Ladies and gentlemen I am very pleased to have been invited to address you at this particular time.
The recent collapses of Harris Scarfe, HIH and One.Tel have focussed the community's attention on our system of company regulation, insolvency and prudential supervision.
The failures of these companies are significant collapses. Certainly, these failures dent public confidence, especially in the case of HIH and the general insurance sector. HIH was Australia's second-largest general insurer. It had more than 2 million policies issued to more than 1 million policyholders.
Its last audited annual report for the year to June 30, 2000 showed a company with net assets of more than $960 million. Then, incredibly, a handful of months later the company collapses.
Predictably, Cassandras have crawled from underneath every rock in the garden, self-styled experts abound offering their homespun observations, observations that were strangely silent 12 months ago when they were passing on their tech stock tips.
Naturally, we appreciate the community's concerns and I suspect there will be pressure from certain sectors for a new set of prescriptive rules and Government intrusion.
The Government is very aware it's an election year and that all sectors of the community are assessing Opposition proposals against Government policy, and asking questions about the way forward.
We are keeping a level head, and will continue to reject policymaking based on perceived panic in the market.
We will make our policy judgments in the same rational and calm fashion that responsible counsel advise their companies.
We have built a model of regulation that incorporates effective industry self-regulation as one of its central tenets.
But what is good industry self-regulation and how does it apply to Australia's scheme of self-regulation?
Good self-regulation of the type the Government has embraced is a mix of government regulation providing the base to prevent serious or widespread harm with an overlay of self-regulation.
As I think you'll appreciate self-regulation includes a host of options ranging from a simple code of ethics, to codes that are drafted with legislative precision together with sophisticated customer dispute mechanisms.
The advantage of good self-regulation is its ability to provide a competitive market environment while attempting to reduce the regulatory burden on Australian business.
Industry self-regulation is often a lower cost, more flexible alternative to direct government regulation.
Effective self-regulation can also avoid the often overly prescriptive nature of direct regulation and allow industry the flexibility to provide greater choice and be more responsive to changing expectations.
Nowhere is this more evident than in the area of corporate governance.
The Government continues to believe that ultimate responsibility for the prudent operation of all companies rests with the management and board of each company.
We do not see our role as the micro-management of Australian companies. We do not have the capacity or expertise to sit in the boardroom of every Australian company, second-guessing the decisions of professional business managers.
That might be the job of corporate counsel.
We have learned from history; the late Mr Skase was a major cause of a revolution in corporate governance. The way that entrepreneurs like Skase failed to recognise what was the company's money and what was their own, led to enhanced standards of corporate governance over the last 10 years.
These enhancements included insider dealing provisions, disclosure requirements and accounting standards and last, but by no means least, a new and invigorated regulator.
The Government continues to fine tune disclosure requirements. Reform is a dynamic process.
Following the collapse of HIH and One.Tel some doomsayers were hopeful that the Government would panic about corporate standards in Australia and throw years of corporate regulation based on self-regulation out the window.
They were wrong. Each corporate failure must take its course.
Only some of our neighbours to the north view corporate failure as a national embarrassment. But Australia is a mature free market where corporate success is lauded and corporate failure is a reality.
We have the traditional approach of a free market and business loss is closely linked to risk. Whilst corporate failure may have ramifications for other parties as it did for the policyholders of HIH, no-one suffers more than the owners of the company who lose their money usually lock, stock and barrel.
Where a hard line is required, ASIC staunchly takes it. In 1999-2000 ASIC had 25 criminals gaoled, banned 16 investment advisers for life, and had a number of insurance brokers prosecuted and deregistered.
In other words, we do not tolerate so-called "self-regulation" which is only self interest.
As many of you will be aware, the Prime Minister has charged me to spruik the merits of Australia as a global financial centre.
Of recent times my message has been simple: that the Olympics demonstrated the exciting story Australia has to tell. A story of a young, sophisticated and intelligent community capable of resolving problems of global scale.
I know that, despite the recent collapses Australia has a regulatory system that is the envy of many nations.
There are very few places where a single system of securities, insolvency and corporate regulation operates across three time zones and consistently regulates more than 1 million companies.
It is a system of corporate regulation that gives Australia an enormous amount to offer international financial institutions. It is one reason we can provide a platform from which some of the globe's biggest organisation can access Asia.
In fact, one projection suggests revenue from Asia's financial service industries will reach US$450 billion by 2010, up from US$210 billion in 1998. In non-Japan Asia real financial market revenues are expected to grow 10% per year.
Today, our services sector represents 72% of GDP and this number is growing while mining and agriculture represent only 8%. Financial services represents over 7% of GDP.
When it comes to exports the mining and manufacturing sector represent 55% while services represents only 1% of exports. Part of the flow on from the promotion of Australia, as a financial centre will be to ensure that the export of financial and professional services becomes a more significant percentage of export earnings.
I have been working with the industry and other arms of Government to support greater "trade and investment" in financial and professional services.
The aim of this is to develop Australia's local financial and professional services sector and overall, to reinforce Australia as a global financial services centre.
But bona fide self-regulation is a topic that sits at the heart of the liberal ideals in which the Government believes. I have talked about self-regulation in the area of corporate governance, and it works well generally in markets where integrity is directly measured in shareholder value.
The Government went to the last election with a commitment to develop effective approaches to self-regulation.
Our commitment is to promote efficient and competitive markets, and that happens when business is encouraged in responsible and entrepreneurial risk taking.
It was the Prime Minister, in the Government's "More Time for Business" statement in 1997, who said the Commonwealth was keen for industry to take ownership for developing self-regulatory mechanisms.
Consistent with the Prime Minister's approach, I have developed our self-regulation strategy around the principle of consumer sovereignty.
For consumers, this is freely operating competition between firms, and self-regulation in appropriate circumstances, will have optimum results in terms of price and quality.
The principle of economic survival of the fittest operates in all competitive markets, including corporate governance.
Companies with poor corporate governance practices can only expect to do poorly in business - consumers will vote with their feet. Ultimately, it is consumer sovereignty that gives business its motivation.
At the end of 2000 I launched the report of the Taskforce on Industry Self Regulation in Consumer Markets.
In response to the Taskforce's findings the Government has provided industries with practical guidelines based on the principles flagged in the report to help develop self regulation schemes.
The Government continues to highlight the Taskforce's findings to policy makers to encourage government agencies to take a close look at self-regulatory as an alternative to regulation.
But where regulation is the right way to go, we need the best regulation.
As you would be aware the most significant hurdle to the Government's wider reform agenda has been uncertainty over Australia's Corporations law following the Hughes decision in the High Court.
That uncertainty has been resolved, with the start of the new Corporations Act on 15 July 2001.
The long awaited Financial Services Reform Bill, which amends the Corporations Act, has passed through the House of Representatives and is due for consideration by the Senate next week.
This Bill is one of the most significant changes to financial services in Australia. Our financial services industry is one of the most dynamic and innovative sectors of our economy.
A global market has led consumers to expect better service at less cost. They want greater returns on more diverse investments.
The Government is responding by backing Australia's ability in financial services. We believe the Australian financial services industry can respond to increasing consumer needs and through the Financial Services Reform Bill we are putting in place a regulatory regime to meet those challenges.
This is an area that requires regulation to support it, and we believe the Bill is the optimum model for maximising consumer satisfaction and therefore, maximising returns to the industry.
The Bill delivers the third installment of the Government's Wallis Inquiry.
The Labor Opposition has suggested that Wallis has "failed" due to the HIH collapse alone. I have made the allusion before that this conclusion is tantamount to draining Sydney Harbour because a boat sank.
It is intellectually dishonest for the Labor Party to express its support for the Financial Services Reform Bill whilst decrying the recommendations of the Wallis report which they supported in Parliament in 1998.
The Bill is based on the premise that it is no longer possible for different institutions, services and products to be regulated under separate frameworks.
It harmonises licensing, disclosure and conduct regulatory frameworks for all financial products, markets and service providers.
The Bill will bring the regulation of the financial services industry in line with current developments in the industry. Importantly it will prepare the Bill for the challenges of the future.
The collapse of Harris Scarf, HIH and One.Tel are going to throw up a wide range corporate governance-related issues. Not only will directors' duties and liabilities are at the forefront, but also the question of auditor independence.
The Government has recently appointed the Professor Ian Ramsay from Melbourne University to undertake a review of auditor independence in Australia.
As part of this review Professor Ramsay will examine existing Australian legislation, professional requirements, and recent overseas developments. These include the US Securities Exchange Commission's new rules on auditor independence, the European Union Commission's proposals for reforming its audit independence requirements, and the International Federation of Accountant's proposals for strengthening their Code of Ethics.
Professor Ramsay will be providing me with his views and the Government will consider its position.
It is important to note that there will be no knee-jerk populist reaction to recent events without careful consideration of the implications.
Reviewing the role and activities of auditors is a difficult job but public sentiment is such that we must be satisfied that positive change enhances consumer and business confidence.
Ladies and gentlemen, the Government starts from a position of self-regulation, but where regulation is required we will develop the best model for the whole community.
So what do my opponents offer?
The Labor Party is the Party of both high tax and more regulation.
For example, nearly two years ago I called on institutional investors to vote more regularly at company general meetings. In response, the Labor Party said voting should be compulsory in law.
As a result of my calls voting by institutions seems to have improved markedly although as the AGM season approaches we will get a better feel. But simply responding with more regulation is overkill.
Similarly, in banking the Government is committed to delivering better services to consumers through the banks better reacting to their customers concerns.
The Labor Party announced that it wants to re-regulate banking by raising a bank tax to pay for forced banking services. Of all the areas of a free market the area where one should tread most cautiously is in banking regulation.
The Labor Party has a bad history with banking and I think over-regulation may be a dangerous path to walk.
The Government's priorities for corporate Australia and have always been, and remain, free market focussed.
We reject unnecessary intrusion into the market.
We support self-regulation in corporate governance practices but we must step in and regulate when it is necessary.
And if we do that then I am sure Australian businesses and the consumers who they service, will benefit.