Senator FIFIELD (Victoria) (12:45 PM) -I rise to speak on the Corporations Amendment (Financial Market Supervision) Bill 2010 and the Corporations (Fees) Amendment Bill 2010.
Principally, these bills provide the Australian Securities and Investments Commission with powers to supervise trading on Australian domestic financial markets. The government announced these changes in August 2009, but both sides of parliament have had similar intentions for some time. Under these bills, ASIC will consolidate the current individual supervisory responsibilities by imposing market integrity rules on each market operator. ASIC will also seek to recover the costs of supervision from market operators, who will recover the fees from brokers in a manner similar to the way the ASX currently funds the enforcement of its rules. The principle is that for reasons of equity and efficiency the cost of financial regulation should be borne by those who benefit from it.
This legislation directly impacts the ASX, which is by far the largest market operator in Australia. It is important to note that the industry recognises that the ASX has performed well as a regulator. Nonetheless, the perception of a conflict of interest remains, and it is a particular concern for foreign investors. Moreover, under the current system, there are barriers to foreign market operators from operating in Australia. The current regulatory arrangements allow the situation where the market operator’s competitors would be supervised by the ASX. Because of this situation, the government has not granted an Australian operating licence to a market competitor at this point in time.
Removing barriers to entry will promote competition and encourage best practice between market operators. Allowing foreign investors to enter a more competitive Australian financial market is an important step towards improving Australia’s standing as a global financial centre. The financial services sector is already an important part of the Australian economy, accounting for 7.5 per cent of Australia’s GDP and employing over 390,000 people. Improving the sector’s performance and opportunities on a global scale should be a goal, and I am sure it is, for both sides of parliament. But increasing competition is not an end in itself. The Johnson report, entitled Australia as a financial centre: building on our strengths, demonstrates that Australia has scope to expand its financial sector. But to do so we need to increase its efficiency and its innovation. By providing brokers a choice between markets, this bill will generate incentives for financial market operators to innovate and become more competitive.
Notwithstanding these benefits, the ASX did raise some concerns about the legislation which have largely been addressed by Treasury. There is the issue of whether foreign markets should be subject to ASIC’s market integrity rules. The current regulations provide that an overseas market can only be granted an operating licence where the minister is satisfied that the regulatory regime in the foreign jurisdiction is sufficiently equivalent to Australia’s. Whilst we can debate which kind of oversight in Australia will provide the most competitive market, it is not the legislation’s intention to consider the issue.
The legislation also provides ASIC with additional enforcement powers, so as to align its powers broadly with those currently held by the ASX. These include the power to require a person breaching the rules to make a payment or commit to an undertaking as an alternative to civil proceedings. ASIC have had some high-profile failures in the courts recently and the merits of ASIC pursuing each case are being questioned by some. During Senate estimates, ASIC Commissioner Tony D’Aloisio indicated that ASIC took the public interest and deterrence aspects into account when deciding to pursue cases of this nature. These provisions will reduce the amount of litigation in the courts.
Finally, some have questioned whether ASIC is not becoming too stretched to handle market regulation as well. ASIC’s responsibilities have grown under the current government, often in response to the government’s interference in the market. An example of this is the bank deposit guarantee. In this case, ASIC has been forced to administer withdrawals from mortgage trust accounts on hardship provisions, after mortgage trusts froze redemptions because of the guarantee-initiated mass withdrawals from investment funds into deposit accounts. The work of ASIC is far too important for it to be shouldered with the additional task of being required to mop up the unintended consequences of Labor government policies. Too often ASIC has been required to get involved in policy matters rather than using its resources for its core responsibility of administering regulation. ASIC already has market powers to investigate misconduct such as insider trading, and they are the logical choice to assume supervisory responsibilities. Through committee oversight and estimates hearings, parliament will have a role to ensure that ASIC is discharging its responsibilities effectively.
How ASIC deals with the stakeholders in the industry is essential to the effective and efficient enforcement of the rules. The majority of industry stakeholders say they already have a good relationship with ASIC. The industry is urging parliament to pass this bill to provide certainty and confidence to the sector. The coalition supports the measures. They will improve competition in the financial sector and free the ASX from its perceived conflict of interest. The opposition supports these bills.