Key Points |
Corporate and Financial Services Regulation Review Proposals Paper: Next step in easing the regulatory burden of the corporate and financial services industries. |
Industry plays an important role: in providing guidance on the practical implementation of the law and articulating the ethical rules we rely on to sustain a fair market. |
Simpler Regulatory System Bill: to be released in 2007, will be built on these proposals and your feedback. |
Thank you Ken, for your warm introduction this morning.
I would like to recognise and thank both the Finance Industry Council of Australia and the Australian Stock Exchange for their generosity in hosting this event today.
Ladies and gentlemen, today is a red-letter day for the corporate and financial services industries.
It is the day that the Government takes the next step toward easing the regulatory burden of these industries whilst ensuring Australians are provided with a robust and transparent financial service and corporate law framework.
Today I release the Corporate and Financial Services Regulation Review Proposals Paper.
And I am delighted to be able to share this event with each of you, the key participants.
You are the people who helped to influence these proposals and whose contributions to the corporate and financial services industries have shaped them into the robust, thriving markets we have today.
I was greatly encouraged by the level of community response to the consultation paper I released back in April. Your responses, together with the considerable thought that Treasury and I have put into the issues, have allowed me to develop the significant number of proposals you’ll find in the paper.
All of these proposals are designed to deliver a less complex corporate and financial services regulatory environment.
The modern market economy is too complex a system to be second-guessed.
The common good is best served when the pursuit of individual wellbeing is not inhibited by the state. Rather, it is the ethical framework of self-imposed moral constraints that we adopt as individuals that — not only ensures a well-functioning market — but which also maintains the social order in a free market economy.
This is why I believe in a “light touch” regulatory framework and this is the philosophical basis behind my work towards achieving A Simpler Regulatory System.
Australia’s recent history of economic prosperity through an environment of open, lightly regulated markets demonstrates the effectiveness of this approach.
The reforms in the proposals paper signal clearly the Government’s continuing commitment to reducing the regulatory burden.
Here in Australia, we have a regulatory framework based on a well-defined rule of law where the boundaries are clearly set out. The law sets out the principles and rules which we agree to work within. I describe this as the “hard regulation”.
In order for this system to work effectively, the principles and rules must be accessible and practical. Complexity will only obscure the purpose of the law and inhibit those trying to apply it.
In contrast, the proposals I am putting forward today are about making a complex set of laws more accessible, and more practical.
But regulatory rules are not just a legal machine to be objectively judged as a smoothly working mechanism, like a fine Swiss watch.
Rather, they are very much about human behaviour. When thinking about regulation, psychology is just as important as legal analysis.
Where there is a strong ethical basis to our conduct towards one another in the market, we all benefit. This is reflected by community values which indicate a strong belief in the need for fairness when conducting economic activity.
This has always presented a challenge to policy-makers.
Much of the detail and complexity in the law is designed to correct the misbehaviour of an errant few. The harm they cause receives a great deal of attention — whether pre-emptive or remedial — from law-makers.
It seems that, whenever we hear about a new scam, another rip-off, or some other kind of problem behaviour, the cry goes up — “We need another law!”
But this is intellectually lazy policy thinking.
This kind of knee-jerk reaction is why the law contains so many micro-managing rules to curb malicious behaviour.
Experience with law-making shows that these micro-managing rules are often inflexible, blunt instruments.
The old adage about using a sledgehammer to crack a walnut comes to mind.
And more often than not, these blunt instruments produce unintended consequences and distort good market behaviour.
This is why I believe we need to work — not only on the hard regulation I mentioned earlier — but also the “soft regulation”.
Soft regulation is about giving industry the space to deal with issues that would otherwise be dealt with by creating yet more detailed legislation.
It is about industry playing its role of providing guidance on the practical implementation of the law at the day-to-day level.
It is also about articulating the ethical rules we rely on to sustain a fair market.
These reforms to financial services regulation will help to increase transparency in the provision of financial advice.
They will improve access to affordable investment advice which is important in today’s environment where smaller investors are increasingly participating in financial markets.
The proposed reforms seek to improve the well-being of all Australians by encouraging the provision of advice to assist them to make well informed investment decisions.
As I have said before on other occasions, there are some issues that the financial services industry itself needs to address — particularly issues concerning how financial products are sold, and how advice is paid for. The proposals in my paper will provide scope for government and industry to work together to fill this gap.
In the Paper you will find a total of thirty-five reform proposals.
There are twelve significant proposals relating to financial services regulation including:
- Redefining the scope of financial services advice and introducing a sales recommendation framework;
- An exemption from a Statement of Advice when personal advice is provided that does not involve the recommendation of a product and no remuneration is received. Rather a Record of Advice would be required to be kept.
- The introduction of a threshold into the Statement of Advice requirements such that a full SOA would only be required if the advice given is in relation to an investment that is above $10,000, except in relation to superannuation. Again a Record of Advice would need to be kept for amounts smaller than this threshold.
Also in the Paper you will find other significant proposals relating to:
- Company Reporting Obligations including executive remuneration and threshold reporting requirements for large proprietary companies;
- Auditor Independence and anomalies arising from CLERP 9;
- Corporate Governance proposals;
- Fundraising including proposals to change the disclosure requirements in employee unlisted share schemes;
- Proposals relating to Takeovers; and
- Compliance proposals including electronic registration of charges.
The initiatives in the proposals paper are a significant step towards developing A Simpler Regulatory System and the vehicle for delivering it — the Simpler Regulatory System Bill which I intend to introduce into Parliament next year.
The Simpler Regulatory System Bill will be built on these proposals and your feedback. And, of course, I look forward to receiving your feedback over the coming weeks.
When I release the Bill, which I expect will be ready in draft form in early 2007, I will need your input through the consultation process to help guide and shape it.
Conclusion
Ladies and gentlemen, in considering the proposals I am releasing today, I invite you, as representatives of the corporate business and financial services industry, to think about the space being created…
The space for you to take a greater role…
And the space for the industry to develop even further.
I would encourage you to consider the opportunities these proposals create to allow simpler regulation to prevail — for the benefit of both consumers, and the industry that serves them.
And I look forward to continuing to work with you on these important initiatives.
Thank you.