Good morning ladies and gentlemen.
I would like to thank Corrs for inviting me to speak to you today on the progress of the Financial Services Reform Bill proposals.
As you'll be aware, the Government is keen to get the FSR Bill into Parliament and passed and the reforms under way. This has been delayed due to the issues raised by the Hughes case, but the Commonwealth and the States have substantially agreed on a way forward and I'm confident that by the end of this year we'll have in place a new system of corporate regulation that will provide commercial and regulatory certainty.
Once this happens, we will be concentrating on securing early passage of the FSR Bill. This will give Australia not just a world-class, but a leading-edge, regulatory regime for the financial sector.
Despite the best efforts of all concerned the reality is that the Government is unlikely to be able to introduce and pass the Bill by 1 January 2001. I am committed to introduction of the Bill as soon as possible, certainly before the end of this year.
To ensure that the financial service industry has the maximum possible time to consider the Bill I will promote the expeditious passage of the Bill through the Parliament.
Additionally, I will continue to press for the early release of draft regulations and ASIC policy statements to help industry in the transition to the new environment. Of course there will be the opportunity to consult on these draft regulations and policy statements.
I am aware in my role promoting Australia as a centre for global finance, that many other jurisdictions in Asia and Europe are looking to our model for their own regulatory reform exercises.
The scope of our reforms goes beyond the contemplation of many of our contemporaries.
It will position the Australian financial services industry to take advantage of innovation, technological development and the continuing globalisation of the financial services sector.
At the same time it will deliver certainty to industry and confidence to consumers.
We have been consulting extensively with industry to fine tune the Bill to ensure the Bill is commercially responsive and the regulatory intensity appropriate to the different products and services that come within the regime.
The intention has never been to use a sledgehammer to crack a peanut. Proportionality is the key to an effective regulatory regime.
Today I'd like to give you a snap shot of the more significant issues raised during consultations and our responses to them, and to dispel some misconceptions about the Bill.
As I have said all along, consultation is the key to getting it right. Industry, consumer groups and Government have worked together to build a first-class regulatory regime and I want to thank those who provided constructive feedback on the reforms.
Consultation has been extensive, and some might say exhausting, but it has been invaluable.
The process resulted in over 100 submissions; roundtable sessions with key industry players on various aspects of the regime; and meetings I've attended, my office has participated in, and Treasury has held with individuals from all sectors of the financial services industry.
Changes have been made to a range of provisions to make sure they will be workable in practice and to make sure business imperatives and consumer protection objectives can be achieved together.
One area that has received significant press coverage is the inclusion of basic deposit products.
Contrary to recent speculation and press reports let me make it clear that basic deposit products will come within the FSR regime.
However, the regime will apply flexibly to these products and will ensure regulatory proportionality.
The Government has reviewed the circumstances in which Financial Services Guides and Statements of Advice will be required where services are offered for basic deposit products.
Basic deposit products are well understood in the community and are subject to a high level of prudential scrutiny. With that in mind the Bill will provide that deposit products offered by Authorised Deposit-taking Institutions that are for a term of 2 years or less with no management or break fees will generally not be subject to the FSG requirements or requirements to provide statements of advice.
Also, contrary to reports in the press, in developing the FSR Bill we have had regard to the particular needs of country Australians and how the Bill might affect new distribution mechanisms being trialed in country Australia.
The Bill will not hinder the operation of Rural Transaction Centres or distribution of deposit products through such third-party agents as newsagents or pharmacists in country Australia.
This sort of speculation is scare mongering, pure and simple, and has done nothing to further the debate.
While I recognise the many challenges facing country Australians I am committed to ensuring that consumers in the bush get the same protections as consumers in our cities.
All Australian consumers of financial products deserve the same level of protection, irrespective of where they live or how they access those products. And the FSR Bill will deliver this.
The definition of financial product advice has been tightened, particularly in relation to personal advice. A clearer line has been drawn between mere factual information (which is not financial advice) and recommendations/statements of opinion which are defined to be financial advice.
This will ensure that it is clear what activities will attract the operation of the Bill.
On the topic of competency, there still appears to be some unfounded concerns or uncertainty about the Bill's competency requirements for representatives.
In essence, licensees must ensure their representatives are adequately trained and competent to provide the services they offer no more and no less.
The intention here is not to force every representative to be competent to provide full financial planning services.
Representatives only have to be competent to provide the services they actually provide.
Industry participants who are adequately trained and competent to provide the services they now provide will not have to do significant extra training to meet the Bill's competency requirements.
The Bill contains a mechanism for professional bodies, whose members in the course of carrying on their profession give financial services advice; to come within the licensing regime through a mechanism referred to as the 'declared professional body'.
This is in recognition that some industry participants such as accountants, lawyers and actuaries are already subject to a range of strict professional requirements including competence and ethical standards and face disciplinary action if those standards are breached.
The Bill will more closely align this mechanism with the outcomes achieved via the Bill's single licensing regime. That said, I want to make it clear that this is not intended to be a carte blanche exemption for all professionals.
The professional bodies that want to avail themselves of this mechanism must come forward with ideas to convince ASIC the mechanism should apply to them.
A range of industry stakeholders commented on the Bills application to conglomerate groups.
Two issues, in particular, were raised:
First, how the licensing and authorised representative requirements should apply to employees and directors of related bodies corporate of the licensed entity; and
Second, the restriction on sub-authorisations by corporate authorised representatives.
In light of the concerns raised by industry the Bill has been modified to better accommodate conglomerate groups.
Now, the authorisation exemption has been extended to employees and directors of related bodies corporate. While they will not require authorisation, the relevant licensee will continue to be responsible for the competence and conduct of these individuals
Also, the prohibition on sub-authorisation has also been modified to allow corporate authorised representatives to appoint authorised representatives in certain circumstances.
A range of other changes have been made to the Bill to address concerns raised generally.
The definition of retail client has been refined to more closely align it with the definition in the Corporations Law. The new definition also aims to give financial services providers more certainty about the ongoing status of small business clients.
In particular, financial services licensees have been defined not to be retail clients.
Some sectors in the financial services industry continue to argue that they should not be subject to commission disclosure requirements.
Put simply, commission disclosure is all about making transactions transparent and giving consumers enough information to make informed decisions.
It contributes to the building of trust between service provider and client and it is a characteristic of the provision of professional services.
I remain committed to introducing a comprehensive commission disclosure regime.
The approach to commission disclosure has been refined from the position in the consultation paper to the draft legislation. This reflects comments from industry and consumers, with the result that the majority of stakeholders now support the approach.
Of course, some will always think that disclosure has not gone far enough, while others argue that it has gone way too far.
But, I think we've got it right by ensuring consumers have before them information that helps them understand any possible bias in the advice and recommendations being made to them.
In terms of the products, which the Bill will cover, I would like to clarify two areas:
First, credit products will not be covered. This was the intention in the draft Bill, however a number of submissions suggested that this had not been fully achieved. The Bill will be amended to explicitly exclude credit -both consumer and non consumer credit - from the FSR requirements.
Second, all foreign currency transactions will fall within the FSR regime with the exception of pure money-changing transactions.
The Bill has also been fine-tuned to ensure that the product disclosure requirements apply flexibly to the range of financial products for which a Product Disclosure Statement (PDS) will be required and that related requirements are not unduly onerous for industry.
Now Product Disclosure Statements will no longer have to be lodged with ASIC , other than those traded on a financial products market (but not derivatives).
A regulation-making power will be retained to enable lodgment to be extended to other products where a regulatory need is identified.
A number of submissions argued that product issuers should be permitted to incorporate information in the PDS by reference.
While acknowledging some of the benefits of incorporation by reference, the Government remains concerned that in the context of a substantially revised disclosure regime it could lead to minimal disclosure in the document provided, with the onus on the consumer to seek out the extra information needed to make an informed decision.
Nonetheless, to address some of the concerns raised in relation to incorporation by reference: the Bill will make clear that the PDS need not be contained in a single statement, although it must be provided to the consumer as a package and clearly identified as such.
This will enable time-sensitive information to be more readily changed.
Information that is not required to be included in the PDS may be incorporated by reference.
A significant number of submissions called for the inclusion of a due diligence defence along the lines of the existing provisions of the Corporations Law.
Their argument was that product issuers will engage in a due diligence exercise to satisfy the disclosure obligations under the Bill.
This will be addressed in the final Bill in two ways:
First, the disclosure requirement will be limited to information of the specified type actually known to the product issuer. Second, defence from liability will be included for a product issuer who took all reasonable steps to satisfy the disclosure obligations.
The Government will carefully monitor these provisions to ensure consumers are getting disclosure documents that are appropriate and useful.
I am firmly against doorstop documents prepared solely with the issuer in mind with no real interest in providing real and useful documents to investors.
I know that many industry players have expressed concern about the time they will need to gear up for the FSR regime - to make systems changes, train staff, print documentation and so on.
As I have said, the Government is keenly aware of the need to give industry signigicant time to comply with the new regime. For this reason, the final Bill will contain transitional provisions in the areas of licensing, conduct and disclosure and product disclosure.
In the area of financial service provider licensing, the Government is particularly keen to ensure that the transitional provisions result in minimum disruption to industry and that ASIC will be able to effectively and efficiently administer the transition to the new regime.
Accordingly, to reflect the input the Government received from industry and ASIC during the consultation process, the transitional proposals initially contained in the commentary have been modified.
The Government now proposes to provide for a streamlined, fast-track mechanism for registrants or licensees under existing insurance, deposit-taking, securities and futures regimes.
This streamlined approach will let existing licensees apply for a new licence for their existing financial service business on the basis of self-declarations about compliance with the relevant licensing criteria.
This approach will minimise disruption to business while preserving the integrity of the licensing regime.
Australia has built a world-class financial sector regulatory regime which provides security and integrity, two ingredients vital to investor confidence.
The International Monetary Fund has hailed these changes as 'path breaking reforms which put Australia at the forefront of international practice'.
I believe that integrity is a product feature that will be vital to the success of Australian financial institutions on the global stage.
We have been vigilant to ensure that the Government and business work together to develop a regulatory framework that gives consumers confidence and certainty and provides a framework for innovation and exciting new products and players.
Combine this with the principle of consumer sovereignty and we are building cutting-edge regulatory infrastructure.
The Financial Services Reform Bill is a regulatory framework that will let you offer a range of products limited only by your imagination and the needs of your consumers.
And it is a regulatory framework that will let you distribute those products through whatever channel you think best serves your consumers.
It is a Bill the Government has every right to be proud of. These reforms will help the Government pursue its plan of developing Australia into the leading financial services centre in the Asia Pacific.
The reforms will lead to stronger growth in the financial sector, and more choice for all consumers of financial services.