Well thank you very much for this opportunity to talk to you about the financial services reform agenda. But before I do that I would like to give you a brief snap shot of the way in which we see corporate regulation moving in Australia and some of the objectives that we as a Government have in the way in which we are treating it.
When I first became a member of the Commonwealth Parliament there was no national regulator in the corporate area. There were six corporate affairs offices, there was a cooperative model called the NCSC, corporations law was state based and could vary from state to state. And that was in 1990.
And as I look back over the last ten or thirteen years, we have made enormous strides in setting a uniform corporations law, in modernising and making it flexible, having one national regulator, getting uniformity of treatment between the different states. But it has been a big job. And it has been set back on numbers of occasions by High Court challenges trying to undermine the constitutionality of the scheme because, as you know, the Constitution has a limited power for the Commonwealth in relation to corporations law.
Back in those days Australia’s system of corporate regulation was out dated and inefficient and bad corporate laws cost the community in a number of ways. Through higher transaction costs, ill informed markets and duplication of resources. We paid a price for our system of outdated corporate law.
Before becoming Treasurer in 1996, I committed an incoming government to a thorough overhaul. We announced a program called the Corporate Law Economic Reform Program, and financial services was very much the centre of our objectives.
But for the community to receive the full benefit of law reform, it is not just a question of getting the right laws on the statute books. Those laws have to be vigorously and effectively enforced.
We have adopted in Australia a model of regulation which is known as the “twin peaks” doctrine. One regulator to deal with prudential supervision, APRA, another to deal with corporate enforcement, ASIC.
ASIC, the Australian Securities and Investment Commission, was created on 1 July 1998 and it has been charged with the object of educating business and consumers and enforcing the laws which the Parliament passes.
ASIC’s ability to use a civil penalty regime has enabled it to move quickly and successfully to enforce the laws. And this is where a major step forward has been made in relation to corporate regulation, in the use of a civil penalty regime. Professor Hall of the Sydney University Law School said recently:
“… the regulatory technique in Australia I think is at the forefront of using banning orders. Europe is looking at using them and is paying close attention to what is happening in Australia.”
ASIC’s results are impressive. In the past 3 years:
- ASIC has taken 500 civil and criminal cases;
- 70 offenders have been sentenced to jail for 251 years;
- $1 billion has been protected, recovered or ordered in compensation;
- 40directors have been removed from office; and
- 95 people have been removed from the securities and financial planning industry.
ASIC Chairman David Knott noted recently that in the view of ASIC it “could do more to influence corporate behaviour through one successful court case than 10 volumes of speeches”. And I don’t want to undermine the business of CCH.
Look at the performance of ASIC in relation to the collapse of the HIH. Whilst the Royal Commission was still engaged in hearings, ASIC took successful penalty proceedings against Adler, Williams and Fodera. Adler and Williams were banned for 20 and 10 years respectively and ordered to pay $7 million in compensation. The Court of Appeal has upheld the penalties and confirmed the seriousness of the breaches.Mr Adler has been committed to trial over criminal charges, and criminal charges have been laid against three defendants in relation to allegedly sham reinsurance arrangements.
ASIC is now working with the Director of Public Prosecutions on remaining referrals received from the Royal Commission. And the Government has provided ASIC and the Director of Public Prosecutions with a total of $42.2 million over the next 2 years to undertake criminal prosecutions related to HIH.
Over the last 3 years there has been a 33% increase in ASIC funding.
Modern effective laws. Active, vigorous enforcement. Transparent, orderly markets. These are the hallmarks that we want to see in our corporate environment today.
But our laws need always to be state of the art, which brings me to our Corporate Law Economic Reform Program. And I’m sure you’re all familiar with CLERP 6 - the Financial Services Reform Act.
This is to put in place a harmonised licensing, disclosure and conduct framework for all financial products, markets and service providers.
These reforms are designed to put Australia at the forefront of financial services regulation. I can tell you from international work which is being done through IOSCO and other organisations that the countries which are leading in this area are Australia and Britain.
In many respects the United States is still long behind Australia, certainly in relation to insurance and prudential regulation where they are still operating state based systems. But Australia and the United Kingdom are very much at the forefront of this area and are providing the lead international models.
It is the globalisation of financial markets and the changes in financial services and products that are the key drivers which are requiring adaption and change.
Once upon a time we used to regulate by institution. Our Reserve Bank regulated products offered by banks. Our Insurance and Superannuation Commission regulated products offered by insurers. Our corporate affairs offices regulated prospectuses. But convergence meant that like products were being offered by different institutions and like products being offered by different institutions because they fell under different regulators were subject to different rules. Convergence is driving this industry. And what the Financial Services Reform Act is about is trying to produce a uniform licensing system, so that regardless of who is offering the product, the standard of regulation and the rules will be like.
It is designed to develop a more efficient and flexible regime for financial products and markets with an intergrated regulatory framework.
It is designed to eliminate artificial distinctions from financial products that have previously stifled innovation. And the Government wants to ensure that we achieve the right balance between investor protection and commercial flexibility.So for that reason we have undertaken extensive consultation. This is one of those areas where we published our proposals long in advance and are undertaking consultation. For providers, the new system will establish a comprehensive and harmonised licensing, disclosure and conduct framework.
Similar services will be regulated in a consistent way. They will operate under a comparable disclosure regime. And ultimately this will reduce administrative and compliance costs.
As well, it will create a streamlined regulatory regime for financial markets, clearing and settlement facilities. And this should encourage competition and increase industry efficiency.
The new regime also simplifies the licensing process. Companies which provide financial services need only one type of licence — an “Australian Financial Services Licence”.But the system also has benefits for consumers.
This regime should promote consumer confidence because financial services providers must be properly trained and must comply with high standards of (inaudible).
For retail consumers the FSRA requires the disclosure of relevant information, such as adviser conflict of interest, to help consumers seek out independent advice.
In relation to a financial product you want to buy, you must receive relevant information to assist you in making an informed decision. And if something does go wrong, there are a range of relief measures including cooling-off provisions, and for retail clients, access to complaints handling and compensation schemes.
Through a combination of licensing, conduct and disclosure obligations, consumers are better protected and able to determine the basis for financial advice they receive. Now time is running out for the transition to the FSRA. The transition period ends on 11 March 2004.
The Government, ASIC and industry have all been working together to ensure the transition is as smooth as possible.
And as the statutory body responsible for the administration of this regime, ASIC has been provided an additional funding of $90.8 million over four years for implementation and enforcement.
Where necessary, the Government has made legislative amendments to address impediments which have been identified during transition. But there are only 238 days to go, and we are actively encouraging businesses in their transition to the new regime.
ASIC has already granted over 500 licences. That said, more companies need to apply.
And ASIC advises that, to avoid “peak hour” applications, to lodge before September to ensure licenses are granted by 11 March 2004.
As my Parliamentary Secretary, Senator Campbell, has made clear and I repeat it, the Government will not be extending the deadline for transition beyond 11 March 2004. Ladies and gentlemen, the Government is committed to ensuring the long-term health of our financial services industry.
We recognise the importance of a regulatory framework to balance the needs of business and consumers.
Through six years of ongoing and thorough reform, we have worked towards objectives of market freedom, investor protection and quality disclosure.
We have built a robust and pro-growth regulatory framework to encourage efficiency, whilst facilitating confident investor and consumer participation.
The Financial Services Reform Act is a very important part of the framework, and I commend it to you.
Thank you all very much for your time.