Thank you very much David Koch and thank you to Lyn Ralph and Richard Gilbert from IFSA for inviting me to deliver a speech today.
A few weeks ago, our Prime Minister, was in Frankfurt and delivered a speech which I think was a very important speech to business leaders. He said "Once a Government loses the appetite for economic reform, it loses some of its rationale for existence".
He went on to say "Australia needs more economic reform - we are embarked at present in the assessment of the international aspects of our tax system, so to ensure that it adequately promotes our aims." "We have embarked on an important examination of our tertiary education institutions, we are embarked upon the adequacy of our competition laws and, importantly, my Government is advocating and pressing for further reform of our industrial relation system".
Can I say that this Government, as most of you in this industry know, has been an activist Government in economic reform across a whole range of areas. David mentioned privatisation as one, but fiscal reform, tax reform and in your own industry the reforms that the Government has implemented commencing in 96/97 and carrying on continuously for the past six years through the Corporate Law Economic Reform Program (CLERP) and other programs. These have marked this Government as having achieved more reform of company law and the financial services sector than any other Government in Australian history.
Can I say that when I was in this portfolio between 96 and 98, I tried to get the media interested in things like company law reform, prospectus reform, accounting reform, takeovers reform and we were very lucky to make page 52 or 58 of the Financial Review. That has changed somewhat coming back into the portfolio in late 2001. These days we are very lucky if we can keep it off page 1, and I guess in a way it's a benefit to see the community focussing on corporate governance, and important corporate regulatory issues for a number of reasons.
I think one of the sad by products of the focus, the current focus as a result primarily due to incidents on the other side of the Pacific, but also with some significant collapses here in Australia, is that some politicians are taking an opportunist approach to what is occurring. Can I say that the reforms that we have brought in have had a massive impact on many of your own businesses, and I thank particularly IFSA for the incredibly constructive role that they've played in the discussions around a number of those reform programs.
The Government's reforms outside the CLERP program included, for example, the introduction of the single responsible entity principles into the Managed Investment Act, and the industry has just finished a transition program into that new regime. As the person who put that Bill through the Parliament and had responsibility for implementing it, I know that transition program involved an enormous amount of work from people in the managed investments and managed fund area - it involved an enormous amount of work from the regulator, ASIC, and it showed that as a financial services community working together between industry and ASIC and the Government, we can achieve these major reforms in an effective and practical way and deliver positive outcomes for the investors of Australia, and make Australia a more attractive place to invest.
I hope that the transition program that applied with the introduction of the new managed investment regime will be very much the template that industry, and particularly ASIC, apply with the very important and larger project of implementation of the FSR regime.
I am glad to see that some journalists are picking up the fact that this Government has been working hard on corporate law reform for many years - we haven't just turned to it in the wake of Enron and World Com and HIH. We introduced world leading accounting standard setting reforms under CLERP 1, making them more independent and ensuring they had a greater economic and international focus. We introduced fund raising reforms to make the cost of writing the prospectus lower, and ensuring that shareholders got better quality information in a format that they could actually read and understand.
We brought in reforms to directors duties and corporate governance, we delivered significant takeovers reform, for example the establishment of a City of London style Takeover's Panel, which has been an enormous success.
CLERP 5 was one of the first pieces of legislation in the world that looked at the opportunities and necessities that the Internet created, and basically changed our law to enable e-commerce in Australia.
CLERP 6 we all know about because that morphed into FSR and I will deal with that in detail later.
CLERP 7 is the legislation which will be in the Parliament in a few weeks' time which will significantly improve the efficiency of transactions with ASIC.
CLERP 8, I announced a few weeks ago, which is to set up an internationally recognised insolvency regime and CLERP 9 of course is the policy proposals which myself and the Treasurer announced just a few weeks ago. I would just like to spend a couple of minutes putting CLERP 9 into context.
CLERP 9 was announced the day after the Worldcom revelations and I guess it's fair to see why the media saw it as some reaction to that. In fact I had been working on CLERP 9 since November last year, and it was very unfair of those Worldcom people to have their difficulties on the day on which we chose to announce it. But the reality about CLERP 9 is that what is seeks to do is to look at a number of the issues, and audit independence is one of them which relate to the quality of the disclosure regime, the information that flows from shareholders, to shareholders from companies and the information that goes from companies to other stakeholders in the broader community.
I tend to look at the public in an unusual way. I think there are only two groups in the public - there are investors and there are potential investors - and if you want to have a good market, you need to ensure that all of the public get relevant, reliable and timely information about what is happening inside companies. Shareholders need good information so that they can make decisions about their investment. Potential shareholders need good information to make decisions about whether to invest in a company or not.
So CLERP 9 focuses on the quality of information people get about companies, and of course audit independence is vital to that quality. Many of the recommendations made by Professor Ramsay will form a part of that work, but we are going to take those audit independence issues further. We are going to look at changes to the entire institutional framework around financial reporting.
For example, we have a whole range of boards and bodies that have an oar in the water in relation to these issues and we think that we can design a better structure which will create better outcomes, better compliance, better quality audits and more independent audits, and most importantly a better perceptions of independence.
CLERP 9 will also deliver on the question as to whether or not the penalties which relate to breaching continuous disclosure laws regime are adequate. It will also ensure that the prospectus provisions are improved further, building on previous CLERP work. It will ensure, the law promotes the independence of analyst advice. It will also incorporate a number of the recommendations and processes that have been recommended by ASIC's Corporate Governance Roundtable, particularly with changing the law to make it easier for companies to use the Internet to deliver information, including company notices and reports to shareholders and do away with the requirement that they have to receive paper documents.
The timetable for CLERP 9 is tight. I intend releasing the policy in August. I will then of course hold consultations and discussions with all stakeholders who have an interest. I copped some criticism when I released CLERP 9. Some said these consultations go on and on. Can I say that the success of the CLERP process to date is built on the fact that it was designed and delivered and built by the stakeholders, shareholders, companies, company directors and a range of other people, and I make no apology for ensuring that this Government is open in its consultation process, that it listens to people who have good knowledge on the market and that the reforms deliver on improving the market. Consultation will be thorough and it will deliver good quality policy that is not a knee jerk, populist or political reaction to the events surrounding us at the moment.
On the reform front, we will also, as the Prime Minister said in his Frankfurt words, be addressing international tax issues. I am very keen, and have driven this with the support of IFSA, to ensure that the treatment for example of foreign investment into direct security ownership is not tax advantaged over foreigners wanting to invest in our managed funds. If you want to build Australia as a world class regional financial centre, you want to ensure that any impediments to investment into our managed investment funds and other products are not disadvantaged, and the international tax review will look at that issue, which I know many people in IFSA have a specific interest in and I pay tribute to Richard Gilbert's work in that area.
Can I also say that the Government has led the world with the great support of the Prime Minister and the Treasurer to see the world adopt one high quality set of international accounting standards. It is so important in a world where you have so much more capital moving across borders, with so much more retirement funds moving across from Australia to Europe and across to America and back again, that you have one financial language to describe the performance of companies.
We have just recently heard the Financial Reporting Council's chairman Jeff Lucy make a quite clear commitment and direction to the Australian Accounting Standards Board that this is what we should pursue and that we should, with my strong encouragement, see Australia adopt international accounting standards on schedule with the European market by 2005.
It is my great hope that we can convince the United States to develop a similar timetable and I will be announcing fairly shortly some new initiatives to see if we can get global agreement on reaching that deadline.
Can I say that following discussions that I held in the United States earlier this year, I was overjoyed to see that the Sarbanes-Oxley Act, which was signed into law by the President only 24 hours or so ago, make it a quite clear direction to the Securities and Exchange Commission to do a project on whether they should adopt principles based accounting and to report within one year. That is a very significant move forward for the US Congress and I welcome it and congratulate them for seeing the benefit of that system.
Accounting standard quality is vital to the information received by investors and potential investors. Capital will become more global and it is absolutely vital that Australia is part of that movement, in fact is ahead of that movement.
Can I say in relation to accounting standards issues, that you can have the best standards in the world, but if you don't have a quality compliance regime, both through independent audits, but also through a rigorous, well resourced and focused effective regulator, then you won't have a system that stands the test of a market. I think one of the reasons that Australia has done very well during the fragility of recent weeks on world stock markets is that we have a very good regulatory regime, we have a well supervised market, and that is a credit to the Australian Stock Exchange, and we have a very effective regulator in ASIC.
I was shocked to hear comments by a Labor spokesman on the Business Sunday program this week that said that the regulator had ditched its compliance campaign. That is a total misrepresentation of the facts. ASIC have been very active and are highly regarded in this area and, in fact, in 1999 ASIC's program of compliance testing amongst reporting entities forced a number of companies in Australia to restate their financial reports to the tune of $1.4b.
Each year since 1999, ASIC has run that program and, as a result of current events, has sent letters to every CEO in Australia to look particularly at Enron and other accounting practices as a way of helping to reassure the market.
ASIC has been on the job with compliance and accounting standards very actively year after year after year, and anyone who says otherwise doesn't know what they are talking about, and I commend ASIC for that program.
Can I now address the importance of the independence of the accounting standard setting process - the reforms that we put in place in CLERP 1 were world leading. They ensured that accounting standard setting came out in the open, that the board had to meet in public, that it was appointed independently, and that the accounting standards would be independent from interference.
At a time when the United States is moving vigorously away from a process where there was significant political interference in accounting standards setting, the Opposition Party in Australia is moving us towards a situation where you have total political interference. Not only did Labor and the Democrats combine to rewrite an accounting standard in relation to Accounting Standard 1015, Labor has recently said that if the Australian Accounting Standards Board won't write particular standards, then they will do it themselves.
In other words, putting accounting standards setting back into the hands of politicians. I suggest to you that is an incredibly dangerous process which the Government will resist. We want to ensure that accounting standards are set independently and that they are complied with by a vigorous independent regulator. It reeks, Labor's policy, of a "Canberra knows best approach", where the politicians and bureaucrats in Canberra try to second guess the market and impose strict black-letter law on an industry which they quite clearly don't understand.
This approach clearly is demonstrated in Labor's proposal to disallow regulations under the Financial Sector Reform Act (FSRA). Those regulations as all of you in this room know and the law itself was the subject of some of the most detailed consultation in, I suggest, Australian legislative history. Five years of consultation, endless consultation in relation to the regulations, those regulations were put in place on March 11, 2002 and a Notice to Disallow them was moved in the Senate June 18, 2002.
I was astounded when Labor sought to disallow those regs. I am astounded because I recently had the opportunity to re-read the comments of Labor Senators in a report of the Joint Statutory Committee on Corporations and Securities on the draft provisions of the Financial Reform Bill. These are words that Labor Senators wrote less than two years ago and they said, in a minority report this is, and I quote "Labor members also believe that the draft Bill should give greater emphasis to directing the disclosure of commission, fees and other charges in a manner which is meaningful to customers. Labor members believe that consumers will more readily comprehend a dollar amount and recommend that commissions, fees and charges be disclosed in dollar terms wherever possible, or if that is not possible in percentage terms with an illustrative example provided in dollar terms".
That is what Labor wanted less than two years ago, they put it in writing. That's precisely what the law and the regulations have delivered and that is precisely what Labor has sought to disallow and trash with their motion in the Senate.
I am hopeful that that motion will either be withdrawn or will be voted down in the Senate and I invite Labor, if they want to be constructive in relation to ensuring the mums and dads of Australia and the investors of Australia have some certainty as we go forward through the transition, that they withdraw that Notice or make a public statement saying they will withdraw that Notice now, so that the industry can get on and get through the transition period with some certainty. That is what the investors of Australia deserve, that's what your industry wants and I call on Labor to help deliver that certainty.
The other thing that Labor should do is immediately announce it will actually give people choice when it comes to superannuation. It is outrageous that a large percentage of the population of Australia are not allowed to choose where they put their superannuation savings, that once again a bunch of politicians controlled by the trade union movement, sitting in very comfortable leather chairs in the Senate in Canberra know better than the mums and dads of Australia and the investors of Australia where they should put their super.
I say give those people choice and let's do it straight away. The Government's position in relation to choice and the FSR regulations is clear. We want the choice of super and we want the Financial Services Reform Act and the transition period and the regulations to stand as they are. We won't rule out ensuring that the implementation of this regime happens with certainty and wherever there are technical or implementation problems, that we will not make appropriate changes. We have already demonstrated that and we will continue to do so.
Can I conclude by saying that the Government is committed to building a strong shareholder democracy. We want to ensure that people in Australia can invest with confidence in superannuation, in managed funds and a range of other financial products. Corporate governance is at the absolute centre of that debate. They need to understand that the governance of Australia's companies is up to scratch, that they are getting quality information about the company's performance and about its financial achievements.
Can I say that in Australia, I believe that we have delivered one of the best corporate governance regimes available in the world, but I have no sense of complacency or smugness in relation to our regulatory regime or how we go forward. The Government has demonstrated through the CLERP program and other reforms that the improvement of our corporate regulatory regime is a continuous process.
This Government seeks to define what world's best practice is and we know that we can continue to improve.
The process involves having a sound, respected, even feared sometimes regulator, and we have that in ASIC under David Knott's leadership.
Can I say that while the President of the United States over recent days has been saying that he is going to round up corporate crooks and jail them, that that has been happening very effectively in Australia for many years, and I thank David Knott for providing me with some gruesome statistics in relation to ASIC's success in prosecution and enforcement. In Australia, we have seen 19 offenders go to jail in the last year - four of those were unlicensed people who cheated investors or their clients, four of them were financial advisers who cheated their clients and 11 of them were dishonest company directors and officers.
During the same period, ASIC banned 17 company directors and officers, banned 34 people from offering financial services and advice and initiated successful disciplinary proceedings against 19 company auditors and liquidators.
In fact, if you look at ASIC's enforcement record over the past three years, it would be difficult to find comparable outcomes from any corporate watchdog anywhere in the world, and a very descriptive heading that David has given me here - "jailings". But we are currently having a debate in Western Australia about reintroducing the death penalty - we could have another one under hangings - but we will stick to jailings now.
In 1999/2000, 25 criminals were jailed for a maximum of 68 years and five months. In 2000/2001 25 were jailed for a maximum of 87 years and one month, and the last financial year 19 criminals were jailed for a maximum of 74 years. That's a total of 69 criminals jailed for a maximum of 229 years.
That is a very effective regulator, enforcing the law with criminal sanctions and jail terms where required, and it is one of the reasons that I put it to you that Australia has performed relatively well compared to all other developed countries in this area.
The other reason is of course that the Australian Stock Exchange has done such a great job at running their market place and I commend Richard Humphrey and Maurice Newman for their work. For those of you who don't know, it was announced today by the ASX that a Corporate Governance Council will be formed to draw up a best practice guide in relation to corporate governance.
It will build on existing documents and the work of the Corporate Governance Roundtable and the listing rules will be amended to ensure that companies report their own performance on corporate governance against those guidelines.
I also commend the Australian Stock Exchange for the work that they have done in cooperation with ASIC and David Knott in relation to the improvement of their continuous disclosure, and could I commend both David and Richard Humphrey for jointly approaching me in relation to the CLERP 9 review of the effectiveness of the penalty regime applying to continuous disclosure.
There is a lot of work clearly going on in corporate reform. We have progressed to CLERP 9 in this active reform program process and I can tell you that CLERP 10 is now on the drawing board, but you will have to stay tuned for a few more months until I announce the details of that.
The Government doesn't believe that the process will ever stop. As the Prime Minister said "Economic reform goes on. If we don't keep reforming we'll go backwards. We intend keeping this country going forward".
Thank you for the opportunity to speak to you today. I look forward to fielding your questions.