Daniel Mulino:
– in relation to PwC and KPMG over recent years, and that’s why it’s so important that I have here with me Senator Deb O’Neill, who’s the Chair of the Parliamentary Joint Committee on Financial Services and Corporations, which has led so much of the work that has exposed some of the dishonest, opportunistic wrongdoings that we’ve seen in the public realm over recent years. What we’re going to be looking at in this discussion paper is an examination of some really important potential regulatory changes, including operational separation, which would mean that auditing and accounting firms may not be permitted to offer both auditing services and other consulting services to the same client. Another even stronger option that is included in the discussion paper is structural separation, which would involve regulatory change that would require that firms only offer one strand of consulting services.
Another option which is being looked at which has been explored by the committee and explicitly referred to in its previous report on PwC is putting a lower limit on the number of partners in firms. At the moment there can be up to 1,000 partners in audit firms. One option that we’re looking at is lowering that number to, for example, 400, which would bring it into line with legal professional services. And there are other changes as well: providing ASIC with more powers, more oversight and stronger penalties.
Auditing and accounting and other professional services lie at the heart of our financial services system. They are absolutely critical for those purchasing those services. They are critical for investors to have confidence in the firms in which they are investing, and confidence for our system more generally. And so we need to look at ways in which we might strengthen regulatory arrangements, particularly in light of the kinds of appalling behaviour that has been exposed in recent years. The current settings – the current behaviour that has been exposed is simply not good enough. And I’m determined that we will look at areas where we can strengthen regulatory arrangements so that people who use these services can have greater confidence that they’ll be treated in the right way. I’ll now hand over to Senator O’Neill to make some observations as Chair of that very important committee.
Deborah O’Neill:
Thank you very much, Assistant Treasurer. And can I say what a pleasure it is to be here with the Assistant Treasurer today, who is a man of great intellect and great heart for this nation, who I know has the capacity and the will to deliver the changes that are necessary for this sector. Many Australians, like myself, have grown up in families where the concept of superannuation wasn’t something they ever knew about, and those letters across the skyline in cities across the world, whether it’s KPMG, PwC, or even EY or Deloitte, mean nothing to them. And in a way, that’s how we needed it to be, because the people who are working in those offices under those letters are supposed to be doing their job as a professional acting in the public interest for the public good, not seeking to find opportunities to gather information and line their own pockets, and by doing so destabilising the financial markets of this country.
What we saw with PwC was a gentleman by the name of Peter John Collins, taking information, confidential information from our own government against the national interest and monetising that for the benefit of himself and his partners at PwC. People were shocked, but it was something that was a cost to government, that’s how it was perceived. More recently what we’ve seen with KPMG is that having gone in, in an intimate way, to some of the biggest companies in this nation; Telstra, Macquarie Bank, Lendlease, Optus, Dexus – KPMG went in, saw the information that could advantage their business model and in a profoundly unprofessional way took that information.
This has shocked corporate Australia, and the reason it matters for every Australian is because Labor created the superannuation system. Whether you’re investing in an SMSF, a retail fund or you’re in an industry super fund, the decision about where we invest our $4.5 trillion dollars, rely on the honesty of the books of these big companies. That is what the auditors should be doing, that’s their job, not lining their own pockets, not stepping away from their professional responsibilities.
And that is why the options paper from the government is a significant moment of leadership in response to all the work of the colleagues that I have undertaken this journey with so far in terms of the Corporations and Financial Services Committee. So today is a good day. Today is a day the government says, ‘We’ve seen it, now we’re going to do something about it’. Whining won’t cut it; we actually have to do the job in the interests of Australians and I’ve got absolute confidence in this Labor government to do that for ordinary Australians. Thank you.
Journalist:
Is that because these guys just can’t be trusted?
O’Neill:
Well, it’s a great question because the reality is it’s a matter of trust. Trust, like you have in any professional. I think all Australians understand what it is to go to the doctor’s. You know, the doctor knows things about you. You have to reveal everything about yourself to the doctor. This is what companies have to do with auditor companies, and they have to trust that when auditors have been in, looked at the books and seen what they’ve seen, that they walk away and there’s never a word said about it to anybody else. So trust has absolutely been betrayed. I’ll hand back to the Assistant Treasurer.
Mulino:
Thank you, Senator O’Neill. I thank you for your hard work over a long period and the work of your Committee.
Journalist:
Is there a preferred measure or preferred set of measures within this consultation paper of the government like you said before?
Mulino:
We have not indicated previous positions on particular policy settings. We are going into this with an open mind, but we are putting on the table very serious options, which include operational separation, which would say that a firm cannot for the same client offer auditing and other services. We’re also putting on the table structural separation, and we will receive submissions from a wide range of stakeholders on these matters. And as I indicated earlier, we’re also looking at lower partnership caps than are currently in place. So we will receive submissions from stakeholders on all of these options with an open mind. But what I can say is that the behaviour that has been exposed in recent years is totally unacceptable, and that I go into this feeling that we need to strengthen our arrangements.
Journalist:
Are you confident that these kind of changes will be enough to rebuild trust? Do you think the public has any chance of getting back to trusting these firms in a couple of years?
Mulino:
So what I can say is that we have already put in place a number of regulatory changes. We have just recently, through the parliament, passed laws that establish External Reporting Australia. We’ve set up much stronger arrangements for auditing and accounting standards; that’s an important step forward. We are also now very soon to introduce legislation that will impose stronger sanctions through the Tax Practitioners Board, which responds in part to the Price Waterhouse exposure that the PJC led. And we’re also at the moment consulting on whistleblower reforms in the tax and corporate setting. So these will build on all of those reforms.
There are serious options in this discussion paper, and I believe that the combination of all these reforms, reforms that have already been passed into law, the reforms that will soon be in the parliament, and the whistleblower protections which we are consulting on right now, and these serious options that we’re looking at in this discussion paper, together these will be a significant step forward that will restore trust in this system.
Journalist:
Minister, when you visit the KPMG Australia website, you’re bombarded with words like ‘trust’, ‘integrity’, ‘honesty’ yet this standard shows those values are the furthest from the minds of the firm’s senior leadership. So what – how has this culture of – this win at all costs culture been allowed to grow in firms like these? And doesn’t it require more than just a regulatory kind of company instrument, or do organisations like [inaudible] the professional body need to do more to include the culture at firms like KPMG?
Mulino:
Well look, I think your question as to why have these problems arisen, I think in part it goes to firms having the wrong culture when it comes to seeking revenue and seeking profit, being focused on at the expense of serving clients, at the expense of living up to their professional standards. I think that is at the heart of what has gone wrong.
Look, when it comes to the role of the professional bodies, they have a role to play. It is important that they are a part of the day‑to‑day management of the ethical standards, of the continuing professional development, of the management of conflicts, but we do need to strengthen other parts of the regulatory arrangements. It can’t be left too much to self‑regulation, which at the moment is happening. It can’t be left too much to the professional peaks. We need to strengthen, for example, ASIC’s powers and ASIC’s oversight. We need to look at whether or not there needs to be legislative restrictions on the ways in which firms operate. So those are the kinds of measures we’re going to look at in this options paper.
Journalist:
Minister Mulino, just on a separate issue if I may. We saw last night that One Nation [inaudible] has an army of people who are informed by social media, people in content [inaudible]. Is it alarming to think that an algorithm [inaudible] not by the Prime Minister but by overseas actors?
Mulino:
Well, look, I just make a broader point that I think any kind of foreign intervention in our democratic process is problematic. I would say that, you know, within my portfolio I’m leading work on the News Bargaining Incentive, so it’s an area that I’m working in more generally, but it is very important that we have a democratic system which is robust. It’s very important that we have a robust public interest journalism layout in our democratic system. Look, what I would say about One Nation is that we are taking it up to One Nation when it comes to their lack of any real answers, and that is what I believe is going to be the best long‑run response to what it is that they’re offering.
Journalist:
Some members of the committee asked for the partnerships, like you know, EY and others, to be brought under the Corporations Act. What are your views on that? And also when do you hope to have legislation passed through the parliament to enact these changes?
Mulino:
So, look, there are some options which aren’t explicitly included in this discussion paper, but what I would say is we welcome submissions with stakeholders on any kinds of ideas that they may have. So those kinds of options people can make submissions on, and we will read those submissions very carefully. At the moment there’s no particular timeline on legislation. As I’ve indicated, when you take a step back and look at the broader set of issues that we’re looking at when it comes to these large auditing, accounting and consulting firms, we’ve already passed some legislation recently in relation to accounting and auditing standards.
We have other legislation soon to be introduced in relation to the Tax Practitioners Board, and then we have the whistleblower consultation paper, and this one. So we are now proceeding on all – on these fronts with quite a degree of priority. It’s always difficult to anticipate timing in the complexity of the parliamentary process, but this is a real priority for me and the government.
Journalist:
When did the work commence with Treasury on this discussion, this paper, has it been going just since the KPMG thing blew up or was it prior?
Mulino:
Well, so there has been work that has been undertaken in the public realm for quite some time now, including the PJC work that Senator O’Neill referred to, but there has been other work in the public realm. And what I would say is that Treasury has been working on a number of tracks simultaneously, and that’s appropriate with issues like this that are complex. So as I referred to the External Reporting Australia work has been going on for quite some time. That is very complex legislation which just recently passed in both houses of parliament.
We’ve had work in relation to the Tax Practitioners Board, we’ve also for quite some time been working on whistleblower protection, strengthening arrangements. And so work on the issues that are in this discussion paper has been looked at for quite some time. But we wanted to step through the issues in a methodical and careful way because these are very serious reforms we’re talking about.
Journalist:
We’ve seen some individuals employed by EY allegedly breaching the banking details of the Prime Minister, Anthony Albanese. Is the government investigating any other potential breaches towards federal parliamentarians’ personal details?
Mulino:
Look, I wouldn’t want to comment on a particular matter that is, as I understand it, before the courts, as I think that process needs to run out. Quite clearly, if what’s being alleged has occurred, then that’s very concerning. I think there are very specific allegations that have been made, and I think we just need to let that process run through.
Journalist:
Senator O’Neill, a question for you. What is the path forward now for your committee in respect of the public hearings, what work do you have left to do here in terms of this –
O’Neill:
I think you could say that the committee has really undertaken work in the national interest over a very long period of time. Just in the last couple of days, with the legislation passing that Minister Mulino has been referring to, I had a chance to look back at papers from 2019. And I think it goes to the culture that needs to be disrupted that we’ve seen manifest itself in the public place through PwC and the KPMG matters.
But if I can put it this way, there was a former partner of PwC by the name of Mr Bill Edge who was appointed as the head of the Financial Reporting Council. In 2019, in November and December, I asked him about the trailing financial arrangement that he had with PwC in his retirement. And what we discovered was that he had not declared it as a conflict of interest, because he simply didn’t see it as a conflict of interest. That is the culture that needs to be disrupted.
This is the reality that this government will be taking on in advancing the necessary change. We’ve seen in the partnership structure the flourishing of self‑interest over professionalism. We’ve seen a lack of accountability because ASIC looks at only company auditors, not the entire partnership. That is covered off by our state laws. That structure has allowed the flourishing of a culture that people will fight tooth and nail to keep, because it is in their financial interest to do so.
And if I can say, we have seen the departure of very senior people from PricewaterhouseCoopers and from KPMG, and the message to the public is one of spin. ‘We’ve taken out the bad apples, the rest of us are fine’. The reality of partnership law is every partner, every single partner is joint and severally liable for what happens in these partnerships. They can’t take the pay and then absolve themselves of responsibility. So the clean out of a few at the top of what appears to be a profoundly unhealthy, unethical culture simply won’t cut it. And that is why these changes that Minister Mulino is announcing today are going to be very, very important in making sure we have the proper cleanliness in our financial markets that are necessary for the confidence of all Australians, and particularly those who are working in the financial market to the benefit of the nation.
Journalist:
Do you think the Macquarie Bank – Macquarie Group is taking this scandal seriously enough? Simply the way they’ve engaged with your committee seems to suggest that they’re not taking it seriously.
O’Neill:
This will be the last one, and I say to you that the committee has continued its work with or without public interest in the interests of the nation, and we will not resile from our responsibilities to pursue public good. I’ve got confidence in the capacity of the committee to continue to do the work so that we flesh out in reality what’s happened to KPMG. And I know that that will further involve the public consultation that is now underway, alongside the whistleblower legislation, review of the whistleblower paper that’s out, the options paper, and now this matter with regard to the financial sector, and particularly auditing.