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Wednesday, 14 November 2018
Page: 8195


Senator PRATT (Western Australia) (17:47): Labor does not support this disallowance today, but we recognise that the code of practice has been manifestly inadequate. That is an important reason—however inadequate the changes before the chamber might be today—to recognise that there are improvements in the code of practice before us and that to disallow it simply reverts to the framework, right back from 2013, in which many of these problems are embedded. The current banking code of practice, as part of the regulation of banks and financial services, has not prevented massive misconduct from occurring. We've seen very clearly that the mix of self-regulation through the code of practice and regulation through the Corporations Act, ASIC, the National Consumer Credit Protection Act and other acts of this parliament have not adequately stopped banks and other financial service providers from becoming embroiled in these terrible scandals.

It's been very clear to Labor for a long time that more needed to be done. It was clear to us that Australians needed better protections, that banks and financial service providers needed to lift their game. That is why Labor took the bold and courageous step in 2016 of calling for a banking royal commission. This decision wasn't easy. We were pilloried for it, derided by the government and we were told that a royal commission would be nothing more than a QC's complaints desk, a populist whinge and a reckless distraction. This government said that they thought that it would be a waste of time, and they did everything they could to stop it from happening. As we know, they voted against it in this parliament some 26 times. They set up parliamentary inquiries to try and head it off at the pass. They thought they could stop the scrutiny of the royal commission being applied to the banks. They have been wrong on all of these counts. The evidence within the Australian community of the impact of this misconduct is just too strong and the hurt that people have experienced is just too widespread.

Victims of financial services misconduct have come forward week after week. We've heard, through stories in the media and from members of parliament and the Australian community, about an industry that has been seen to have lost its ethical and moral compass. The government did indeed see the writing on the wall when it finally caved in to the pressure from Labor and the community and agreed to call this royal commission. That happened late last year, and now the Prime Minister, the member for Cook, has described the decision as 'regrettable'.

It's not surprising, given that this government has been hostile to the royal commission from the outset, that they have curtailed the time available for it to do its work. The commission has barely had the opportunity to scratch the surface of the misconduct that has occurred in the financial services industry. Certainly, I would personally like to add to the calls that hearings be held in my home state of Western Australia. Labor MPs from Western Australia have all signed up to lobby for that and to say that the community of Western Australia deserves to have its own story told. As we've heard, the context of misconduct varies from community to community, from state to state and from institution to institution, so it's really important that the voices of Western Australians are heard and that those Western Australians have the opportunity to tell their own stories.

The commissioner has done an admirable job—indeed, I think, a quite extraordinary job, given the circumstances. He was given a mere 14 months to inquire into retail banking, home lending and consumer lending, including consumer credit and personal loans, as well as small business lending, farm lending, general insurance, life insurance, superannuation and financial advice. This means they've had just two weeks to spend on each of these complex subjects, some of which have touched the lives of millions of Australians and some of which relate to services used by nearly every member of the Australian community. The commission has received over 10,000 submissions from the public. Ten thousand Australians took the time to let the commission know about their experiences of bank and financial service provider misconduct. But, because of the restrictive time line, only 27 victims out of 10,000 have had the chance to tell their story in person, and I can tell you that there are things to be learned from the specific characterisation of the experiences of victims themselves.

The misconduct of the financial services sector is so widespread that it affects hundreds of thousands, if not millions, of Australians, so we've called for the time available for the royal commission to be extended to allow more victims to have the opportunity to share their stories. The government, sadly, has been stubborn in its refusal to give the commission more time. This is why the Leader of the Opposition and the shadow minister for financial services, along with some of my Labor colleagues around the country, have been holding their own roundtables with victims of banking misconduct, and we've heard from many, many victims whose voices haven't been heard through the royal commission process. These stories have been brutal and harrowing. People are hurting. Consequences of misconduct identified by the royal commission and, indeed, the consequences of other misconduct that Commissioner Hayne didn't have time to consider are being felt by families in every state and territory and in every city and town around Australia.

In the interim report were posed important questions about the future regulation of our financial services industry, and the commissioner's general observation has been of greed and the culture of the pursuit of profits above the honest and ethical conduct of the sector. This has been well reported and understood. These findings and this backdrop interim report will no doubt form the basis on which final recommendations will be framed.

The commissioner has also made specific observations about self-regulation, and this is very relevant to today's debate, particularly in relation to the case studies heard by the commission. Commissioner Hayne discussed the competition between regulation and self-regulation and considered a specific example relating to the 2019 Banking Code of Practice, the document we are considering today. The example related to non-monetary defaults, where a lender is able to accelerate a loan or demand full repayment of a loan immediately, regardless of whether the borrower is behind in their rescheduled repayments. The code imposes some new limits on non-monetary default clauses, and the commissioner poses a question, presumably to be answered, I would hope, in his final report:

Apart from existing rules prohibiting unconscionable conduct and rendering unfair contract terms void, should there be some additional rules that govern what a lender can or cannot do before it brings a loan to an end or it seeks to enforce repayment?

The commissioner goes on to discuss the provisions in the 2019 code, noting:

But the 2019 Code will set limits on the use of provisions of that kind. Assuming that the contractual terms relied on are not unenforceable under the unfair contract terms provisions of the ASIC Act, and assuming further that reliance on the terms is not affected by the 2019 Code, are there any circumstances in which termination and renewal of a loan contract should be governed except by the general law of contract?

In this context we can see that this discussion demonstrates that the 2019 Banking Code of Practice, the document we are discussing today, is part of a very real regulatory framework that the commissioner will be considering when he makes his final report in February. That should not rule out us lifting those standards here today, not disallowing the lifting of those standards by reverting to the 2013 code.

The questions of reform and improvement to regulations and laws are open to questions, regardless of the existence of the 2019 code. We acknowledge that this code is a step in the right direction, but we also acknowledge it comes nowhere close to fixing the problems identified by the royal commission so far. The commissioner has signalled that he will consider it as part of the existing regulatory environment, and he will consider whether more needs to be done to protect consumers and small business from misconduct and unfair practice and tactics.

We see this code as a small step in the right direction by industry. We know there's more to be done, and we look forward to the release of Commissioner Hayne's final report in February 2019. In the meantime, we should not—this place should not—stand in the way of the banking industry coming forward and improving, however slightly, its code of practice. We aren't going to refuse to allow banks to improve the consumer protections they voluntary commit to delivering to Australians just because we are engaged in a parallel process of policy development through the royal commission. It is possible, thankfully, for us to allow the 2019 code to come into force and at the same time consider and implement regulatory change to further improve the banking and financial services sectors in coming months.

Labor have been completely consistent on this, and we will consider recommendations from Commissioner Hayne and the recommendations coming out from the many parliamentary inquiries into financial services that are running concurrently. However, the evidence before this place shows that there are real and practical lifts in sector standards in the new 2019 code of practice, and we should not stand in the way of it being delivered. In the meantime, what we in the Labor Party are focused on is doing what is necessary to restore trust and confidence in our banks and broader parts of the finance sector and to protect consumers from unethical and dishonest behaviour.