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Official Committee Hansard COMMONWEALTH OF AUSTRALIA Official Committee Hansard JOINT COMMITTEE ON CORPORATIONS AND FINANCIAL SERVICES Reference: Financial products and services in Australia FRIDAY, 28 AUGUST 2009 CANBERRA BY AUTHORITY OF THE PARLIAMENT INTERNET Hansard transcripts of public hearings are made available on the inter- net when authorised by the committee. The internet address is: http://www.aph.gov.au/hansard To search the parliamentary database, go to: http://parlinfoweb.aph.gov.au JOINT STATUTORY COMMITTEE ON CORPORATIONS AND FINANCIAL SERVICES Friday, 28 August 2009 Members: Mr Ripoll (Chairman), Senator Mason (Deputy Chair), Senators Boyce, Farrell, McLucas and Williams and Ms Grierson, Ms Owens, Mr Pearce and Mr Robert Members in attendance: Senators Farrell, Mason, McLucas and Williams and Ms Owens and Mr Ripoll Terms of reference for the inquiry: To inquire into and report on: Issues associated with recent financial product and services provider collapses, such as Storm Financial, Opes Prime and other similar collapses, with particular reference to: 1. the role of financial advisers; 2. the general regulatory environment for these products and services; 3. the role played by commission arrangements relating to product sales and advice, including the potential for conflicts of interest, the need for appropriate disclosure, and remuneration models for financial advisers; 4. the role played by marketing and advertising campaigns; 5. the adequacy of licensing arrangements for those who sold the products and services; 6. the appropriateness of information and advice provided to consumers considering investing in those products and services, and how the interests of consumers can best be served; 7. consumer education and understanding of these financial products and services; 8. the adequacy of professional indemnity insurance arrangements for those who sold the products and services, and the impact on consumers; and 9. the need for any legislative or regulatory change. WITNESSES ANNING, Mr John Melville, General Manager Policy Regulation, Insurance Council of Australia............................................................................................................................................................ 72 BATTISTELLA, Mr Julian, Certified Financial Planner and Member, Financial Planning Association........................................................................................................................................................ 26 BLOCH, Ms Jo-Anne, Chief Executive Officer, Financial Planning Association...................................... 26 BROGDEN, Mr John, Chief Executive Officer, Investment and Financial Services Association Ltd ..................................................................................................................................................................... 49 CHONG, Mr Seng Wing, Member and Chair, Regulations Committee, Financial Planning Association; and Member, Board Professionalism Committee, Financial Planning Association............. 26 CLARK, Mr Douglas, Policy Executive, Securities and Derivatives Industry Association....................... 60 CODINA, Mr Martin, Senior Policy Manager, Investment and Financial Services Association Ltd ..................................................................................................................................................................... 49 COOK, Mr Anthony, Chairman, Wealth Management Committee, Institute of Actuaries of Australia............................................................................................................................................................ 80 HORSFIELD, Mr David, Managing Director and Chief Executive Officer, Securities and Derivatives Industry Association.................................................................................................................... 60 LIM, Mr Michael, Analyst, Investor Protection Unit, Corporations and Financial Services Division, Treasury.............................................................................................................................................. 1 MILLER, Mr Geoffrey, General Manager, Corporations and Financial Services Division, Treasury.............................................................................................................................................................. 1 O’REILLY, Mr David, Policy Director, Investment and Financial Services Association Ltd.................. 49 PARKER, Ms Cherie Rebecca, Analyst, Investor Protection Unit, Corporations and Financial Services Division, Treasury............................................................................................................................... 1 RAFE, Mr Barry Edwin, Vice President, Institute of Actuaries of Australia ............................................ 80 SANDERS, Mr Deen, Deputy Chief Executive Officer and Head of Professionalism, Financial Planning Association........................................................................................................................................ 26 SELLARS, Mr Andrew, Senior Adviser, Corporations and Financial Services Division, Treasury ......... 1 SEWELL, Mr Mark Francis, Manager, Corporations and Financial Services Division, Treasury........... 1 THOMPSON, Ms Catherine Louise, Member Professional Indemnity Insurance Committee, Insurance Council of Australia ....................................................................................................................... 72 Friday, 28 August 2009 JOINT CFS 1 Committee met at 8.31 am LIM, Mr Michael, Analyst, Investor Protection Unit, Corporations and Financial Services Division, Treasury MILLER, Mr Geoffrey, General Manager, Corporations and Financial Services Division, Treasury PARKER, Ms Cherie Rebecca, Analyst, Investor Protection Unit, Corporations and Financial Services Division, Treasury SELLARS, Mr Andrew, Senior Adviser, Corporations and Financial Services Division, Treasury SEWELL, Mr Mark Francis, Manager, Corporations and Financial Services Division, Treasury CHAIRMAN (Mr Ripoll)—I declare open this public hearing of the Joint Committee on Corporations and Financial Services, part of a series of public hearings the committee will hold to inform its inquiry into financial products and services. The committee is inquiring into issues associated with the recent collapses of financial product and service providers such as Storm Financial, Opes Prime and other similar providers. In conducting its inquiry, the committee has made a decision to focus specifically on non-superannuation products and services. Witnesses giving evidence to the committee are protected by parliamentary privilege. Any act which may disadvantage a witness on account of their evidence is a breach of privilege and may be treated by the parliament as a contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers to hear evidence in public, but we may agree to take evidence confidentially. The committee may still publish confidential evidence at a later date, but we would consult the witnesses before doing this. I welcome the witnesses from Treasury to the table. Mr Miller, if you could make some opening remarks in relation to your submission, that would be great. Mr Miller—Certainly. Firstly, thank you very much for allowing us to come here and help the committee with their deliberations. I just wanted to put a bit of context around our submission, particularly as I think our submission has been put in the wrong light by some newspapers. Our submission does not make recommendations; it puts forward context and options, and the pros and cons of many of those options. We are not suggesting a particular outcome for the committee; we are trying to ensure that you have the fullest amount of information available for your deliberations. In a very general sense, apart from the submission, what we are saying is that we do not believe that the regulatory system around financial services is fundamentally flawed. Certainly we have been through a global financial crisis, and, if there is any silver lining to such a crisis, it is that it puts your regulatory system through a type of stress testing and allows regulators and policymakers to see where there might be flaws in that system. CORPORATIONS AND FINANCIAL SERVICES CFS 2 JOINT Friday, 28 August 2009 Certainly there is no question that a few stress cracks have appeared. But nothing has broken fundamentally, in our view. To that end, the government has been doing quite a bit to fix those stress cracks. As you know, there is a bill in parliament at the moment dealing with the margin lending, which is putting in place a licensing system, putting in place responsibility around margin lending and also making very clear the responsibilities of the various parties in relation to who should tell who about the calls when they are coming up. There are also in that same bill provisions around debentures and promissory notes. While there was a regulatory system around those debentures and promissory notes, it was a split system. Ones over $50,000 had one system of regulation and ones under $50,000 had another system of regulation. This bill brings them together into a single harmonious system so there is no confusion of which system applies for bills and promissory notes. On top of that, the government has in place an organisation called the Financial Services Working Group, which is looking at improving
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