The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Nick Sherry

Minister for Superannuation and Corporate Law

3 December 2007 - 8 June 2009

Transcript of 03/06/2008

Interview with Ali Moore

ABC,
Lateline Business

Tuesday, 3 June 2008

SUBJECTS: Financial Services and Credit Reform Green Paper

ALI MOORE:

Well how far will these reforms of financial services and credit regulation really go? The Government's green paper was released today by the Minister for Superannuation and Corporate Law Nick Sherry. He joined me from Canberra a short time ago.

Senator Nick Sherry, welcome to Lateline Business.

NICK SHERRY:

Good evening, and good evening to your viewers.

ALI MOORE:

Fundamentally is this green paper really much more than a transfer of a whole range of regulatory issues from State to Federal Government?

NICK SHERRY:

Well it's a very important transfer because it recognises that we live in a national economy, a national financial services economy and increasingly an international financial environment and therefore it's necessary to have single national regulation, single simpler standard regulation, it can be much more effective regulation than six States and two territories.

ALI MOORE:

So how many of the problems in recent months, let's say starting with the collapse of various property investment group, the debacles in margin lending, the selling of loans to people who clearly can't afford to pay them back, how many of those sorts of problems will be stopped if this green paper becomes law?

NICK SHERRY:

Well there are two important reasons for transferring State regulation and financial services to single national regulation. The two important reasons are in a national financial market it's more efficient, cost effective for business because it's a national market. They only have one set of regulations and rules and secondly, there are many areas currently in State regulation, margin lending, mortgage broking, where there is a mishmash of regulation or no regulation at all. So it will improve consumer protection.

Specifically, margin lending, for example, we've identified as one of the important areas that needs attention as a consequence of the market volatility, the US subprime impact. So that's one area where consistent national Commonwealth regulation combined with much simpler and more effective disclosure, which has been an important area of contention in some of the recent market activity. That will be a direct improvement.

ALI MOORE:

Well indeed this green paper does define or propose defining margin loans as financial products and therefore bringing them under the purview of the Corporations Act and under ASIC (Australian Securities and Investment Commission). Is that your preferred response here?

NICK SHERRY:

It certainly is. I mean I think most people would be surprised, indeed I think some of the States were surprised that they had any regulatory responsibilities for margin lending given recent market conditions. So it's important to have national regulation in an area which has been of such obvious concern given the recent market volatility.

ALI MOORE:

And credit and mortgages? This green paper proposes uniform national rules with a single body responsible for licensing and enforcement. Would that single body also be ASIC?

NICK SHERRY:

Probably ASIC. We'll seek the views of ASIC, the States consumer industry organisations, there may be an argument for some of the responsibilities to be located with APRA (Australian Prudential Regulation Authority) but that will be sorted out in this 30-day consultation period.

ALI MOORE:

How happy are you with the regulatory response to the recent problems by both ASIC and the ASX (Australian Securities Exchange)? Are you comfortable they've been doing their job well?

NICK SHERRY:

Well I think they've done a solid job in difficult circumstances. And if you look at what's happened internationally, all regulators have been grappling with a series of very unpredictable consequences as a result of what was a unique set of circumstances with US subprime. So I think they've done a solid job.

ALI MOORE:

But a solid job in difficult circumstances sounds something less than a big gold star?

NICK SHERRY:

Well, but I was just about to say, I am pleased that in the recent reorganisation of ASIC that's been announced by the Chief Executive Mr D'Aloisio, there are substantial changes to ASIC. Now they've been planned for a long time but they do recognise some of the weaknesses in terms of having key personnel with market knowledge and that's been taken into account. So to that extent any weaknesses are being addressed through that reorganisation.

ALI MOORE:

You don't see that restructure by ASIC as recognition of not being up to the task?

NICK SHERRY:

No, I don't, because the proposal to restructure ASIC, and it's the most substantial restructure in its 10-year history, was actually announced in May last year and obviously the restructure is taking into account the lack of skilled personnel with specific market knowledge, that those circumstances have been taken into account.

ALI MOORE:

Well you're in the throes of deciding whether or not the Australian Securities Exchange should get some competition. There are three players vying for licences, would it be appropriate for the ASX to regulate its competitors?

NICK SHERRY:

Well, the issue of market competition also leads to the question if you allowed market competition to the ASX how those market operators should be supervised and regulated. So obviously it's a related issue, it's an issue for consideration.

ALI MOORE:

What do you think? Do you think it's viable the ASX could be seen to not only regulate itself but to also regulate other players?

NICK SHERRY:

Well if we approve licences then there would be subsequent supervision regulatory change. That would follow. It would have to occur. But that's if we approve the licences. We haven't finalised our response to the licence applications and finalised any detail of supervision or regulation if that were to occur.

ALI MOORE:

Is it likely that you won't approve any of the licences?

NICK SHERRY:

Well the issue is before me at the present time and there will be a cabinet submission in due course and unfortunately I can't announce what the decision or pre-empt the decision on your show tonight.

ALI MOORE:

That's a great shame. But if it follows that if you do approve any or all of those licences, then there will have to be regulatory change. Is the logical step that the regulation of the market simply goes from the ASX to ASIC?

NICK SHERRY:

Well, the ASX itself has recognised that if there were to be competitors licenced there would be need to be a change to supervision. But it doesn't necessarily follow. There are a whole range of options for market supervision and regulation in a competitive environment but we haven't crossed the first bridge yet which is to either approve or not approve the licence applications.

ALI MOORE:

But I wonder what the other options are. Isn't handing it to ASIC the most logical or would you also consider perhaps setting up a separate, not for profit organisation?

NICK SHERRY:

There are a whole range of options, I'm not going to speculate. I mean I've looked at what's occurred when market competition occurred in other countries, the US, Canada, Europe, for example, there's a whole range of options. I'm not going to speculate as to the preferred option. That's a decision for cabinet and government to make.

ALI MOORE:

Minister, A little later in this program we're going to hear from the head of Metcash who says that the increased tax on alcopops has led to a substantial drop in sales of alcopops but there's been a corresponding pick up in the sale of bottled spirits, do you still think that higher tax is going to kerb binge drinking?

NICK SHERRY:

Beyond the general comment that it's an important health measure to discourage binge drinking. Unfortunately my responsibility is for superannuation and corporate law do not include the taxation of alcohol but it's an important health measure to discourage binge drinking, it's a budget measure, so in that context it's very important.

ALI MOORE:

Senator Nick Sherry, thank you very much for talking to us.

NICK SHERRY:

Goodnight, Ali. Goodnight to your viewers