHJELM: I am curious about what the attributes are of that competency. Is it age, experience, education, work background?

Mr Kell : That is a good question. It would typically involve a mix of elements. Some of it would go to education. The current proposition from the parliamentary joint committee is that there be a minimum standard of tertiary level, that there be a professional year so that there would be experience built into the requirement to join in, that there be an exam that tests competency, particularly in the specialised requirements around being a financial adviser, and that there be continuing professional development requirements as well. So some of it would go to education, some of it to experience, some of it to how you provided advice over time.

Senator LEYONHJELM: Is there any empirical evidence that would suggest that a degree, for example, leads to people receiving better quality advice?

Mr Kell : I would have to take on notice the question around the degree in particular. But our experience is that advisers with better qualifications are less likely to be involved in poor quality advice. An adviser with a PhD may well give very bad quality advice. But, on average, those with better qualifications give better quality advice.

Senator LEYONHJELM: Where I am heading with this is I am just wondering whether the tendency towards higher credentials amounts to credentialism rather than benefit to consumers. The risk is that it will result in financial advisors being used less by the public, not more.

Mr Kell : I think it is a good question. However, I think most of the people who have an interest in this industry—regulators, different industry participants both in large and small firms, as well as consumer and investor stakeholders—would say we are not moving towards the end of having an over-credentialism problem. At the moment, we need to raise it to a standard that most other people would regard as the minimum for a profession or a competent industry. I understand exactly what you are saying. I think we need to be careful to make sure that we look at the costs we impose so that we do not price advice out of the reach of people. Our view would be that at the moment that is not the major problem. We need to get up to a level of competency that is going to give people trust and confidence.

Senator LEYONHJELM: I think you have probably answered this. Some prominent people come to mind who have been very successful financially—Harry Triguboff and Frank Lowy, for example—with precious little in the way of academic qualifications or formal training. It would be interesting to know whether they are capable of advising anybody else. You would think they might have a chance.

Mr Kell : I have no doubt whatsoever that there are people who do not have formal qualifications but provide good advice. But—as I said—on average, we find that this is an area where having some minimum competencies is quite important, especially when you consider the complexity of the way the financial system interacts with the superannuation system and the social security system. I do not think we are asking for a level of competency or a level of credentials that is unrealistic; it would be regarded as the minimum in most other professions.

Senator BUSHBY: Under the government's proposal, will there be any grandfathering, or will there be any other alternative ways for people to demonstrate those competencies, say, for somebody who has been in the industry for 30 years and is acknowledged as a very capable and experienced advisor but does not have those formal qualifications? Is it a moving forward type of thing?

Mr Kell : I am not sure that there has been a final decision on that point as yet. At a minimum I think there would be a transitional path or an extended period under which people could meet the new requirements. That is certainly something that ASIC is sympathetic towards.

Senator LEYONHJELM: Perhaps you could nudge the minister next to you and see if he knows!

Senator DASTYARI: There are a couple of other matters that I want to raise, but I want to touch on the matter that was raised by Senator Williams regarding HSBC. Mr Kell, it sounds like you said there was initial breach report information given to you in 2013.

Mr Kell : In 2014.

Senator DASTYARI: The first bit of correspondence you got was a breach report in 2014?

Mr Kell : That is right. We were first notified in 2014.

Senator DASTYARI: What date was that?

Mr Kell : It was in the first part of 2014, around March.

Senator DASTYARI: I thought you were reading from briefing notes; I thought you might have had the name, but you do not. So in early 2014 you get the first breach report and HSBC had identified 10 customers. Is that correct?

Mr Kell : Around that time it was less than 10 customers, I believe. They were going to be fully compensated, including with interest. The advisor was no longer working in the sector. Again, we cannot act on every breach report—we have to make decisions and it is prioritised given our limited resources. That was not one that we chose to follow up, given the resources.

Senator DASTYARI: When were you given additional information?

Mr Kell : We were given additional information in August. There was some follow-up communication after that first breach report around that matter, but we were given a second set of information around the actions of that advisor in August this year. There has been some subsequent communication with HSBC; that issue is still under consideration by ASIC. We are still determining how best to deal with it and what will be required.

Senator DASTYARI: My concern here is that we appear to be aware, and HSBC appear to be claiming, that there are 10 victims. Correct? Ten or so.

Mr Kell : Yes.

Senator DASTYARI: Is there any way of us knowing whether or not there are other potential victims who are unaware they have been affected?

Mr Kell : That is obviously one of the key issues that we are determining with HSBC. I do not have the answer to that now.

Senator DASTYARI: So you are determining whether or not there are other victims?

Mr Kell : In any such case that is one of the issues that we seek to explore.

Senator DASTYARI: So at the moment you are exploring whether or not there are other victims?

Mr Mullaly : We are considering the information that has been given, to determine whether any further investigation should be undertaken by ASIC. We understand that HSBC is undertaking its own investigations internally. One of the things that we would do if we were to take on an investigation would be to determine the extent of the concerns.

Senator DASTYARI: We have seen this happen in previous scenarios. You are the experts in this but, as you know, our committee has also seen these matters come across our desk from time to time. My issue is with potentially affected customers—and we have seen this across the sector at NAB, at CommBank and now we are seeing it at HSBC—who are not aware they have been affected. Companies that are prepared to do without the scrutiny that comes on them from an entity like ASIC will say, 'There is only a few people affected,' then once there is an extensive independent assessment process it turns out there is actually a lot more people affected. At this point in time, Mr Kell and Mr Mullaly, are you saying that you are not at a point where you can give us information on how big the scope of this thing is, potentially?

Mr Kell : As I said, at this point in time we are still looking at and analysing the information that has come through quite recently. The information we have suggests it is quite a small number of clients who are affected, but obviously we are still considering that information.

Senator DASTYARI: Are you aware of whether this matter has been referred to the police?

Mr Kell : Yes.

Mr Mullaly : I understand that it has.

Senator DASTYARI: Would that be from you referring it to the DPP or from HSBC referring it to the police?

Mr Mullaly : HSBC.

Senator DASTYARI: Do you know when they did that?

Mr Kell : I think that was in relation to the 2014—

Mr Mullaly : No, I think it was in relation to the 2015 information. I have not got the exact dates, but I think it was only shortly before they notified us.

Senator DASTYARI: So you understand the matter has been referred to the police. The media reports seem to be around this $3 million—did they get it back from the people who siphoned at Singapore? Has the money been returned?

Mr Mullaly : My understanding was that there have been two lots of proceedings commenced by HSBC. One was in relation to the 2014 conduct; proceedings were commenced back then to freeze assets and to seek the return of money. I understand that that was successful. I understand that a second set of proceedings was commenced, again freezing assets seeking the return of money, in relation to the 2015 conduct. I am not at this point aware of the outcome of that.

Mr Kell : It is also important to note that HSBC's communication to us indicates that the return of money to the affected clients is not ultimately dependent on whether they get that money back from overseas or not; they will be compensated in any case.

Senator DASTYARI: To close the circle on this and to make sure my understanding of this is right, in 2014 you received a standard breach report which identified the actions of one planner at HSBC. At that point in time when you went through your triage process you assessed that the planner had been sacked; they were no longer working there. Normally when information comes to you, you are more sympathetic to it; from my understanding it normally demonstrates more goodwill on the side of a company if a breach report is issued the first time it comes to your attention.

Mr Kell : It is not necessarily the first time, but the compensation was being provided; there were a small number of—

Senator DASTYARI: Okay. At that point ASIC felt, through your triage system, that it did not go to the next level. In September this year, you received additional information.

Mr Kell : The end of August.

Senator DASTYARI: That information was from HSBC—correct?

Mr Kell : Yes, it was.

Senator DASTYARI: At that point you were also notified that the matter had been referred to the police by HSBC?

Mr Kell : As to the exact timing of that, I am not sure, but around that time.

Senator DASTYARI: Okay, and at that this point in time you were making an assessment of whether or not this warrants further investigates by ASIC?

Mr Kell : That is right, yes. It is best for us not to go into a lot of further detail at this point in time; we are right in the middle of it.

Senator DASTYARI: And the concern, as you can appreciate—which I am sure is also your concern, which is why you have to make these calls—is making the determination about whether this is a rogue planner who has been appropriately dealt with or whether it is a demonstration of a cultural problem within the HSBC organisation that warrants further action. Is that the test? What is the test?

Mr Kell : That is certainly one of the questions.

Senator DASTYARI: What are the other questions?

Mr Kell : Are the affected clients being compensated or is there any evidence that it is more than one planner, for example. Those are some of the sorts of issues we will need to consider. What is the nature of the conduct? Is it different from and more egregious than the conduct that we were alerted to last year? Some of those sorts of questions.

Senator DASTYARI: I know these things take time. How long is this roughly?

Mr Kell : I would expect within the next month.

Senator DASTYARI: So within the next month you will make a determination, and you are in regular contact at the moment with HSBC?

Mr Kell : Yes.

Senator DASTYARI: What does 'regular contact' mean? My words, not yours.

Mr Kell : I am not sure that it is particularly useful to say that there are phone calls here and whatnot, but it is obviously a live issue at the moment.

Senator DASTYARI: Okay. Mr Medcraft, I just want to bring you to this. I do not know what this is. I have been reading about this capability review that ASIC is undergoing at the moment. What is the capability review?

Mr Kell : The capability review, contrary to what some people have said, is not a witch hunt or an audit; it is meant to be a positive and forward-looking view about ASIC in the future and the capabilities that we have. We actually put ourselves forward to be the first cab off the rank for the capability review, and they are looking at basically what capabilities we need for the future.

Senator DASTYARI: I am new to all of this, so explain to me how it works. A team of people have been brought into ASIC to do a report. Is that how it works?

Mr Medcraft : Yes. Karen Chester, who is a productivity commissioner, is chairing the capability review, and Mark Gray who is also a productivity commissioner and the former Queensland government Under Treasurer is also a member. I think he was a member of the Queensland government's Independent Commission of Audit.

Senator DASTYARI: That was a fantastic piece of work. It helped bring forward a one-term government.

Mr Medcraft : David Galbally, a QC partner at law firm Madgwicks, has also been appointed.

The mandate of the review is to look at how we analyse risks, how we set our resource prioritisation, and our skills and capabilities. To that end, we have identified for the committee looking at us eight areas where we believe our capability could be improved without any more money. The first is budget flexibility, being capex/opex: trying to see whether we can move more within the years and seeing whether we could roll over between years or even, where we have projects, get an advance on capital projects and repay it from future opex. In people, among the things that are being considered are whether it is appropriate for us to be in the Public Service—because clearly we do not compete for staff with the Public Service; we compete with the financial services industry, and our partner agencies, APRA and RBA, are not members of the Public Service as well—and a more flexible structure. The third is process and technology—how we use, access and share data, which really goes to the discussion that we started today about how having good technology in the future to be able to access even our own internal big data is important. The fourth is the FSI recommendations, which I mentioned before, about industry funding, penalties, et cetera—

Senator DASTYARI: We will get to that.

Mr Medcraft : The fifth is the market licensing regime which I mentioned, which could make us a lot more efficient, more proportional and more flexible. Sixth, what we have said is that, in terms of intelligence and evidence sharings with other government agencies, at the moment, as you know, there are issues with how we share with the ATO, or with AFP. There are also the opportunities for shared services. We think there are great opportunities there, which is something the government is focusing on. The seventh is in terms of cooperation with industry. I have mentioned before, for example, the idea of a financial services disciplinary panel. That could make things a lot more efficient, not necessarily putting things through the courts. Finally, the eighth area is registry separation, which is the opportunity to move off legacy systems and onto the cloud. That is where it is today.

Senator DASTYARI: Effectively, this is what has happened: the capability review has come to ASIC, and you have provided them an eight-point program—if you are going to call it that; those are my words, not yours—of where you can identify that ASIC can improve its capability. Is that correct?

Mr Medcraft : Yes.

Senator DASTYARI: There is clearly a correlation between capability and funding—correct? You have said in this committee many times before that you are capable up until the point where you are funded to be capable. If your budget were going to increase by x dollars, it would result in x better things you could do. The question is how efficient you are within that envelope. Is that fair?

Mr Medcraft : Basically, you pay for what you get in life. We do the best with what we can. Those eight points have said: without spending any more money, here are areas where you could make it even better with what you have and get more from that.

Senator DASTYARI: Correct me if my figure here is wrong, because I am doing this from memory. At budget estimates, I think the forward estimates had a decrease of $120 million over the next four years in ASIC's budget. Is that the right figure?

Mr Medcraft : That is correct—over four years not from last year but from the year before.

Senator DASTYARI: From last year, there was a $40 million decrease?

Mr Medcraft : Last year was $20 million. Basically, our cuts have resulted in about a 20 per cent overall reduction.

Senator DASTYARI: I think it is impressive that, while you have a 20 per cent decrease in your funding envelope, you can turn around and say, 'Here are eight measures where we can improve our capability and things we can do better.' You should be commended on that. But what I have issue with—and I wanted to ask you about this—is the government response to the FSI. I note for a long time you have come to this committee and you have argued, quite eloquently at times, that there should be a user-pays model for the funding of ASIC. You have argued that that is needed for three reasons: firstly, it is a fairer system; secondly, it is better for the Australian taxpayer; finally, it gives ASIC a more reliable source of long-term funding in that you are not worrying budget to budget. Is that a fair summation of why you support it?

Mr Medcraft : What we said with the industry's funding model—which the government, as you know, is currently consulting on—is that it provides a good price signal for the use of resources. Those that use the resources pay for those resources. Accountability and transparency come with that, as I think you have suggested, and independence, which is very important.

Senator DASTYARI: If that is the case, here is what I do not understand. The FSI response, as I read it yesterday—this has all happened in the past day or so; I look at the word 'ASIC' and I get excited, but I am not exactly—

Mr Medcraft : So do I.

Senator DASTYARI: The suggestion from the FSI, as I understood it, was effectively saying we have a funding shortfall in ASIC; ASIC should be better funded to be able to do the services we want it to do. Obviously there are huge pressures on the Australian taxpayers, so we should be looking at another model—the model that you proposed—as a way to fund ASIC. My understanding, correct me if I am wrong, is the model that was proposed in the FSI yesterday, while it moved towards the user-pays model, does not actually increase the envelope that would be available to ASIC—is that correct?

Mr Medcraft : At this stage the government has said that this is about the way ASIC is funded and it is no more funds for ASIC. We have always said with the funding model that at least, while providing a price signal, it would actually help to improve outcomes by incentivising people to invest in their own good compliance.

M r Tanzer : I said while government continue to determine the level of funding for ASIC and APRA, the regulators should be given more funding, certainly with funding to remain stable between three-yearly reviews. As part of this, ASIC should move to an industry funding model. In addition, both ASIC and APRA should be provided with greater autonomy, staffing and procurement decisions, including ASIC no longer being covered by the Public Service Act. The government's response was to say, 'The government has commissioned this consultation on the industry funding model,' which is coming on right now. The government response also notes that it will await the outcome of the ASIC capability review before making a final decision on the recommendation.

Senator DASTYARI: Assistant Cabinet Secretary, Minister Ryan, I suppose this is an unfair question because it is not your portfolio, so it is not something you may have the answer to; you might want to take it on notice. Are you aware of when this capability review will be completed?

Senator Ryan: I will have to take that on notice.

Senator DASTYARI: Fair enough. Mr Medcraft, have you been given an indication of when the capability review will be completed?

Mr Medcraft : I believe that they are scheduled to report in December to the government.

Senator DASTYARI: Obviously it is a matter for the review, but you are not aware of them uncovering any systemic issues at ASIC to date?

Mr Medcraft : I would hope not, no.

Senator DASTYARI: You do not believe there are any systemic issues at ASIC?

Mr Medcraft : It depends what you call a systemic issue, frankly.

Senator DASTYARI: Well, when I say 'systemic issue', I do not mean systemically everyone is happy and working really hard.

Unidentified Speaker: That is definitely true.

Mr Medcraft : I think we have shared with this committee in the past the results of our internal staff surveys which have, certainly under my chairmanship, seen the level of staff, even despite everything, rising every single year. Despite the pressures, we have had very good outcomes. We have very good staff and they are very committed.

Senator DASTYARI: Are you aware of any consumer group representation on the capability review panel or any other stakeholder representation on the panel?

Mr Medcraft : As I said, there are three: the two productivity commissioners and David Galbally, who is a partner in law firm Madgwicks.

Mr Kirk : I certainly understand that they have been talking to consumer groups as part of their process.

Mr Medcraft : That is correct.

Senator DASTYARI: This is probably a hard question and you are going to dance around this one very well, I believe. Do you feel that the capability review panel is fair and transparent? To me, the idea of doing a review after you have taken $140 million of their money and saying 'improve your capability' is unfair. 'I can improve my capability if you do not take $140 million of my funding,' which I am sure is exactly what you said to them, Mr Medcraft.

Mr Medcraft : We have taken a very positive view about the capability review; we put our hands up first. We see that the objective of the capability review is to be forward looking. It is not, as I said, meant to be a witch-hunt. It is not meant to be an audit.

Senator DASTYARI: It is not meant to be a witch-hunt, but is it? It sounds like one.

Mr Medcraft : We have been very open as an organisation. We have engaged with them. So I can only say, as somebody who generally always sees the glass half full, that we welcomed it and we look forward to their positive considerations.

Senator WHISH-WILSON: In relation to the Murray inquiry and the recommendations yesterday, I was interested in recommendation 22, which you mentioned in your introductory speech, Mr Medcraft, around using product intervention powers. Mr Tanzer, you provided time the other day for our Senate inquiry into forestry managed investment schemes. At the end of a very productive chat we came to the conclusion that while we could not necessarily prove deceptive and misleading conduct or fraudulent behaviour in relation to these schemes, a lot of them were not viable and were not investor grade. Would this kind of new power for ASIC give you the ability—I am asking you to look in hindsight here—to have stepped in and looked at that kind of product and said, 'This is too high risk or is going to cause consumer detriment'?

Mr Tanzer : I can only give you general assurance on that, because I would not only have to look in hindsight; I would have to look forward to what the legislation says. The recommendation put forward by the FSI, which has been accepted by the government, at least in terms of further consultation around this, was that in cases of demonstrated consumer detriment ASIC should have power to intervene with respect to a product for a particular period of time, effectively to give the parliament time to deal with the problem also.

To rehearse for the committee very briefly what I was saying to the forestry inquiry, the history of forestry managed investment schemes has not been a happy one with respect to their investment outcomes. That is by no means a condemnation of every scheme, by any means. There are successful schemes, but there are some difficulties and well-demonstrated difficulties with forestry managed investment schemes. In particular, I indicated that, from ASIC's perspective, we have been a strong supporter of the product intervention power. It is this sort of thing that you could see in that type of area, where we have done a lot of research about the detriment that has been caused. We have worked very hard on improving disclosure, improving warnings and trying to get investors to focus on the key investments. We communicated that that there were two key things that were relevant to that. One was the work that is being done through FOFA and the ban on commissions and the other was product intervention powers.

Senator WHISH-WILSON: The government's wordings are fairly general in what they released. They basically said they agree to provide ASIC with a financial product intervention power to enable it to modify or if necessary ban harmful financial products where there is a risk of consumer detriment. What would harmful mean, essentially? We have to get to the details of this if there is going to be legislation. Presumably this is going to be explored again by the committee. Could it mean non-viable products, like we have seen in this catastrophe with $4 billion or $5 billion lost through an asset class like forestry managed investment schemes? It looks like it might be legal, but it certainly looks harmful to me.

Mr Tanzer : The government has indicated that there will be detailed consultation on the scope and nature of the powers by mid-2016, I think. I imagine that will be one of the particular issues that is worth discussing. As I mentioned with respect to forestry managed investment schemes, what we saw following the global financial crisis was that the predominant model for many of those schemes, which relied on up-front fees coming in from new investors, did not prove to be viable once those new investors dried up, and the working capital was not there. We worked pretty hard on financial resource requirements and a range of conditions that we can impose on how the land was held, but ultimately those models proved to be not viable once the financial crisis hit. It does suggest that that type of environment is certainly the type of thing that is well worth considering when you consider things like the product intervention powers.

Mr Kell : On that point, I think it is important to note that the discussion about the use of the product intervention power is not just in relation to targeting products that have a higher investment risk. It is about where you have a fundamental misalignment of risk. That is what you saw with the forestry products, but it can also arise with insurance products and with credit products of one sort or another. It is where you have a product that people understand offers them A but they are actually getting B and that appears to be a systemic problem—that is maybe where the product intervention power may be useful.

Senator WHISH-WILSON: That is very good to hear. I am certainly looking forward to seeing the detail around these consultations and legislation. We have to make sure that that sort of thing does not happen again.

Mr Price : Perhaps one further comment: there is another significant recommendation coming out of the FSI government response, around product design and distribution.

Senator WHISH-WILSON: That was my next question. Continue, please.

Mr Medcraft : The two are paired.

Senator WHISH-WILSON: They are. There was a lot of media speculation, certainly leading into Mr Murray's interim report, that there was a bit of an elephant in the room and that he might look at the vertically integrated business models of the banks and the culture around selling products to their customers. This seemed to be suggested as the solution—to not go to that extreme of forcing them to sell off their financial planning arms or the manufacturing part of their business. I would also be interested to hear your views on whether you think this will help solve the culture that we have often talked about in these financial services firms.

Mr Price : As I read the recommendations, it is really about making sure that the people to whom products are directed are suitable to receive those products, not at an individual level but at a group level. If there were a situation where products were being directed to a group of people for whom those products are unsuitable, then under this sort of obligation it may well be an issue.

Mr Medcraft : The big game changer these days is the power of the crowd, for good or for bad. Basically, if you do the wrong thing by your customer the whole world can be told very quickly. I think that is going to shape behaviour. That, combined with digital disruption, is going to be very powerful. If you want to argue that it is a market force, market forces are really changing quite dramatically—digital plus the power of the crowd.

Senator WHISH-WILSON: Through the inquiry on scrutiny of financial advice that Senator Dastyari has chaired I have asked the CEOs of the major banks about this recommendation 21—had they started any discussions with yourselves or with the government and did they know anything about it. They said, 'No—let's bed down our focus and we will get to that stuff later.' That interests me. We do not know much about it and how it is going to work.

Mr Price : There is to be further consultation on this particular proposal, which I understand will occur in the first half of the next calendar year.

Senator WHISH-WILSON: The words in the government's information do trouble me a bit. I am sure that Senator Dastyari has nightmares around Senator Cormann inserting this kind of clause in this information:

Implementation of this recommendation will be subject to detailed consultation with stakeholders to ensure that the scope of the obligation enhances consumer protection without placing an undue burden on industry.

I hope that is not code for not taking any strong action.

Mr Price : Obviously these are policy matters for the government. Sometimes with these sorts of obligations you have to think about whether they apply at the individual transaction level or at a slightly higher level. In marketing, for example, do you look at marketing to each and every consumer who might receive the marketing, or do you ask a higher-level question that says something like, 'What is the broad group that the marketing was directed at, and is that an appropriate group to receive those sorts of products?' There are complex policy questions here.

Mr Medcraft : But also I think that these two combined have the potential to reduce the burden on business. At the moment, business does their PDS and their financial services guide, which probably nobody reads. Having a system like this where it is back to them to have those principles to make sure that the right customers are getting the product does allow you to start thinking about it in a digital environment, creating something that is more fit for purpose and which people can use, with a benefit for both business and for consumers. As I said earlier, thinking this through, it provides some good opportunities for everyone.

Senator WHISH-WILSON: I have a couple of questions on recommendation 24. Your organisation, I think, is the only one that has done some survey work on commissions in the life insurance industry. Were you disappointed that we have not seen a ban or some sort of mandatory cap or regulation placed on commissions?

Mr Kell : We are pleased that there is a lot of work being undertaken in this area. There was the announcement by the former Assistant Treasurer, Josh Frydenberg, about the proposed industry package to address some of the problems in the life insurance sector and to raise standards. That is obviously continuing to be the subject of a lot of work. The government has announced that it supports those proposed reforms and will now look at how they can best be implemented. That is going to be an important step forward for the life insurance sector.

Senator WHISH-WILSON: Could you quickly tell us what those reforms were that were proposed by the industry themselves?

Mr Kell : Without running through all of them, they involved a change to the remuneration model to move from a high up-front commission to a so-called hybrid commission, which has an up-front of around 60 per cent, ultimately, with an ongoing commission of 20 per cent; a transition to that model over three years to reduce the conflicts that arise from a very high up-front model; a so-called clawback arrangement to discourage inappropriate switching or churning; the introduction of a code of conduct; the introduction of a requirement for insurers to enable advisers to not only offer commission-based life insurance policies, but policies without the commission—they think that is quite important

Senator WHISH-WILSON: That is mandatory.

Mr Kell : Those are all part of the package that was put forward at that time. Also a ban on other volume-based payments, consistent with FOFA, which, again, is obviously to address the conflicts issue; and a review in 2018. That is not an exhaustive list, but I think that captures many of the key elements.

Senator WHISH-WILSON: In relation to recommendation 25, looking at standards, is there still scope there for a national exam of some sort or another?

Mr Medcraft : I believe that is very much on the agenda.

Senator WHISH-WILSON: So the industry has come around to accepting it. My feeling, from previous inquiries, is that various parts of the industry have been opposed to a national exam.

Mr Kell : I think the government has now agreed to a package that includes the degree, an exam, continuous professional development and a professional year, amongst other things. The exam is going to be part and parcel of the regime. That is a positive.

Mr Medcraft : I think it is quite important that an exam is seen as something that is internationally recognised, as well.

Senator WHISH-WILSON: Similar to the US style.

Mr Medcraft : I think it is important that the standard is—we have to lift trust and confidence.

Senator WHISH-WILSON: I certainly do not want to have to go through that again. It is not much fun at all.

Mr Medcraft : Neither do I.

Senator WHISH-WILSON: Senator Dastyari has asked about the capability review. Talking about competition, recommendation 30 is 'strengthening the focus on competition in the financial system'. Is there any crossover here with what the ACCC does in their mandate? Why introduce this here too?

Mr Kell : That is good question. Again, we will have to wait and see exactly what the legislative proposal involves. The concept, as far as we understand it, is not for ASIC to become the competition regulator. We would not be approving mergers or undertaking that sort of activity. Rather, it is to formally introduce competition considerations into our decision making and our objectives—this was something that was introduced into the UK Financial Conduct Authority a few years back—so as to ensure that we can, if you like, send a signal in our decision making. That may come to granting relief or looking at what sort of action we might take to remedy a market problem. Competition is an issue that we need to consider very clearly when we do that.

Senator WHISH-WILSON: Okay. Lastly, Mr Medcraft, I notice you have made some media comments around changes to legislation after the BBY—the Burdett Buckeridge Young—collapse. I think that was the Corporations Act section 981D. Just in relation to BBY: when it went into administration for failing to pay its creditors on time, the administrators found that money in particular trust accounts was missing. It is understood that this was a result of margin calls on derivative products and that there is a loophole at the moment which allows investors' money in trust to be accessed by margin calls. What was your role in monitoring this? Could you step us through why you would like to see the legislation changed?

Mr Medcraft : Certainly—Cathie, do you want to take that?

Ms Armour : Sure. We would like to see the legislation changed because of the particular gap that was there in relation to what we call 'over-the-counter derivatives'. Actually, there is a capacity under the legislation for client moneys to be used for hedging and other purposes. It does not necessarily have to relate directly to that particular client, hedging that particular client's position. Also, a practice has developed where many client documents are offered, and contain an agreement that an organisation can use client moneys more broadly. We would like to see the legislation changed to be more like a traditional trust account, as people would commonly understand that.

Senator WHISH-WILSON: Could you explain why this loophole exists at the moment on trust accounts where you can have—

Ms Armour : That legislation has been that way for some time. There is, no doubt, a history to it, but I am not familiar with the history of it.

Senator WHISH-WILSON: Is there any other way to stop it—that kind of thing—apart from changing the legislation?

Ms Armour : Obviously, businesses could apply a different practice if they were interested in doing that. Having the freedom to use client moneys in this way would obviously be quite relevant to the economics of particular business models, so there may be good business reasons why a business chooses to use these provisions of the law in the way that they are able to.

Yesterday, I think the government did foreshadow that it is looking at adjusting some of these provisions in connection with its response to the FSI. We are looking forward to that happening.

Senator WHISH-WILSON: So you specifically—

Ms Armour : Yes.

Mr Medcraft : I think that the government did announce in the FSI that it was going to look at the money—the client-handling moneys—

Ms Armour : The client-handling moneys. It did announce a number of additional matters, and this was one that was covered.

Mr Medcraft : I think that the client moneys issue is a pretty high priority for the government.

Senator WHISH-WILSON: Okay, thank you very much.

Senator BUSHBY: Thank you to the officers from ASIC for assisting us today. You did not mention the capability review in your opening statement. I was just wondering what has happened with that? Obviously, it has been announced since you last appeared here.

Mr Medcraft : We did—

Senator BUSHBY: Sorry—I missed that. I must have been talking to somebody when that happened. My apologies.

CHAIR: Perhaps you were engaged with Senator Leyonhjelm.

Senator BUSHBY: Like Senator Leyonhjelm earlier, I will look at it on the Hansard.

Mr Medcraft : What I think is important with the capability review is that we await the outcome. We hope that it is proactive and forward looking, as we are. As I said, we have been very open and engaging with it because if we are going to have an industry-funding model we think it is important that we can say we are efficient in the way we spend the money that is currently given to us by government.

Senator BUSHBY: At the risk of doubling up again, I am just curious: how many submissions were received? Was that asked?

Mr Tanzer : It is not a review conducted by ASIC.

Senator BUSHBY: No, I know it is outside, but submissions were open until—

Mr Medcraft : They have undertaken wide consultation with the industry. It is different to a normal capability review because they are not using the APSC methodology; it is the first of its type. They have not consulted widely. They have surveyed our staff, they have surveyed our stakeholders. They have been doing an extensive amount of work.

Senator BUSHBY: The only reason I ask is that there was a closing date for submissions, which was 25 September.

Mr Medcraft : I think they are expecting to report to government in early December.

Senator BUSHBY: I just have some questions on misleading advertising in the financial services sector. Just to establish a few things, what is your head of power? What gives ASIC the right to look at false and misleading advertising in the financial services sector? We have discussed this over the years, but—

Mr Kell : There is a provision under the ASIC Act, provisions which mirror the provisions in the Australian Consumer Law that the ACCC also administers that prohibit misleading and deceptive conduct, and prohibit false and misleading conduct. That is one key element. There are also provisions in the Corporations Actthat prohibit similar sorts of conduct.

Senator BUSHBY: You say they mirror the Corporations Act. Is the wording exactly the same?

Mr Kell : The provisions in the ASIC Act essentially mirror those in the Australian Consumer Law, that is right; so we can seek the same types of penalties.

Senator BUSHBY: A decision that was made under the Competition and Consumer Actin their provisions, which laid down principles in the Duracell bunny case: would that be guiding decisions that are made by ASIC?

Mr Kell : That is right, to the extent that they are relevant for financial services—issues such as whether the disclaimer was enough to correct the headline impression that may have been misleading. Those sorts of principles apply across industry.

Senator BUSHBY: Correct me if I am wrong, but I would suspect that the ACCC probably looks at these issues more than ASIC does, because they are across a wide range of industries rather than just the financial services sector, which you look at, on this issue.

Mr Kell : We have had quite a focus on this sector in recent years, but there is no doubt they would look at it across a wider range of industries.

Senator BUSHBY: There is potentially more case law to rely on that comes out of the competition and consumer side, which would equally apply here.

Mr Kell : That is an important point to make as well, that it does not have to be the regulator bringing a case under these laws. They were available for private actions, and in fact many of them are significant actions—

Senator BUSHBY: Under the laws that you mentioned.

Mr Kell : Yes. We are happy, if it would help you, to provide you—maybe not now—with some information about some of the actions we have taken. For example, we have had a real focus on misleading claims around establishing self-managed super funds, especially in the online environment—claims that you can do it for free, when that has not been the case. We have had a couple of thematic areas where we have been looking at misleading marketing and advertising.

Senator BUSHBY: I would be interested in that. Take that on notice and give me a list of that. I am going to ask about a specific area which I have asked about in previous years as well, and that is in terms of superannuation claims—not so much self-managed, but by superannuation providers. If there was an ASIC market participant which was offering consumers a superannuation calculator based on assumptions which were patently not comparing like products with like products, but producing outcomes which were held out as showing differing outcomes—even though the assumptions they were based on were not necessarily like for like—over a person's working life, would that be of concern to ASIC?

Mr Tanzer : It is something that we have looked at on various occasions in the past.

Senator BUSHBY: Have you had any recent complaints along those lines?

Mr Tanzer : We may have to take that on notice. You may well be referring to Industry Super Australia's ad campaign around 'Compare the pair'. We have certainly looked at that campaign in the past.

Senator BUSHBY: You might have words with them, and every so often something comes up, slightly different—

Mr Tanzer : There has been a range of issues around that, one about whether or not the way the information is presented suggests that a person could get a particular outcome in the future, and the extent to which disclaimers or voiceovers can correct that type of impression; that is right.

Senator BUSHBY: What resources does ASIC have to look into these sorts of things?

Mr Tanzer : We apply the same sorts of tests in this area as we do across our enforcement regime. We look at the fact—this will be published in our enforcement policy—about the public interest, the availability of other remedies or other parties who might to be able to take action, the availability of the evidence, the likely detriment in considering whether we should take action.

Senator BUSHBY: That is the second time you have mentioned that other parties can actually take actions themselves.

Mr Tanzer : That is right.

Senator BUSHBY: What differentiates between a decision from ASIC to take action itself, or another party taking action itself?

Mr Tanzer : Generally speaking, in this area of the competition and consumer law, misleading or deceptive conduct, we have seen in the consumer world a number of actions taken by sometimes competitors who may feel that they are suffering a particular loss. Sometimes it is just injunctive action taken by competitors to restrain activity that they think is unreasonable. In order to do that, normally you need some sort of standing. The most obvious way of having standing is to be able to assert or establish that there is damage caused to you by virtue of that, because the provisions do provide an ability for a person to take action to recover damages as a result of misleading or deceptive conduct. There are sometimes opportunities for private parties also to consider taking injunctive action.

Senator BUSHBY: If an industry participant came to you and said, 'We're concerned about these ads, but we're not going to take action ourselves; we'd like you to,' would that be sufficient, or would you ask them, 'Why aren't you taking action yourself?' How do you work out—

Mr Tanzer : It depends very much on the circumstances of the particular case, but yes. The fact that there was an industry participant who, it appeared, perhaps had standing to take a matter and had an interest that seemed to be relevant and who was well-enough resourced to take their own action, that is something we would take into account underneath that heading of whether there are alternative remedies available for the person who is raising the issue. It would not be a determining factor, but it would be one of the factors we would take into account.

Mr Kirk : That said, there has not been a strong tradition within financial services of private sector litigation. Entities do not tend to—they are more likely to come to us and complain. As well as the fact that Mr Tanzer was referring to, the real concern for us is if consumers are being misled and making bad decisions as a result of a misleading ad. Regarding the fact that an entity might take an action themselves but refuses to, we are still left with the concern about the impact on consumers.

Senator BUSHBY: Exactly, so that is what it will come down to. The nub of it for you will be consumers potentially being misled. Now, I asked whether there had been any recent complaints along those lines. Perhaps you could take that on notice, and in doing so tell us how many complaints, and about which types of superannuation advertisements—and by industry segment, if you can.

Mr Tanzer : Sure, I would be happy to—outside the last year. Is that all right?

Senator BUSHBY: In the last couple of years would be fine. And has ASIC banned, caused or modified or issued an enforceable undertaking in relation to any comparison-type superannuation advertisements in the last two years? And similarly—

Mr Tanzer : Yes, we can certainly give you some information about the action we have taken.

Senator BUSHBY: Thanks very much.

CHAIR: With that, we will suspend for 15 minutes, and we will be back to wrap up.

Proceedings suspended from 15 : 59 to 16 : 14

CHAIR: We welcome back the officers from ASIC and the assistant minister. Senator Ketter.

Senator KETTER: My question is probably best directed to Mr Tanzer and it relates to a question on notice from the June budget estimates. We received a response from ASIC, dated 15 June, to questions 294 to 303, relating to so-called bank bundling. In answer to question 301, you have indicated that your inquiries in regard to the matter, and particularly in relation to section 68A of the SI(S) Act, are ongoing. You say that you hope to be in a position to provide further information before the end of the year.

Mr Tanzer : Yes.

Senator KETTER: Is now near the end of the year?

Mr Tanzer : It is not quite the end of the year, but we have progressed with that inquiry, I think it is fair to say. On the last occasion that we spoke about this, I gave you the background about what section 68A does and so I will not rehearse that again. We have gathered information from a number of superannuation entities, including those connected with the four major banks, to assist us in identifying any conduct that might be in breach of section 68A. We used ASIC notices for that purpose. We have received responses from all of those entities that we contacted, which also included an industry fund. No clear breaches of section 68A have been identified to date, but that is not the end of the matter; we are still analysing the issues around that.

One of the questions might be: why was it that a survey came out that said that inducements were offered, but you are saying that there are no clear breaches? Part of that has to do with the fact that, with the way the survey was conducted, it was not strictly directed to breaches of section 68A. There are certain types of inducements that are allowed to be offered to employers, particularly those that might be passed on to their employees. In general terms, section 68A only prohibits the offering of an inducement if it is a condition of the employer changing the default fund, and the breach actually arises from there being damage caused to a person as a result of that.

So we are completing that work. We have completed our inquiries to the entities themselves and we are expecting that we will announce the outcomes of that work before the end of the year. We are also engaging with APRA, the Prudential Regulatory Authority, on that work as it proceeds, because APRA also has an interest in the risk management processes within superannuation entities.

Senator KETTER: So APRA is still involved in these investigations?

Mr Tanzer : No. We have been discussing with APRA our investigation. It is a question better directed to APRA about what the status of their views is. But we have been engaging with APRA as we progressed.

Senator KETTER: In your answers you point to what appear to be deficiencies with section 68A. I am wondering if your final report on this matter might turn to suggested improvements in the legislation.

Mr Tanzer : One of the issues with section 68A is that it gives rise to an action by a person who may have suffered loss or damage, rather than a direct action by ASIC. We have taken advice on whether there are other powers that ASIC can use under its general licensing powers or some of the powers that Senator Bushby was referring to before, about misleading and deceptive conduct or other types of conduct, where we might be able to consider particular action. From our perspective, we think that there might also be value in coming up with some information for employers who might be considering this type of decision that might be some guidance that ASIC could give, or that ASIC could encourage trustees to give, to employers when they are approaching that decision.

Senator KETTER: You have indicated that with the law as it stands a breach of 68A does not result in the commission of an offence.

Mr Tanzer : That is right.

Senator KETTER: It only gives rise to the creation of a statutory right for an aggrieved individual to commence a civil proceeding.

Mr Tanzer : That is correct.

Senator KETTER: That is for the recovery of losses, and the losses may not be for some time down the track. So it is problematic.

Mr Tanzer : That is correct. One of the difficulties with the section is the direct outcome of it. It was designed at a time when the intention was that individuals would be able to take their own action, but I think from our perspective that is one of the problematic aspects of it.

Senator KETTER: Thank you.

Senator O'NEILL: Following on from the inquiry that we held in Melbourne on Friday, I want to clarify matters with regard to Trio. The collapse of Trio was obviously a significant consideration in the former government, and when the report came out it gave a pretty fulsome outline of how that happened. As I recall, there were two different groups of people caught up in that—those who were within APRA regulated funds and those who were not. In some cases, they were very unclear that they were actually in self-managed superannuation funds because of the confusion around paperwork and a lack of transparency. But the treatment for both of those groups was very different. There was a $55 million payout to the APRA regulated victims of the Trio Capital collapse, which was funded by industry to redress that. There was a second group of people who were outside. I am just seeking information about matters relating to them that may be proceeding. What can you tell me?

Mr Tanzer : I mentioned at the parliamentary joint committee hearing last week in response to a question about whether or not ASIC had met with investor groups that we had had a meeting, together with APRA and the Assistant Treasurer. That meeting was on 3 September. I did not have a particular date. The investor groups that attended that were the ARP growth fund unitholders association, a group called the Victims Of Financial Fraud and VOICCE—I will not spell all of that. The purpose was so that each attendee could brief the minister on the Trio collapse. We provided the Assistant Treasurer but also the investor groups there with an overview of our investigation into the Trio collapse, a summary of the enforcement actions that had been achieved, an update on the liquidator's investigations and, in particular from our perspective, the lack of an available recovery or viable compensation or recovery action from the perspective of the investigations that we had undertaken. That followed an earlier meeting that we had with the Victims Of Financial Fraud on 17 July with the liquidator, where we discussed the current status of our investigation, in particular that we had not identified any viable commercial claim and nor had the liquidator.

Senator O'NEILL: Apart from the groups that were affected, who else was in attendance at that meeting?

Mr Tanzer : There were the three victims groups that I mentioned there. There was me from ASIC. There were representatives of APRA, the Assistant Treasurer and some representatives of Treasury.

Senator O'NEILL: Treasury were represented as well?

Mr Tanzer : Yes.

Senator O'NEILL: And the Assistant Treasurer at the time was—

Mr Tanzer : Mr Frydenberg.

Senator O'NEILL: One of the things that were of concern was a number of comments in press releases from Minister Cormann, prior to him becoming a member of the government, and Mr Fletcher around the promise of potential compensation for these groups that were actually outside the APRA regulated funds. How would you characterise the discussion on the day, Mr Tanzer? Was it about those matters?

Mr Tanzer : The details of the discussion, particularly outside of what I was talking about, are, I think, matters better directed to the minister, because it was the minister's meeting.

Senator O'NEILL: Minister Ryan, could I ask you to answer those questions?

Senator Ryan: Sorry, Senator O'Neill, I was in a discussion with the chairman. I am happy to hear the question again.

Senator O'NEILL: There will be a punishment for homework! My question was around a meeting that was held on 3 September with members of groups that are representing victims of the Trio collapse—the ARP growth fund, VOFF and VOICCE groups. It was also with ASIC, APRA, Treasury officials and the then Assistant Treasurer Mr Frydenberg and was in regard to matters relating to Trio. Was compensation one of the matters discussed then?

Senator Ryan: I cannot speak to a meeting that Mr Frydenberg had, I am afraid.

Senator O'NEILL: Are you aware of anything to do with this meeting?

Senator Ryan: I am not, but you will appreciate this has not been a core responsibility of mine in this or in my previous position. I am happy to take on notice any question and, if appropriate, an answer will be provided in due course.

Senator O'NEILL: This is of considerable concern. I have been asking about what has been happening with Trio—

Senator Ryan: I appreciate it has been a concern of many senators.

Senator O'NEILL: over 2½ years and every time we have been getting a little bit more information for each of those groups, but there were periods where their hopes were greatly raised by Minister Cormann and I think it had reached a point where they had failed in any hope of this government doing anything. So I am very interested to see that this meeting was called. And to my understanding, Mr Tanzer, it was called by the government, not by the groups—is that correct? Were you invited by the government or by the groups?

Mr Tanzer : No, we were invited to attend a meeting by the Assistant Treasurer.

Senator O'NEILL: So it was a government-organised event.

Senator Ryan: The only thing I will say, Senator O'Neill, is it is possible that the meeting was organised at the request of the other groups you mentioned and the government was asked to invite ASIC. I do not know the initiative of it but, as I say, I will take it on notice and seek further information.

Senator O'NEILL: Could you provide me with any correspondence around the matter?

Senator Ryan: The minister is obviously no longer the minister and he is a member of the other place. So I will take it on notice and provide what information I can.

Senator O'NEILL: I am just wondering if the promise is still the promise.

Senator DASTYARI: You said there were different groups there. Was Treasury there?

Mr Tanzer : Yes.

Senator DASTYARI: Was it the markets group?

Mr Tanzer : Yes, there was a Treasury officer from the markets group.

Senator DASTYARI: The markets group are listening and they are on this evening. So perhaps between now and then markets group can speak to the relevant person. We assume someone in Treasury is listening to this—probably not. I am probably being naïve. We may ask markets group about it this evening if they were also at the meeting.

Senator O'NEILL: Mr Tanzer could you provide us with any documentation around the invitation you received and an outline of any brief you received to help you prepare for that meeting, the committee would appreciate it.

Mr Tanzer : To the extent that I can, yes.

Senator O'NEILL: Thank you very much. I have a couple questions about further evidence that we received on Friday in our oversight hearing. In light of the government's statements yesterday, we finally did get a response to the corps inquiry into ethics, standards and education in the financial services sector and we ascertained that in the last two years, since the Liberal-National government has come to power, there have 2,261 additional advisers who have got an RG146 qualification and are now acting as 10 per cent of the workforce in financial services. In light the concerns of what an RG146 is and how degraded that is as a qualification and the government's announcements yesterday, are you able to inform the committee of how quickly the transition will be made to a set of standards. Have you received any information?

Mr Kell : No, the timetable is not within our control and so I do not have details on that at this time.

Senator O'NEILL: How urgent do you see this matter, Mr Kell?

Mr Kell : I think it is well understood that everyone with an interest in the financial advice industry wants to see those standards raised as a priority matter.

Senator O'NEILL: I will be keen to hear from you in response to the government's response about how you might be engaged to be part of the next steps.

Mr Kell : Yes, we understand that there will be some further consultation on the implementation but it is obviously very positive to see the announcement about the degree, the exam, the continuous professional development, the code of ethics, the professional years. They are all key elements of what we are talking about here. There are some issues that will need to be worked through in terms of how that is implemented and the transition for people to get there, but we are keen for it to go forward as soon as possible. There is a time frame there—the first half of next year in terms of taking this forward.

Senator O'NEILL: There was a time line proffered by the committee to make the transition possible and get the training—

Mr Kell : Sorry?

Senator O'NEILL: There was a time line proffered by the committee in its report, but I am very keen to see how quickly we can get better training into the mix.

Mr Kell : You know our position. We are keen for this to go forward. We think it is part of the package of reforms that are going to improve standards and financial advice. This is a key element of it. We are keen for it to go forward.

Senator O'NEILL: One more set of questions, if I can, with regard to the ASIC registry sale. When the government came to power, they undertook a commission of audit and recommended that a number of government owned companies be sold off.

Mr Tanzer : Yes.

Senator O'NEILL: It is Australian hearing week this week.

Mr Tanzer : Yes

Senator O'NEILL: One of the ones that they proposed to sell off was Australian Hearing—that has not happened yet and I hope it will not happen—and Defence Housing and the Royal Australian Mint. I understand that Australian Hearing was one of the priority projects for sale. Can you given me an update on where that is?

Mr Tanzer : In the initial budget the government announced a scoping study into the potential privatisation of the ASIC registry. That led to a report to government. In the most recent budget, the government announced that it would undertake a competitive tender process to examine the viability of a private operator to operate and upgrade the ASIC registry. That competitive tender process is in preparation as we speak. It is being conducted under of the auspices of the Department of Finance, as the Department of Finance is the portfolio department with responsibility for custody of Commonwealth assets. The minister has made a couple of announcements through the year—the first was in July about the commencement of a registration of interest phase, which was completed by the end of July. More recently there was the announcement of the completion of the expression of interest phase—the Minister for Finance made an announcement that it has reached that stage. Going forward, these two phases have been preparation for a formal tender process phase, which is expected to take place over the coming months.

Senator O'NEILL: There has been a range of figures in the media around the likely sale price ranging from $1 billion to $6 billion. Can you shed any light on any estimations that are a bit more concrete?

Mr Tanzer : I cannot. Obviously, the tender process itself is proceeding along strict procurement guidelines. There is some confidentiality that needs to be maintained as the process proceeds to ensure that the process is fair between different tenderers. I think that for more detailed questions, you are better off asking the Department of Finance because they are the people in control of that process as a whole. We are certainly cooperating with that process and providing a lot of information about our business.

Senator O'NEILL: Could you verify if these figures are correct. In terms of 2012-13, do you know how much was collected?

Mr Tanzer : In 2012-13, in terms of fees and charges collected for the Commonwealth, which includes annual return fees and search fees and new registration fees—at that stage it did not include the registration of business names, but subsequently we have taken that on—it was $717 million. In 2013-14 it was $763 million. In 2014-15 it was $824 million.

Senator O'NEILL: What is the cost to run that service?

Mr Tanzer : We do not separately report on the cost of the registry but, based on some of the work we have done for the industry funding model to understand the distribution of ASIC's costs, the direct costs are a little bit north of $20 million. That is the direct cost of the registry, but when you load in property costs, a lot of back-office costs, payroll, legal costs, IT and a whole range of those sorts of things the cost more than doubles.

Mr Medcraft : I can confirm that for the current year it is about $56.5 million.

Mr Tanzer : That is the estimate that we would make. We do not separately report that because it is internal to ASIC, but that is the estimate that we made.

Senator O'NEILL: There is considerable public debate, especially in the context of big data, about how important this information might be to put into the public domain and to make accessible to people so they can find out about companies. I think there are only 200 listed on the stock exchange. To find information is a very expensive process up-front for ordinary Australians who might want to investigate the status of different companies. I know it is very different in other parts of the world. The UK and New Zealand provide access to company records free or for a nominal cost.

Mr Tanzer : In fact, the vast proportion of searches that are done on the ASIC database are free searches. That does not provide all of the information that is publicly available on the database. Under government regulations which have been in place for a very long time, there are fees imposed for particular types of searches. As at 31 August this year, so for just the first two months of this financial year, there were 14.6 million searches of ASIC registers, of which 13.8 million were free. So 0.8 million were paid, or only 5.5 per cent of all searches.

We have also put information on, which is a website housing data from anyone who owns it or has it and would like to put it up. We have put the free information from the company register and the business names register on It has proven to be a reasonably popular source. It is another channel for accessing free information rather than having to come to ASIC. I will be corrected if I am wrong, but I think within the first three months or so of us having put up those registers it had risen to become about the fifth most popular resource on, which is another channel for searching the free information.

But largely the issue of what information should be free and what should not is not something that ASIC determines. That is determined by the legislation.

CHAIR: Do you want to wrap up, Senator Dastyari?

Senator DASTYARI: Let's try and do this rapid-fire, Mr Medcraft, and knock it over quickly.

CHAIR: Sixty seconds!

Senator DASTYARI: I have five things in 60 seconds. The bank bill swap rate investigation is still ongoing?

Mr Medcraft : Yes.

Senator DASTYARI: Still roughly 20 per cent of your resources are going solely to this investigation?

Ms Armour : Potentially our markets investigation team, which is a smaller team.

Senator DASTYARI: Are you still getting push-back, Mr Medcraft, from the big institutions?

Mr Medcraft : Are we getting better cooperation?

Ms Armour : Yes, I think there has been improved cooperation.

Mr Medcraft : But, as I said previously, I think the Australian banks have probably not talked to the foreign banks, because the foreign banks' cooperation is generally better than that of the domestic banks. I think that is a fair comment, right?

Ms Armour : Yes.

Senator DASTYARI: Is it the biggest investigation you have underway at the moment?

Mr Medcraft : Yes, I believe so. Well, in financial services we have the wealth management project with financial advice. I think that is probably larger.

Senator DASTYARI: Not that it is a competition.

Ms Armour : Just to be clear, we are doing a benchmark project, so we are looking at both BBSW and foreign exchange. So when we are talking about resources—

Senator DASTYARI: With the BBSW, when do you expect you will be at a point of knowing whether or not you are going to take action? Are we talking about this year or next year?

Ms Armour : It really does depend on how our investigation proceeds. We have not made any conclusions at the moment. We are still working through our investigation.

Mr Medcraft : Talking of this one, you realise big data is a big issue here. We are analysing the big data here and—

Senator DASTYARI: Are you still analysing the chat rooms and all those sorts of things?

Mr Medcraft : We are still doing all that, yes, and that is where the big challenge is.

Senator DASTYARI: So when will you have it done?

Mr Medcraft : We are in the middle of doing it. But also you have to remember—

Senator DASTYARI: That was not the question, though, was it, Mr Medcraft?

Ms Armour : We are working through it as quickly as we can.

Senator DASTYARI: This year or next year?

Ms Armour : We do the best we can.

Mr Medcraft : We do the best with what we have.

Senator DASTYARI: Is there any update on where we are at with the IOOF and NAB investigations?

Mr Tanzer : Not more than I can tell you on IOOF at the moment. It is proceeding.

Senator DASTYARI: Still ongoing?

Mr Tanzer : Yes.

Senator DASTYARI: You have not wrapped that up yet?

Mr Tanzer : No, it is still ongoing. It is fair to say that we have received and analysed the information that we received from the whistleblower. We also made a request to the committee for any information that there might be—

Senator DASTYARI: Which I believe we provided.

Mr Tanzer : Yes.

Senator DASTYARI: And NAB?

Mr Kell : We have put out a media release today announcing the large-scale remediation project by the NAB. That is the next step in the process.

Senator DASTYARI: Hang on. I was not aware of it. Explain this to me?

Mr Kell : As part of the overall actions that it may be taking, one of the main parts of the overall project is remediating clients who may have been affected by poor advice. We have announced today that that remediation project is being launched.

Senator DASTYARI: You have announced or NAB?

Mr Kell : We have announced and NAB have also, I think—is that right?

CHAIR: Are you overseeing the remediation?

Mr Kell : We are not running that remediation project.

Senator DASTYARI: Who is running the remediation project?

Mr Kell : That is being run by NAB with an independent expert, Deloitte. They will be reporting to ASIC on a regular basis and then there will be public reporting.

Senator DASTYARI: This is an enforceable undertaking?

Mr Kell : This is not an enforceable undertaking.

Senator DASTYARI: What is it?

Mr Kell : It is a formal undertaking with NAB; it is not an enforceable undertaking under our legislation.

Senator DASTYARI: So it is a voluntary undertaking?

CHAIR: You have an agreement that they will carry this out?

Mr Kell : Yes. On this point, it has been very positive. They have responded appropriately. They have a consumer expert working for them as well, Professor Dimity Kingsford Smith.

Senator DASTYARI: Yes, I know Professor Dimity Kingsford Smith from UNSW.

Mr Kell : They have an independent expert who will be reporting to ASIC and there will be public reporting on outcomes. So it is an important step forward. Our investigation into the actual planners and the compliance issues that have arisen is ongoing. So it has been an important step forward today.

Senator DASTYARI: Can we break this into two parts. One is about what happened and the action that they are taking and the other is the remediation of those affected. I understand NAB also agreed to do an independent external assessment of the victims in all this, as well, as part of this. That is still the case—is that right?

Mr Kell : That is, in effect, that remediation program. They will be looking at who needs to be compensated and there will be an independent expert, Deloitte, reviewing that, as we have just said.

Senator DASTYARI: What got announced today? The Dimity involvement was from a few weeks back. Was it Deloitte coming on board?

Mr Kell : That they are initiating that remediation project from today. They are now starting a wider program of contacting affected customers to establish who may be appropriately compensated and to start that program. These are, as you understand, large programs. There are quite a few potential affected customers. There will also be, if customers require it, financial assistance provided to them to help them assess any remediation issues.

Senator DASTYARI: It sounds like a very similar program to the Commonwealth Bank.

Mr Kell : There are certainly similar elements in terms of financial assistance, contacting customers, independent oversight, reporting to ASIC, reporting publicly.

Senator DASTYARI: Hopefully, they will be a bit quicker at it.

Mr Kell : That is a positive.

Senator DASTYARI: Yes, it is positive. Regarding Mr McIntyre's group of companies and the court case, he obviously lost the court case; you won the court case. I do note that according to his website there is now a conspiracy that involves the Australian Senate, ASIC and Fairfax to bring down his business. This is the crazy land-banking people.

Mr Kell : Go large!

Senator DASTYARI: That is right—why not! His businesses are obviously in administration at the moment. What is the next?

Mr Mullaly : The relevant companies are now in provisional liquidation and the provisional liquidators will undertake their investigations and report back to the court. I think the report back to the court is due in late November. At that point, submissions will be made as to what happens next about whether the companies go into liquidation or whether there is some other manner in which the companies can be dealt with.

Senator DASTYARI: Is it fair to say—from what was said the last time we spoke about this—that ASIC is undertaking a more thorough investigation of the whole land banking industry to see whether it is an area that requires further action. I think you said it is a new area that has only affected a small number of people so far but, because you saw it as having the potential to be misused, ASIC was going to undertake a larger process to see if it is an area that we need to be—

Mr Tanzer : We have investigated 10 property investment schemes that are promoted as land banking, most of which were associated with Mr McIntyre but not necessarily all. We are working through that.

Senator CANAVAN: The ACCC has started an investigation into the way banks and financial institutions or deposit-taking institutions have restricted access or closed accounts for bitcoin or digital currency companies. Are you involved in those investigations or looking into the practices of the banks?

Mr Kell : We would expect that we would have discussions with the ACCC, but I think it is very early days.

CHAIR: Well, keep us informed—perhaps in February. Thank you very much.