Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Thursday, 23 September 1999
Page: 10373

Mr McARTHUR (12:30 PM) —I am delighted to participate in the debate on the supervisory levy determination validation bills which support the historic recommendations of the Wallis committee report. I am delighted that the opposition are supporting these bills, which are of a technical nature and which support the broad thrust of the outcomes of the Wallis committee's inquiries. I particularly note the remarks of the Minister for Financial Services and Regulation, at the table, Mr Hockey, about the activities of the regulatory authority in the City of London and draw the comparison between the Wallis committee recommendations and the government's move to provide a similar regulatory authority here in Australia. In many ways, we lead the world for the way in which these recommendations have been implemented into legislation and provide prudential and regulatory structure for financial services here in Australia.

There is a well-known saying that, if you owe the bank $100,000 and you cannot pay it back, you have a problem but, if you owe the bank $100 million and cannot pay it back, the bank has a problem. Financial regulation and prudential requirements are vital in some situations. Sometimes we find that too much money is lent to people who are unable to pay it back. We saw these problems arise in the 1980s when banks and financial institutions were unable to handle their very excessive loans. It is a challenge that this government has responded to, obviously in the hope that in future, when excesses of lending might take place, there will be a structure in place that can handle that situation.

This legislation is necessary to implement the findings of the Wallis inquiry whose report was brought down in 1997. The chairman of that committee, Mr Stan Wallis, who is a leading company director, in my view presented a very sensible report, along with his fellow committee members. They undertook a very exhaustive look at financial services in Australia and the way in which we should develop sets of regulations and structures. What came to light were the corporate collapses and the problems of the 1980s, and the ad hoc nature of the prudential regulations that existed at that time. I would like to quote the key findings in chapter 8 of the report, headed `Financial safety'. The first one states:

The intensity of prudential regulation should be proportional to the degree of market failure which it addresses, but it should not involve a government guarantee of any part of the financial system.

While that is a fairly wordy recommendation, it quite clearly says that the government has a role to provide prudential protection but it does not undertake to guarantee banks or other financial institutions in the event of their collapse. The second key finding states:

The framework for the provision of prudential regulation should be designed to ensure that its objectives are clear, that it deals efficiently with the development of financial conglomerates and the blurring of product and institutional boundaries and that it promotes competition by minimising unnecessary or artificial regulatory distinctions between different entities.

Again, that very strong recommendation is suggesting that in the changing times, where we have different financial products and different areas of responsibilities, that we should have one regulator to move across the boundaries and provide a prudential cover for all those financial services. The third key finding states:

Prudential regulation can have adverse effects on efficiency, competition and innovation and there is scope to adjust existing regulation to reduce these effects, particularly through more flexible rules for the ownership and corporate structure of licensed entities.

What that is saying is that we should try to remove the red tape as much as we can to ensure that markets in Australia work efficiently and compete with the markets of Tokyo, London and New York.

As the minister at the table would recall, the states had a high level of involvement, leading to duplication of functions and incon sistency in approach and unnecessary expense. We have a federal government which is prepared to make the necessary changes on these regulations that were state by state based. That will ensure that Australia does become a competitive nation in this area of financial services. The report states on page 642:

Over 800 staff are now involved in financial regulation in Australia, resulting in direct and compliance costs which appear to be high by international standards.

Again, the minister at the table would be aware of this and that we are trying to make these areas of control efficient and effective. There were failures of institutions, most notably in my case the Pyramid Building Society in Geelong. The member for Corio would be fully aware of the impact of that failure on the Geelong community, under a Labor government in Victoria, where people lost their life savings. The Pyramid Building Society had lent in overheated market conditions and, under state regulations, there was a failure of the financial system and the political process to protect consumers.

The human cost of the Pyramid failure was enormous in western Victoria and in Victoria generally. I spoke to people who, in one week, lost their total life savings. I spoke to people who were in a state of shock for three or four days and unable to speak or comprehend the magnitude of loss. In one particular case I am aware of, over one weekend a retired farmer deposited the whole proceeds of his farm—that may have been a foolish thing to do—and found, when it was clearly understood that Pyramid had collapsed, that he had lost his life savings. That is the human outcome of a lack of prudential regulation. You could have an argument about the role of the building society and the role of the Victorian Labor government but, to be fair, there was a grey area of what was required and the Pyramid directors argued that they had acted within the regulations at the time.

So we see in that example how important it is to move forward with the recommendations of the Wallis report, to put them into federal legislation and make sure they work. The key recommendation was that we had a single regulator for this area. One of the reasons was to increase consumer protection—the investors in the Pyramid Group would have been very pleased if this legislation had been in place—for the same financial products and services so consumers and users could feel more confident that their products were being protected, whether insurance, banking or housing societies. Whilst we have a more financially deregulated system, we need to make sure that these prudential and regulatory arrangements are in place. I quote from the Wallis report, page 644:

A by-product of deregulation was the increased availability of debt in the second half of the 1980s. In conditions of intense competition and growth in some asset prices, many banks dropped their lending standards which led subsequently to significant write-offs in the early 1990s.

Minister Hockey at the table and all of us would be aware of the amazing write-offs by big banks—Westpac and others. They wrote off massive debts because they had overdone it in a heated lending environment. They found that their loan book had been incautiously driven, and billions of dollars were written off. It is the hope of the government that this new set of prudential regulations will caution both the big lenders and the smaller lenders to look after their customers and their shareholders. The Wallis report went on to say, in the same vein:

This was an experience common to many countries, and prudential regulators around the word reacted by first standardising and thereafter steadily increasing, capital adequacy and other prudential requirements

So we have this interesting debate of whether you regulate in a tight manner or whether you open the arrangements up to a more sensible regulatory structure—as is the case here in Australia—run by the Commonwealth, not the states, ensuring that the prudential requirements meet market forces and yet protect the main players.

The key argument in these bills is that the regulators should only collect from institutions the amounts that are needed to regulate those institutions. The Australian Securities and Investments Commission is to receive $6.6 million to run their activities, the Australian Taxation Office is to receive $2.35 million, and the Australian Prudential Regulatory Authority is to receive $31.5 million. That covers credit unions, friendly societies and building societies. All those generally state controlled groups now come under the control of APRA.

So APRA will now collect these moneys from various industries, as was the case in the previous set of arrangements. The regulatory functions of the Reserve Bank will be abolished. The Reserve Bank's former functions were financed by interest forgone on non-callable deposits held by the bank, so there was an unusual method of arranging for the payment of that regulatory function. Non-banks will be judged consistently on their own performance, APRA will have an independent board and charter, and the disclosure requirements of the institution are to be undertaken by the Securities and Investments Commission.

We have a set of very sensible arrangements emerging from the Wallis committee of inquiry. Australia, and individual investors, can move forward with confidence within the constraints of prudential requirements. Both sides of this parliament should make it clear that the government and regulatory authorities can never legislate against bad debts. I think the minister at the table would agree with that. All we can do is set in place arrangements that will encourage people to act in a sensible, careful way when handling other people's money and competing in the money market.

In the case of these bills, as the opposition have drawn our attention to, there must be a separate bill for each supervisory levy in each sector of the financial services industry. Just for the record, the levies are to be imposed through the following acts: the Authorised Deposit-taking Institutions Supervisory Imposition Act 1998, the Authorised Non-operating Holding Companies Supervisory Levy Imposition Act 1998, the General Insurance Supervisory Levy Imposition Act 1998, the Life Insurance Supervisory Levy Imposition Act, the Retirement Savings Account Providers Supervisory Levy Act 1998 and the Superannuation Supervisory Levy Imposition Act 1998.

Under section 52 of the APRA Act, the aspect of the levies that will be spent on protecting market integrity and consumer protection will go into consolidated revenue. This may well be given to the Australian Securities and Investments Commission and the Australian Taxation Office for their supervisory function. The balance of moneys collected by the Commonwealth will go to APRA. So we have a set of arrangements that ensures that these supervisory functions can be paid for. Similar to what the minister at the table was saying, there is an interesting example in the City of London, where a private company provides supervision for that very important financial centre. That is something the government might give some thought to at a later date. But certainly this set of arrangements is visionary and sets Australia up to be in the forefront of prudential and regulatory arrangements.

An authorised deposit taking institution is a body corporate authorised to carry on banking business, such as a bank, a building society or a credit union. Again, these definitions are fairly important. The levy will be a flat amount and cannot exceed $500,000 per contributor and, in the future, the inflation indexed figure on the $500,000.

If these bills are not enacted, then the 1998-99 levy cannot be collected. So it is fairly important. I appreciate that the opposition are supporting these bills to implement these collection levies. These supervisory levy determinations for 1998 were not gazetted until 13 August 1998 even though they were to take effect on 1 July 1998.

The opposition have raised the point that the government may not have got this correct. I just draw to their attention, and to the House's attention, that the Howard government has brought about more financial change—and with the Ralph report which was brought down yesterday there will be more financial change—in the area of taxation and regulation than has taken place in the last 50 years. I think it is rather churlish of the opposition to suggest that we have one minor amendment in a major piece of financial and budgetary legislation that this House has had to deal with. Absolutely mammoth changes have taken place over the term of this government. The Ralph report that was brought down yesterday adds to this determination by the government to bring about reform and a more competitive Australia, especially in the taxation and financial area.

The passage of this legislation will ensure that the recommendations of that very big and well thought-through Wallis committee will make Australia a centre for finance and stockbroking in this region. It will ensure that it is supported by a prudential, honest and legislatively backed set of arrangements that will give confidence to international investors that they can deal with people and institutions in Australia and know that they are honest and well backed by this prudential requirement. They will know that they can invest in Australia with confidence.