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Nick Sherry

Minister for Superannuation and Corporate Law

3 December 2007 - 8 June 2009

Speech of 20/05/2008


Speech to Australasian Investor Relations Association Conference


20 May 2008


Thank you for the opportunity to address you today, as you consider the future role of Annual General Meetings.

As Minister for Superannuation and Corporate Law, I am committed to establishing a well-defined best practice model for corporate disclosure and investor protection. The Government is working to achieve this by … enhancing financial reporting … reforms to the corporate governance framework … and reforms to financial services regulation.

I appreciate the important role played by the Australasian Investor Relations Association Conference in improving relations between listed entities and their shareholders.

AIRA and the Government share several common objectives in pursuing their work. For instance, achieving best practice disclosure is a vital concern for both of us.

Recent events in financial markets have underlined the importance of sound disclosure practices. I believe that collaboration between government and industry is key to achieving mutual goals of transparency and higher levels of investor participation and education.

Budget Measures

Before discussing the Government's priorities in the financial services area, I would like to take a look at this year's Budget.

The first Rudd Labor Government Budget combines nation-building initiatives with programs to redress the balance in favour of working families.

This Budget meets our commitments to Australia and begins a new era of investment in Australia's long-term future.

Australia has not been immune to the fallout from the United States sub-prime crisis.

This is why this Budget demonstrates the responsible economic management we need right now to fight inflation… deal with future uncertainty…and give us a buffer in difficult economic times.

And this is why this Budget delivers the lowest real increase in Government spending in nearly a decade.

Every single dollar of new spending in this Budget is more than offset by revenue measures and savings in expenditure.

Working families support package

Inflation means higher prices and higher interest rates for working families. The family income is being eaten away in mortgage repayments, rent, groceries and petrol — leaving many families struggling to make ends meet.

The first priority of the Budget is to deliver much needed assistance to working families, through a $55 billion Working Families Support Package.

As well, we will fully implement our promise to reduce personal income tax by $47 billion over four years, directed to low and middle income earners.

And we will ease the burden of rising childcare costs by increasing the Child Care Tax rebate from 30 per cent to 50 per cent and paying it quarterly, at a cost of $1.6 billion over four years.

We are also improving housing affordability through a $2.2 billion housing affordability package.

The centrepiece of this package is the new First Home Saver Accounts, at a cost of $1.2 billion over four years. The new First Home Saver Accounts will provide a simple, tax-effective way for Australians to save for their first home through a combination of low taxes and Government contributions.

Meeting our commitments

The second priority of the Budget is to deliver on our promise to build a stronger foundation for Australia.

As part of our commitment to long-term reform, we are establishing three funds to finance investment in national priority areas — the Building Australia Fund… the Education Investment Fund… and the Health and Hospitals Fund.

These funds will modernise and reinvigorate our economy. They will also release around $40 billion for investment in transport and communications infrastructure… education facilities… and health, hospitals and medical research facilities and projects.

Australia as a financial services hub

I'd like to wrap up my Budget overview by touching on a few measures of particular interest to the finance sector.

The Government is committed to securing Australia's place as a financial services hub in the Asia Pacific region.

The Budget includes reforms to improve the tax competitiveness of our funds management industry at a global level, by cutting the 30 per cent withholding tax on certain distributions from Australian managed funds to foreign investors. Once fully implemented, most foreign investors will face a final withholding tax rate of only 7.5 per cent.

Superannuation Clearing House

The Government is committed to reducing the regulatory burden on Australian small businesses. As one example of this commitment, the Government announced in the Budget that it will provide funding of $16 million over three years for an optional superannuation clearing house facility.

This initiative will cut red tape and reduce compliance costs for small businesses across Australia.

Ladies and gentlemen, the first Budget of the Rudd Government delivers on our commitments to invest in our future. And it demonstrates the responsible economic management Australia needs to steer our economy through the difficult times ahead — with long term plans instead of bandaid solutions.

Corporate Governance

Enhancing corporate governance is one of my most important priorities, as Minister for Superannuation and Corporate Law.

A sound corporate governance regime is fundamental to sustainable wealth creation. It will help ensure that our corporations continue to provide low-cost goods and services, generate revenue and provide jobs. It is also critical to protecting the rights of shareholders, employees, creditors and other stakeholders.

We must ensure that our corporate governance framework promotes accountability, but also responsible risk taking. Ensuring that directors are willing to take appropriate business risks is essential to driving technological progress and increasing economic growth.

These decisions are fundamental to the development of opportunities to create value and to the most efficient deployment of resources and investor funds … key elements in improving Australia's economic efficiency and growth.

The Government is currently examining three areas of corporate governance: corporate offences … sanctions … and directors liability for company misconduct. The underlying theme is the need for a consistent and principled approach to addressing misconduct in corporate law.

An enhanced system of corporate governance will increase investor confidence… promote well-functioning financial markets… reduce the cost of capital… and facilitate the most efficient use of invested funds. The result will be healthy growth in shareholder and fund value. This is particularly important in Australia where we have about $1.2 trillion in superannuation fund assets invested in financial markets – money that Australians expect will sustain their lifestyle in retirement.

Equity Derivatives and Short Selling

Australia has not been immune from the recent financial market turbulence. On the whole, however, the strength of Australia's financial system has meant that we have responded extremely well to the volatility.

Notwithstanding the overall soundness of our regulatory system, recent issues have highlighted the need for some fine-tuning to ensure the integrity of our markets.

The Government is committed to ensuring fair, orderly and transparent financial markets. Transparency is key to promoting investor confidence because it ensures investors have access to adequate information to make decisions.

You may be aware that recently the Prime Minister announced that Treasury officers would be reviewing appropriate disclosure requirements for equity derivatives. This review will focus on transparency.

A lack of appropriate disclosure requirements may affect the availability of information about company ownership changes.

The Government is also aware of concerns regarding short selling and securities lending.

Short selling is an important financial tool in promoting market efficiency and liquidity. The specific issue that has emerged is whether the short selling rules should be addressed to resolve ambiguity around the obligation to disclose covered short sales to the market.

In the interests of promoting market transparency, the Government will pursue legislative change to the Corporations Act to improve disclosure of covered short sales. Treasury and ASIC are currently consulting widely on the best legislative option to address this issue, and the detail of disclosure requirements.

The Government is focusing on the protection of investors… promoting confidence in Australia's financial markets … and maintaining the attractiveness of Australia as an international investment destination.

As the Prime Minister said earlier this month, when he addressed the Confederation of British Industry and Australian Business in London:

    "We want to ensure that Australia's regulatory regime does not impose an undue burden on market participants or inappropriate barriers to foreign equity investment in the Australian market."

Regulation of financial services

For many years now, a cluster of financial and credit services have remained the subject of often difference state-level regulation, or have operated unregulated, despite significant growth and national importance.

Of these financial services, residential mortgages make up the largest sector, accounting for an estimated 86 per cent of all consumer loans.

Recently there have been some issues concerning certain margin and stock lending practices – these problems, while only affecting a minority of margin lenders, still need to be addressed.

Presently, we have no comprehensive national approach to credit-related financial services. Credit is primarily regulated by the States and Territories through the Uniform Consumer Credit Code. Given the number of different jurisdictions, it's no surprise that current regulation is at times patchy and inconsistent.

In addition to these jurisdictional issues, the current regime does not do enough to prevent undesirable behaviour, in particular, in situations of predatory lending and the provision of inappropriate advice.

Australia needs a financial services regulatory structure for the 21st century … one which provides the highest standards of conduct … product disclosure … and advice at a national level.

Simple, standard and consistent regulation can only be achieved at a national level … by one government rather than by six states and two territories.

The Commonwealth and the States are united in their commitment to changing this situation – and there have been some key milestones achieved recently.

COAG recently agreed in-principle to the Commonwealth assuming responsibility for regulating mortgage credit and advice, with a view to reassessing the regulation of other credit arrangements in due course.

These statements and agreements are key steps toward delivering an effective national system. This is where the hard work begins. To bring this agenda quickly forward, I have developed a Green Paper seeking comment on Commonwealth regulator options for mortgage brokers, margin lending, non-bank lenders, trustee companies, debentures, property investment advice and other forms of consumer credit. This wide-ranging Green Paper will ask stakeholders to provide their views on these important financial services.

Your submissions will be crucial to shaping the development of the new regulatory regime. I encourage your views and participation in providing feedback to the Green Paper.

Financial Services Working Group

As with every large industry, the financial services sector has a number of significant issues that need to be addressed.

In particular, investors must have access to, and understand, the information being provided to assist them in making informed decisions.

The quality, complexity and length of disclosure documentation is of significant concern to Government. I have been a long-term critic of this approach. Documents that may as well be written in Latin do not provide necessary information to inform and protect consumers.

As the Minister responsible for financial services, I am determined to fix this problem. I am committed to seeing that industry providers produce simple … standard … and, perhaps most importantly, readable financial services disclosure documents. Documents that pass my personal gauge of effectiveness — the "Burnie Pub Test".

I consider a financial product disclosure document to be effective if it can be easily understood by the average person, in the average pub, in an average community, like the city of Burnie in my home state of Tasmania.

I have announced the formation of the Financial Services Working Group. The group have already started to examine disclosure documentation in a staged process. The over-arching aim is to facilitate short, simple and readable documents, to better enable consumers to understand and compare products.

As a first step, the Working Group is developing a concise Product Disclosure Statement for First Home Saver Accounts.

It is also examining the issue of 'within product' or 'intra-product' advice in regard to superannuation products. The group is currently identifying hurdles to the provision of such advice.

The Working Group's agenda does not end there. It has a key task ahead of it — shortening product disclosure documentation in the wider financial services arena.

The benefits will not only serve consumers - they will also serve industry. The regulations on industry in relation to shortened product disclosure will allow for cost reduction and greater industry clarity and certainty about the requirements.

I expect that the Working Group will take these into account in its forthcoming work. The next public information session is expected to take place on 30 May and I would encourage you to participate.

A consultation paper on intra-fund advice will be released shortly.

Improvements to Australia's Financial Reporting Framework

The current volatility in global financial markets has also highlighted the importance of a sound financial reporting framework in maintaining market confidence.

Australia's financial reporting framework is robust and consistent with international best practice.

International Financial Reporting Standards (IFRS)

Australia adopted International Financial Reporting Standards, or IFRS, in 2005. Australia is one of more than 100 countries that require or permit the use of IFRS for financial reporting purposes.

The adoption of IFRS has generated significant benefits for the Australian economy. Globally accepted standards reduce complexity for investors when making investment decisions, by facilitating comparisons of cross jurisdictional financial information. The standards also reduce compliance costs for those who are required to report on company operations in more than one jurisdiction.

The United States recently announced that it will accept financial statements prepared in accordance with IFRS and is giving serious consideration to a proposal to permit US companies to use IFRS.

While IFRS can now be regarded as the global benchmark for accounting standards, there is still work required to make these standards more effective.

Improving the financial reporting framework

Earlier this year, I asked Treasury officers to examine a range of reforms to further improve the relevance of financial reports to investors and the broader community.

This work includes reforms to reduce the cost and complexity of preparing financial statements, together with initiatives to enhance the disclosure requirements contained in the directors' report, including with respect to remuneration related disclosures.

The Government intends to consult widely with stakeholders in developing the proposed reforms.

The challenge for the Government will be to ensure that Australia's financial reporting framework continues to support the preparation of information which accurately reflects the financial health and performance of a firm… is relevant to investors, shareholders and the broader community… is delivered in a timely manner… and does not impose an onerous regulatory burden on business.

Annual General Meetings

I note again that today you've gathered here to discuss the topic "The one day of the year? The future of the AGM".

This role and function of the AGM is a matter of great interest to me as Corporate Law Minister.

I recently had the opportunity to discuss the issue with Chartered Secretaries Australia, who also recently issues a paper entitled "Rethinking the AGM".

In that paper the serious decline in attendance by shareholders at AGM's is highlighted. For example, it found that barely 10% of the top 200 companies attracted 300 or more shareholders to AGM's.

As investor relations professionals, I see the Australasian Investor Relations Association as a key source of advice on what we might do to bring the AGM model forward into the 21st century, so that it might better match the needs and interests of investors and shareholders and also company directors and management.

I look forward to receiving reports of your conference deliberations on this issue.


The Government is committed to its review and reform of financial services and will continue to focus on issues of disclosure and transparency. As the Minister with responsibility for this area, I am fully aware of the importance of addressing these issues.

There continue to be challenges for all players in this area, however the Government will continue to involve industry and consumer groups in its decision making and policy development to achieve mutually satisfactory outcomes.

Thank you for giving me the opportunity to speak to you on these issues. As a Minister I am excited about the scope for change and reform in these areas, which are such an important part of the Australian investment landscape.