I rise to make a couple of short comments on the Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill 2018. I do so having been, in the past—as you’d be aware—the chair of the Parliamentary Joint Committee on Corporations and Financial Services, which oversaw ASIC, and also having been a member of the Economics References Committee inquiry into the performance of the Australian Securities and Investments Commission in 2014. Some of the issues that we’re discussing tonight in this bill have been afoot for some time.
As previous speakers have said, there are a couple of areas here. One is schedule 1, looking at amendments to the system. The other is schedule 2, looking at the ability to employ people from outside the Public Service Act. Going to the first point around competition: competition is useful. We see it working at the moment in things like the electricity market where, when people recognise that they have a choice to switch between providers. When providers are required to actually disclose the basis of their pricing—and that goes to recommendation 30 from the ACCC report, which is a mechanism that the government will use to give transparency around pricing, which means people can then make their decisions about where they place their business—that has the net effect of driving pricing down. That is what the Morrison government is committed to.
We see that operating in a number of areas, including, for example, around home loans. People are given the choice to move more freely between different products. When they see that they have an opportunity to get a lower interest rate, they will move, so the pressure is there for financial services to provide a better service at a better cost. Competition definitely has a place, in terms of making sure that consumers get value for money in financial services. Schedule 1 of the bill amends the Australian Securities and Investments Commission Act 2001 to mandate that ASIC must consider the effects the performance of its functions and the exercise of its powers will have on competition in the financial system. This comes out of recommendation 30 of the Financial System Inquiry. As such, it’s welcome.
There have been a range of inquiries and measures over the years to highlight what reforms we can make in the financial services sector. Indeed, I think, Mr Acting Deputy President Williams, you were on the committee with me at the time when we looked into the professional and educational standards of financial advice. What we saw there was that, as part of this providing of competition, regulation and competition actually work in tandem. We went back to James Reason’s accident causation theory, which comes from my background in aviation, and we applied it to the financial services sector and we asked, ‘What are the things that lead to the failures in the system that cause financial harm to the consumer?’ We put in place a number of measures around the education and the professional conduct of financial advisors. That goes to things like ongoing professional development and the oversight not only of ASIC but also of professional bodies that hold it to account. It was the professionalism.
One of the keys in there was having a register whereby somebody’s qualifications and any conduct or misconduct by them is freely available to the consumer, so that the consumer, at the point of choosing who they’re going to entrust their financial future to, has the ability to essentially compete. They can look at somebody who has performed well and somebody who has had misdemeanours recorded against them and choose where to put their money. Competition is important, but it works hand in glove with an appropriate amount of regulation, as we saw during that inquiry and the changes that have subsequently been put in place by then Minister O’Dwyer to raise the educational and professional standards for the financial advice service. As I said, this implements recommendation 30 of the financial systems inquiry and complements other key initiatives taken by the government, including tasking the Productivity Commission with a review of competition in Australia’s financial system, as well as funding the ACCC to undertake in-depth inquiries into specific financial system issues.
Schedule 2 goes to the issue around how ASIC can engage their staff. It amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act 1999, and there is a range of consequential amendments to the Business Names Registration Act, the Corporations Act 2001 and the Mutual Assistance in Business Regulation Act 1992. Removing that requirement to employ people under the Public Service Act will promote greater operational flexibility, bringing ASIC into line with Australia’s other financial regulators, such as APRA and the Reserve Bank of Australia.
It notes the fact that, to the able to perform its functions properly, ASIC needs to have people who are suitably skilled and experienced. That takes me back to the 2014 report of the Economics References Committee that I was a participating member in. In the appropriate section of that, which is chapter 16, one witness noted:
… much of the work ASIC is undertaking to improve its ability to act effectively on complaints or reports of corporate wrongdoing was ‘all around the mechanics and particularly the legal processes’. He understood that ASIC receives a lot of information from different sources but ‘they are not joining up the dots as quickly as they should’.
Another witness backed that up, saying:
ASIC needs to credibly reconnect with professionals who are its best early warning system for the identification of domestic threats to Australia’s economy.
As the chapter goes on, it highlights that ASIC needs to have:
… the right individuals, in the right positions, who are experienced and know what to do if something crosses their desk.
The next paragraph says:
Often ASIC complaint staff are inexperienced in both commercial matters and understanding evidential issues. ASIC receives thousands of complaints and generally undertakes a perfunctory assessment resulting in the sending out of a standard letter which does not address the issues.
So, whether it’s the complaints staff or the people who are interfacing with industry or doing the audits, the very clear message here is that regulators need to have people who are appropriately skilled and experienced, so that they don’t just rely on process to deliver the result, but they use process to inform their decisions and use their life experience and experience in the sector to know where to look for the issues.
We see this in things like the CASA, for example, the Civil Aviation Safety Authority. There have been many reviews highlighting that you need appropriately skilled people who understand the industry sector they are coming from so that their regulations, their application of regulations, their decisions around that and their ability to know where to look to find the issues, are informed by appropriate and recent industry experience as opposed to just process. Process is all well and good—it’s one of mankind’s attempts to capture corporate knowledge and make sure we don’t repeat the mistakes of the past—but, at the end of the day, process should be a decision aid and it should help experienced people gather all the information they need to make an appropriate decision; it shouldn’t replace people having appropriate experience or insights into the industry that they are dealing with.
What schedule 2 seeks to do is to free up ASIC to actually employ people who have the current skill sets and experience they need to add the value in that part of their roles. It means recruiting staff with a knowledge of financial markets and financial services. If you think about the professions that that involves, those people who have that relevant experience are attractive to both the large, vertically-integrated organisations and to the smaller either family-run or partnership-type organisations that are working in the financial services sector. If ASIC is to be able to attract those people, often the remuneration they’ll receive in the vertically-integrated, large organisations or the smaller ones will be more than the public service can pay.
We’ve seen, throughout history with government, a range of ways that governments have sought to retain experience or attract experience. Even in my own background as a military pilot, at times when the airlines were recruiting people and seeking to pay them substantially more than the Defence Force could, the Defence Force brought in schemes like specialist aircrew schemes, retention bonuses or ways to actually encourage people to remain working for the government so that the government was able to utilise the skills and experience they had, as opposed to seeing it go off to the private sector. We’ve had the same issues with submariners in the past during the mining boom in Western Australia and various programs designed to encourage people to work within the public service, or for the government, as opposed to going to the private sector. This change is not novel or new. It’s a way of saying, ‘How can we get people with the requisite skill sets and experience to work for the government?’
Specifically, the measure fulfils the government’s commitment to implement recommendation 24 of the ASIC capability review report. That recommendation stated that the government should remove ASIC from the Public Service Act as a matter of priority to support more effective recruitment and retention strategies, and a similar finding was also made in the context of the Financial System Inquiry.
In conclusion, I will be supporting this bill. Having been involved since 2013-14 and onwards with committees looking at ASIC and then chairing the Parliamentary Joint Committee on Corporations and Financial Services, I’m aware that we need to be able to take measures to shape the environment to allow ASIC to be effective so that we don’t see the failures that have been highlighted in the recent royal commission. These two schedules around making sure that ASIC are aware of competition and the effect that their decisions have on competition, as well as giving them the ability to recruit the staff that they need with the requisite skill sets, are just two important enablers to making ASIC the tough cop on the beat that our financial services sector needs in order to protect the legitimate interests of Australian consumers.