TREASURER:
Good morning everyone. I'm pleased to be joined here of course here today by Kelly O'Dwyer, treasury ministerial colleague. We are going to make a number of announcements today in relation to the ASIC enforcement review report, which the Government has been carefully considering. And I'll ask Kelly to run you through the key recommendations and decisions of the Government in relation to that in just a few moments. But I think the key point, first of all, to note is that what we're announcing today has been the product of a review that was initiated in October 2016. It was the outcome of the Financial System Inquiry recommendations that had been adopted by the Government, and so this is a work that has been in progress for quite a considerable period of time. The Government has been taking action now for some period of time when it comes to the very genuine and real issues that need to be addressed in the banking and financial system. That action has spanned a great deal of activity and, indeed, commenced with the Financial System Inquiry, which we initiated under David Murray when we came to Government. And that was an incredibly comprehensive commission, inquiry that was undertaken, and the recommendations, we have been following through on ever since.
We do take a very careful and considered approach to these issues. Why? Because the financial and banking system in this country is one of the central pillars of our economy. People's jobs depend on confidence and trust in the financial and banking system. And I can assure Australians that, despite the very disturbing and, indeed, shocking revelations we have seen in the Royal Commission, particularly of late, that these issues, while as abhorrent as they are, are completely separate from any question about the stability and strength of Australia's banking and financial system. That is
rock-solid. In fact, Australia's banking and financial system is one of the strongest in the world and that's something I think Australians can have great confidence in. What they are really questioning – and I think rightly – goes to issues of behaviour and culture, which are things which we as a Government have been seeking to address now for some years. And what we're announcing today is further action that we have been taking to address that.
Now, the punishment must always fit the crime. We must not forget that these are not victimless crimes when it comes to what we have been seeing. And the Financial Systems Inquiry found – and the comments that they made – were as follows. It said they recommended several measures to strengthen ASIC, including better funding, enhanced regulatory tools, stronger licensing powers to address misconduct and substantially higher criminal and civil penalties.
Now, the Government has been acting in each of these areas since those recommendations have been handed down, and we will continue to make decisions which relate to all of those areas going forward. Before I hand over to Kelly to make a couple more points, we are taking the action now, and we'll continue to take action, as we have been. We need to let the commission get on with its job. Commissioner Hayne is running a very tight ship, and he's doing an outstanding job with the support of his counsel and others who are working there. We need to let him work through that evidence and provide recommendations to the Government, which is his task under his terms of reference. There will be many stories, there will be many issues that are presented to the commission, as we've already seen. Those have been the subject of ongoing investigations already, and there are cases that have already been the subject of compensation payments. But as they come forward and get presented to the Commission, no doubt, people will continue, I think, to be deeply disturbed by some of the things they see. We must let the Commission continue on and do its work, and the Government must continue on and do its work, with the sorts of things that we're announcing today. The second thing we need to do is separate those issues about financial system strength and stability and the issues of culture – and I've already remarked upon that. We also need, I think, to keep a cool head about this. As disturbing and distressing as these things are, we need to ensure that our responses are well-considered, as what we're announcing today has been well-considered over a long period of time. Of course we've got to have a keen heart for the real damage, and impact, that these experiences have on individual Australians, and many Australians.
We also need to remember the front-line staff who are working in banks all around the country, and I am sure they are as disappointed and as disillusioned as other Australians, many Australians, we are, about the things that we're seeing. But I think we need to remember, when we're going into our banks and we're working with bank staff and things like that, that I'm sure they feel as equally disappointed as anyone else. And we need to respect that as much as we would anyone else in our community.
So, I'm going to leave it now to Kelly to run through the individual measures we're responding to today, but the Government has been responding, is responding, will continue to respond. We think these issues are very significant and have taken action to address them. And I'll now hand it over to Kelly to run through the key recommendations. Thanks, Kelly.
MINISTER O'DWYER:
Thank you very much, Scott. And please excuse my slightly husky voice at the moment. I'm just going to take you through the main recommendations of the ASIC enforcement review task force. As the Treasurer mentioned, this was a task force set up under the auspices of the Murray Financial System Inquiry. We set it up in October 2016. It presented a report to Government in December of 2017, and today we can now announce our response.
We agree, or agree in principle, to all 50 of the taskforce's recommendations. We will give priority to implementing 30 recommendations, which will strengthen penalties for corporate and financial sector misconduct, enhance ASIC's powers to ban individuals in the financial sector, strengthen ASIC's licensing powers, and harmonise ASIC's search and warrant powers to give ASIC access to telecommunication interception material.
These reforms, of course, will give ASIC much greater flexibility to investigate, to prosecute, and to ensure that those who commit serious offences are brought to task, and that we deter those who would engage in misconduct by ensuring that there is appropriate punishment to fit the crime. The remaining 20 recommendations relate to matters that are more likely to overlap with the Royal Commission in terms of conduct in the banking, superannuation and financial services sector and the matters that they are probably right now considering, including self-reporting of breaches in the financial services and credit sectors, industry codes and ASIC's direction powers.
The Government, of course, agrees in principle with these recommendations, but we note that they will be considered together with the banking royal commission's final report, due next year, and we will ensure that we take an integrated approach in addressing these key areas of concern, and any other matters that the Royal Commission raise in its recommendations. I particularly want to turn now to the penalty component of the recommendations and outline for you the significant increases that will be occurring. When it comes to criminal penalties, we are going to increase and harmonise the penalties for the most serious criminal offences under the Corporations Act to the maximum of – and this is for individuals – 10 years' imprisonment, the larger of $945,000 or three times the benefit. For corporations, it will be the larger of $9.45 million, or three times the benefit, or 10 per cent of annual turnover. For civil penalties, we are going to expand the range of contraventions that are subject to civil penalties. We are going to allow the courts to disgorge wrongdoers of their illegal profits gained through contraventions that result in civil penalty proceedings. We are going to increase the maximum civil penalty amounts that can be imposed by the courts to the maximum of the greater of $1.05 million, and $10.5 million for corporations. Three times the benefit gained or loss avoided, or 10 per cent of the annual turnover for corporations.
It is, I think, worth noting that many of these civil and criminal penalties have not been looked at for, in some cases, more than 20 years. It is no wonder that there are some corporations out there who might simply see penalties as the cost of doing business. Well, no more.
The Government has also announced a number of other measures in light of the recommendations that have been made. We are enhancing ASIC's banning powers. It is going to go beyond the good fame and character test and ASIC will be able to ensure that they can ban individuals from performing any role in a financial services company where they are found to not be a fit and proper person. We are strengthening ASIC's licensing powers. As I said before, we are harmonising their search warrant powers and we are providing them with access to telecommunications interception material. We will obviously progress these changes through the Parliament and that will be in the second half of this year. We will give industry and the public an opportunity to comment on the draft legislation that will be brought forward, and the amendments that will be considered by the Parliament.
But I think it is worth just reminding everyone, as the Treasurer has done, that this is the culmination of a lot of work that has been done over a significant amount of time and it follows on from the already very significant measures that we have introduced into the Parliament in strengthening ASIC's powers, strengthening their surveillance and enforcement capability by providing them with an additional $127 million to do their job putting them on a secure financial footing through industry funding, making sure we lift the standards for financial advisers through our newly established Financial Adviser Standards and Ethics Authority which will mean that no longer can someone with only four days' worth of training hang up their shingle and give financial advice to people who might risk their entire retirement savings. And finally I just want to highlight as well that the Government has also established a one-stop shop for financial complaints so that anyone who has got a financial complaint against one of the financial institutions will be able to go to the Australian Financial Complaints Authority. It will be free for them, it will be fast, it will be binding on the financial services institution and it will allow compensation for those people who have been victims of misconduct in our financial institutions.
TREASURER:
Thank you Kelly. Taking action now. Now we'll take your questions.
JOURNALIST:
Mr Morrison in 2016 you said that Bill Shorten's call for a Royal Commission was a populist whinge, on April 4th this year you said the issues of the Royal Commission were not things that the Government was not aware of and then on Wednesday you said the evidence was deeply disturbing – isn't it time that you admitted that you got it wrong and to apologise to the Australian people?
TREASURER:
I have noticed those calls from Bill Shorten for that. Bill Shorten might be interested in political point scoring about this issue, in fact he has only been interested in political point scoring about this issue and that's why I directed those comments at Bill Shorten and Bill Shorten specifically. What we've been doing is focussing on getting the job done. I mean what we have announced today goes back to the establishment of the Financial Systems Inquiry after we were elected in 2013, an inquiry which Labor refused to do when they were in Government. The actions taken since 2013 all the way to this day and the actions that are still being taken that we have in train all demonstrate our commitment of actually doing things to ensure that we are improving what are some serious deficiencies in that system. And that's what Australians are focused on. They want the Government to take action, they want the Government to do things. I haven't heard Bill Shorten put one suggestion forward of how to actually improve the system other than that call that he made for the inquiry, he didn't come up with a terms of reference for the inquiry and so I don't hold back from my criticism of Bill Shorten, not for one second, I've got a whole bunch of others that I could make it you like but I don't think that's the focus of today's discussion. He changes football teams as quickly as he wants to change seats, because I know that's an issue here in Victoria. But that's about Bill. It's always about Bill with Bill. What this is about is a serious issue that relates to our banking system, our financial system, our superannuation system and the public just want us to focus on getting stuff done. So I don't want to engage in political point scoring with Bill Shorten, that's where that's coming from. He can stay over there if he likes, Kelly and I and the Prime Minister and the Cabinet will remain focused on getting things done to set this right.
MINISTER O'DWYER:
Can I just add one little thing to that? I absolutely agree with the Treasurer, this should not be a matter of point scoring. I think it is worth remembering however that Bill Shorten did serve on the Treasury benches for a number of years. He served at a time when we saw the collapse of Trio, we saw Storm Financial, Great Southern these terrible collapses in our financial system. And yet he did virtually nothing when he had the opportunity to do so. Well we're not frightened of taking action. We have been taking action from day one and will continue to do so to provide consumers with confidence that they need to know that when they talk to a financial advisor they will be receiving advice in their best interests. So that when they go to a bank they know that the products that they are purchasing again are designed with them in mind. We are cleaning up the system that Bill Shorten broke.
JOURNALIST:
We've seen a lot of things coming out of the Royal Commission that involve ASIC not being informed either in a timely matter or recently at all, especially with AMP's misleading statements to the regulators which are coming out. How can ASIC prosecute? How can ASIC use their stronger rules if they are not being informed? And also, Mr Morrison how can you know of most of these problems? Are the banks telling you themselves and not telling ASIC because there is a lot of stuff coming out that appears to have been the regulator not being informed so I am confused as to how you can be across that.
TREASURER:
I'll let Kelly comment on that as well but a lot of these matters have been the subject of previous investigations and in fact, as you know, many of these matters have even had (inaudible) attached to them and compensation paid for the egregious things that we've seen presented to the commission. What we've been doing in this package as well as the package that has preceded it is to ensure as David Murray has recommended that they do have the powers, that they do have the resources and they do have the penalties and they do have an environment in which I think you improving that culture of reporting. Now there are many issues here that go strictly to the culture and behaviour of these organisations themselves. Now today we've had a very senior level resignation from the AMP and that doesn't surprise me in the wake of that was brought before the Royal Commission this week. But let's not forget it's not just chief executives here boards at the end of the day are responsible for these organisations and there will be a lot of focus on the executives where executives haven't been able to deliver here. At the end of the day the boards of these organisations are the custodians really of the governance and I'm sure that that will have plenty of attention as the commission carries on its important work. But equally ASIC has a job to do and I have no doubt that as this process unfolds there will be criticisms levelled there, at the past practices of ASIC and that's why Kelly and I have acted to ensure that they have had those resources. I mean the $127 million came in 2 years ago so Kelly you might want to say something on that.
MINISTER O'DWYER:
Yes, look obviously I am not going to speak on behalf of ASIC but I will say this, ASIC did put out a statement in relation to the AMP matter and has said that it was subject to an investigation that was already underway, a matter that was already being considered, by ASIC and obviously they will have more to say about that in perhaps the weeks and months ahead. Let me also say this about ASIC when we came in to Government and we conducted the Financial System Inquiry there was a key recommendation made by David Murray and that was to have proper capability reviews of our regulators. For people to have confidence in our financial system they need to have confidence in our regulators. We conducted a capability review of ASIC and it was a warts and all capability review and we found that there was certainly room for improvement. Now we have changed the Chair of ASIC, we have a new chair of ASIC, will be bringing in a new Deputy Chair of ASIC, Daniel Crennan QC, he will have a specific focus around enforcement. We have many great people who work for our regulators and who do terrific work on behalf of the Australian citizens right across this great country but we want to make sure that they can be effective, they can be timely and they can bring the full force of the law to bear in the manner that people can see that those who commit wrongdoings will be properly and appropriately punished.
JOURNALIST:
ASIC's end of year report for the year ending June 2017 shows that only ten people were during that year period were a convicted of a criminal offence and only 5 additional criminal cases were launched. Of those ten who were convicted only 6 received custodial sentences and that's including quite a few people, I think about three who received suspended sentences. What's the point in increasing criminal penalties if ASIC doesn't recommend charges to the CDPP or the CDPP doesn't pick up those charges, that the, the charge count is already so low?
MINISTER O'DWYER:
Can I just quickly make a point on this, the point first in having maximum penalties that can be applied by the courts is to actually provide a reference point for the courts in considering these fields in terms of the scale of misconduct. And that is critically important if you push the boundaries out you make sure that those people who are committing serious misconduct or even just misconduct will be dealt with far more severely. But to your broader point around does there need to be more enforcement activity, do people need to see this enforcement taking place, the Government has already accounted as I mentioned a new chair and deputy chair who will have a real focus on enforcement activities. We believe that this is critical to the confidence that people have in our conduct regulator ASIC. The Government has also been very clear, and I have been very clear as minister in the most recent statement of expectations with ASIC about the role it is to perform as regulator in chasing down misconduct.
TREASURER:
The scale of these penalties too, sends a very clear signal to the community more broadly. I mean we're dealing with a cultural behavioural issue within these institutions. Now the other day I said and it was just a simple statement of fact about what the current penalties are under the Corporation's Act which include jail time. Now it's up to others to decide whether the particular circumstances that are presented will lead to that type of an outcome. It is important that we recognise that in these areas of corporations law they are not victimless crimes, they are not! They are not some sort of lesser crime, the impact that can occur to individuals and in very large numbers is very, very serious, and so if there is potential complacency about behaviour in institutions we need to set the tone through the law and the penalties that apply so people will understand that misleading regulators about serious issues such as this, is no victimless offense. And it won't carry a victimless penalty; it will carry a very stern one. So, it is both about tone, but it's about the resources, it's about all the things that Kelly's been saying, to ensure that ASIC has that ability. I think we have done extraordinary amounts now over the last few years to ensure ASIC has that capability. And now the wood will be on them to go and actually do that job, but the Government has acquitted itself ensuring that they can.
JOURNALIST:
Treasurer, we're told that the AMP CEO will lose some of his bonus. Does it concern you that these executives were getting such large bonuses while ripping off their customers?
TREASURER:
Well, I've already introduced legislation into the Parliament for the banking system that actually ensures that these bonuses can be stripped when it comes to the banks themselves, and that was passed and that takes effect very shortly. So that is why we took action on the banking executive accountability regime, the BEAR, and we started work on that process last year, that was announced in last year's Budget, so I think the accountability and these issues about delayed compensation and the ability to claw back that compensation, it's for the institutions themselves, the shareholders and others to set what the compensation is for their executives, and they're accountable to the public for how they do that. But where people have been found to be in a position where they haven't been doing the right thing, well the law is now providing, insisting in fact, at the insistence of this Government, the Turnbull Government, that those sorts of compensations and monies can be clawed back. Now it was this Government that did that and this Government will continue to take that sort of action.
JOURNALIST:
Treasurer, why are you announcing these penalties now? And would it be fair for voters to assume that the penalties are being announced just because of what is coming out of the Royal Commission?
TREASURER:
Well I think the fact that this process started in October 2016 is the answer to your question. This is not something that has just happened. This is something that has had a very long gestation period. It came out of the Financial Systems Inquiry that was initiated when we first came into government in 2013. So the fact that we can stand here before you today and announce the outcome of this long period of work demonstrates that we have been working on this over a very long period of time, and working sequentially through the issues that need to be addressed. I mean we have not moved into any area here lightly. I mean it was the Turnbull Government that ultimately did initiate the Royal Commission, admit that we did not enter into it lightly, that's obviously true, but you must act carefully in this area so we have done that on this occasion. This is not the product of events of just the last few days, obviously, because it started several years ago.
MINISTER O'DWYER:
And you will see a copy of the report that's more than one hundred pages that you will be able to wade through, a report that has been done across government not only led by Treasury but also the Attorney General's Office, the DPP, as well and actually looking at prosecutions as well as ASIC and we have been supplemented by an expert panel that includes consumer advocates like Gerard Brody and we've also got academics like Professor Ian Ramsay, we've got lawyers like Ross Freeman from some of our leading law firms, we have been going through this in great detail to make sure that we could strengthen the penalties that needed to be strengthened, to provide the right toolkit to ASIC for appropriate deterrence prosecution and punishment, and that's what we are doing and announcing today.
TREASURER:
We've got time for one, last one.
JOURNALIST:
One of the key things that has emerged from the Royal Commission so far is that there is an inherent problem with banks and financial institutions both making investment problems and then selling them. And there are calls for those functions to be separated and split up. What do you say to that?
TREASURER:
I think you are already seeing a lot of these institutions making the commercial decision about that already in terms of how they are divesting themselves from some of those activities and that doesn't surprise me. One of the things I think we have to be careful of as we continue to see the work that comes through the Royal Commission but equally the work that the government has been doing and the work that we do regularly with both APRA and ASIC, is the terms of reference talk about a community standard. We need to ensure that our regulatory environment helps that system meet that standard.
I mean take for example, all of you have taken out loans, all of you have had financial disclosure statements put in front of you. They're about that thick. Hands up everyone who has read every page of it and feels that they've actually then been in the position of being informed about the decision that they've been taking.
More regulation doesn't necessarily protect you in that environment. In fact, it can just snow you, and it can actually lead to a situation where people aren't having a genuine conversation with each other about the risks that they're actually taking. A focus on compliance where people just cover their backsides rather than actually engaging in a fair dinkum conversation about what the risks are and the products that are being offered.
We've got to be careful that as we go down this path and we hear, you can continue to adhere to things which already as I've said been in front of many other forums and other investigations and courts and been settled. And we hear all that together, we need to be careful that what we put in the place does not commit economic self-harm to the Australian economy, that it does the right thing to ensure that our system continues to remain strong and stable and can provide the support that needs for people who want to get a loan, to start a business, or buy a home, or rent a car, through a lease, or something like that. Whatever they need, the financial system meets all of the most ASIC daily requirements that Australians have.
And we need to be really careful how we continue to manage this process, listen carefully to what is being said, learn from the experience of what has occurred, be very empathetic about the deep hurt and damage that many of these instances have caused, but be very wise headed about the remedies that we put in place. And carefully consider what those options should be. That's what we've done today. What we've announced today is not the response of a couple of days talking about this. It's a couple of years. It's carefully considered, well consulted, it's out there now. Whether it's the banking executive accountability regime, whether it's the new financial complaints authority, whether it's the additional resources for ASIC, whether it's all of these things combined, these are carefully considered responses to what are real problems. And this Government has demonstrated that we're just getting it done, not playing politics. Thanks very much.