SUBJECTS: Reforms to the Supervision of Australia's Financial Markets.
CHRIS BOWEN:
Good afternoon. Well this morning the Government made a significant announcement of reform to the supervision of Australia's financial markets. For many years, each individual financial market – most prominently the Australian Securities Exchange – has supervised the operation of its own market. The Government has made a decision that this is no longer desirable or sustainable. Australia will have a single unified supervisor for market participants. That supervisor will be the Australian Securities and Investment Commission. This will bring Australia into line with international best practice and is consistent with decisions of the leaders of the G20 in relation to financial supervision.
The government's intention is that this new regime will come into force in the third quarter of next year. Draft legislation will need to be prepared and consulted upon. We will need to take that legislation through both Houses of Parliament. There'll need to be a considerable amount of preparatory work and transition work by ASIC. The decision to transfer supervision is important of course in relation to our consideration of alternative operators before us.
Resolving the matter of market supervision is an important precursor to the Government considering whether or not to grant these licenses based on the advice of ASIC. There do remain some issues such as the finalisation of common rules that need to be resolved before these applications can be finalised but this is a significant step forward in the process of dealing with the issue of competition in Australia's security markets.
I expect this decision will be controversial in some quarters – but it is the right decision. It's important that the supervision of Australia's financial markets be transparent and independent. It is important there not be any conflicts of interest and for the sake of confidence that there be no perception of conflicts of interest. The decision announced today is a significant one which will stand the operation of Australian financial markets in good stead. I'm happy to take questions.
JOURNALIST:
Minister, you said there's likely to be some controversial reaction to this. The ASX itself has put out a statement saying it accepts and approves the reforms. Where do you expect the controversial elements to lie?
BOWEN:
Well I welcome that approach from the ASX. I spoke to the Chairman and the Chief Executive of the ASX this morning. Certainly it would be understandable if they prefer to keep supervisory powers to themselves but I certainly welcome their statement. Other people will have other views.
JOURNALIST:
What problems have prompted this change from independent regulation today?
BOWEN:
Well this isn't necessarily prompted by any particular incident or issue. It's prompted by a good look at the structure of supervision, it's prompted by a desire to see it as transparent and as unified as possible and it's also prompted by a desire to ensure that the Government's consideration of the alternative market operators' applications can be considered on their merits, so if they are approved, each operator will work on a level playing field.
JOURNALIST:
So the well publicised cases of Tricom, Opes Prime didn't figure in these considerations?
BOWEN:
Certainly, the Government bore all that in mind when making this decision but it was not prompted by any particular incident.
JOURNALIST:
But when we're writing our stories, would it be suffice to say that Opes Prime and Tricom were a matter to be considered when arriving at this position?
BOWEN:
Obviously, the Government considered all elements including recent cases of some prominence but I wish to stress that this was not triggered by any particular incident and I am not linking those particular controversies to this decision in any way.
JOURNALIST:
Why did the Government sit on this for so long? Why today, why now?
BOWEN:
Well the Government makes no apologies for considering this closely and in a time of market turbulence over the last 12 months, ensuring that this was the right decision.
The Cabinet has made this decision based on the advice of the Treasurer and myself that this is the right time, this is the appropriate reform and that after much consideration, it's a good way to go forward.
JOURNALIST:
So the delay on the basis of global financial instability…
BOWEN:
Obviously, the Government considered all elements, including global financial instability in markets, as to what would be an appropriate time to make this reform.
JOURNALIST:
Minister, would you expect much interest in terms of increasing competition for change operators?
BOWEN:
Well we already have 3 applications before us. If there are others, that's a matter for them.
JOURNALIST:
You've said you wanted Australia to be a regional hub, how will this change enable that?
BOWEN:
Well I certainly think it's important in terms of confidence in Australia's financial markets that there be one single supervisor – I think that will be well regarded and accepted on international markets and also that the Government is considering the three applications before us.
JOURNALIST:
How much extra funding is ASIC going to get for this role?
BOWEN:
ASIC will enter into discussions with the ASX about how much this supervisory role costs. Of course I would leave the ASX to speak for themselves, I certainly welcome their comment; but certainly they've made no secret of the fact that they would like to keep supervisory powers to themselves. But I certainly do appreciate the sentiments that Mr Gonski expressed to me this morning and that they've subsequently expressed publicly that they will be cooperating with the Government in the transition.
JOURNALIST:
Minister can you… (inaudible)
BOWEN:
No, but each of them will be considered on their merits.
JOURNALIST:
The ASX says this delays the entry of new competitors until at least the third quarter of 2010 – that's what they said in their statement to the exchange today, is that the case?
BOWEN:
Certainly this is an important precursor to those new entrants entering the market should that be the Government's decision. It would not be sustainable to have new entrants in the market if the ASX was supervising itself but others were being supervised by some other body or if the ASX was supervising its competitors, that would not be a sustainable model going forward. So it would be necessary for this system to be in place before those entrants could enter the market.
It will not be necessary for this system to be in place for the Government to further consider those entrants, for ASIC to have discussions with them, and for the Government to have discussions with them and to progress the consideration of those applications while this transition work is going ahead. But it will not be possible for them to enter the market and actually operate until the supervision of Australia's financial markets has been centralised under the one agency.
JOURNALIST:
So discussions are actually ongoing – are they with the new entrants?
BOWEN:
Yes, discussions would be ongoing.
JOURNALIST:
Who takes responsibility for (inaudible) disclosure obligations?
BOWEN:
Supervision of brokers and participants will be the responsibility of ASIC. The Australian Securities Exchange will continue to have responsibility for listed entities. Of course there will be some discussion between the ASX and ASIC about transitional arrangements and clarifying any grey areas between those two and of course that will be a matter for the draft legislation. There will be consultation on the draft legislation as well.
JOURNALIST:
Why will ASIC do any better at this than the ASX?
BOWEN:
This is a decision based on structure, it's not based on particular skills and it may well be the case that staff from the ASX come over to ASIC – that is a matter for ASIC and the ASX and individual staff members. This is a decision based on structure, what is the best structure going forward rather than which organisation may have better skills.
JOURNALIST:
It sounds like a conflict of interest was one of the key determinants for why the Government's moved this way.
BOWEN:
Certainly the Government took the view that it was not desirable to have a private sector operator with supervisory obligations over market participants and this was a role better and more suitably undertaken by a Government entity.
JOURNALIST:
What about, aside from those structural issues and concerns over its dual role as a participant and regulator – were their concerns separate to those of the ASX in general?
BOWEN:
I'm not passing any particular comment on the ASX's performance as a supervisor, as I say this is a matter of structure.
JOURNALIST:
But the Government does concede that this must illustrate that the Government believes there has been some regulatory issues with the ASX in terms of insider trading, this must be an acknowledgment from you of that?
BOWEN:
No, this is an acknowledgment that the structure was not desirable going forward, that it was much better to have a unified central Government supervisor.
JOURNALIST:
In the current system the ASX refers insider trading allegations to ASIC. Are we going to get that level of transparency inside ASIC or is it just a black box where we are not even told where there's suspicions of the number of insider trading allegations?
BOWEN:
Well, ASIC will be as transparent as is appropriate and they will obviously have a good look at their new responsibilities. They'll need some time to work out their guidelines and their protocols and they will – independent of Government – make further announcements about how they intend to deal with their new responsibilities. That's a matter for them.
JOURNALIST:
Can you just outline the process by which this took place? Essentially a report from ASIC was it – I mean what was the major determinant for taking this consideration?
BOWEN:
This was a decision by the Cabinet made on my recommendation and the recommendation of the Treasurer bearing in mind the views and advice to Government from ASIC and the Treasury and much consideration of the views that have been expressed by private sector participants to the Government through a range of mechanisms including ASIC consultations on market operators.
JOURNALIST:
(Inaudible)
BOWEN:
Well look that's a matter that the Government will consider further in consultation with ASIC – we'll take ASIC's advice. There are some matters that are still to be resolved between ASIC and those market operator applicants. Obviously I recognise that those applications have been current for some time and it would be in those operators' best interests to have them resolved expeditiously but by the same token, we will make sure that all appropriate checks and balances, and views have been taken into account when making those decisions.
JOURNALIST:
What are those matters?
BOWEN:
Well there's rules, matters around common rules but that is a matter for ASIC to resolve with those applicants and then for ASIC to advise the Government on.
JOURNALIST:
One of the areas of global financial stability – credit default swaps, they've been trading over the counter willy-nilly and been seen as a real increase in systemic risk. Does this, in any way, start putting the regulation around those kind of products?
BOWEN:
No, this isn't a decision that regulation will be of different things or different products. This decision is about who does the supervising. Matters that you refer to would be matters considered separately by the Government.
JOURNALIST:
Do you think the transfer of supervision will equate to…(inaudible)
BOWEN:
Well certainly I would like ASIC to be very proactive and I'm sure that they will be. I'm sure that they will take this new responsibility very seriously as I know the Chair has expressed to me that he will.
JOURNALIST:
This doesn't cover over-the-counter derivatives? If you're saying that real time markets are being regulated…
BOWEN:
Well the market supervision will be of the same products and methods that are being undertaken now by the ASX. Obviously if ASIC advises the Government as part of this process that there are other powers that they would like to add – that is something we will consider as we draft the legislation.
JOURNALIST:
So at the moment, credit default swaps, CFDs, those kinds of things – they're not part of it?
BOWEN:
Well whatever is the supervisory arrangement that the ASX has in place now…
JOURNALIST:
These are things that are traded over the counter…
BOWEN:
I understand that but I'm making the point that this is the transfer of the ASX's responsibility to ASIC. If ASIC feels as a part of that development that they would like more powers, that's something we'll consult ASIC on.
I have time for one more question.
JOURNALIST:
Just briefly on a matter - Nick Sherry's flagged a possible takeover by the ATO of state and local Government tax revenues, is that an idea that you support?
BOWEN:
Look I think it's a useful contribution from Nick in terms of the Henry Review's consideration. Nick has expressed that view and obviously it would be something that the Henry Review is having a look at in terms of efficiency.
At the end of the day it's a matter for Henry and we don't want to pre-empt those results.
JOURNALIST:
Just one thing to clarify, this must be an acknowledgement by the Government that there are regulatory issues and that Australian investors have been left out in the cold in some respects?
BOWEN:
No, I do not accept that characterisation at all. Australia's regulatory framework has served us well, particularly in the last two years, in times of international turbulence but that doesn't mean that further improvements can't be made and that further rejuvenations can't be made to the system. This is not an acknowledgement of shortcomings, this is more an acknowledgment that improvements are possible and that we can have a more transparent system.
Thanks very much.