Sharon Grierson (Newcastle, Australian Labor Party) Share this | Hansard source

I too rise to speak briefly on the report of the Parliamentary Joint Committee on Corporations and Financial Services, Statutory oversight of the Australian Securities and Investments Commission, presented this week by the committee chair, the member for Oxley. The global economic crisis has shone new and much needed light on the behaviour of equity markets, the behaviour of those who design and promote particular products, the behaviour of corporations who are listed on the market, the behaviour of investors and traders, certainly the behaviour of the operators of the stock exchanges themselves and particularly the actions and roles of regulators such as ASIC, who have responsibilities with regard to the integrity of the financial system. Our overall finding in this report is that the committee remains satisfied that ASIC continues to carry out its functions in accordance with the provisions of the corporations legislation.

At the public hearing, we were able to further explore ASIC’s performance across its operations as well as some particular new issues which have emerged from the global economic crisis. Those included: ASIC’s decision to ban short selling to reduce market volatility; their dealings with hardship exemptions from frozen mortgage fund redemptions, which the committee registers its intention to track more closely in the future; and new licensing and reporting arrangements for credit-rating agencies. It was also noted that the government has provided ASIC with $66 million to regulate consumer credit operations.

With respect to short selling, whilst pleased with the actions of ASIC the committee considers that more transparency in disclosure and reporting is the desired outcome which should be pursued. The area that I would particularly like to focus on, though, is market regulation and the importance of consumer confidence in the integrity of our equity markets. Whilst welcoming new initiatives designed to better identify and prosecute insider trading, false rumours and market manipulation, the committee has encouraged ASIC to continue to work closely with the ASX on identifying these practices. The need for greater rigour was borne out in ASIC’s survey of the regulator’s stakeholders. Unfortunately, only 20 per cent of respondents to the survey agreed with the proposition that ASIC was good at identifying image problems. The review also indicated a lack of confidence in ASIC’s ability to identify and prosecute instances of dishonesty, misconduct, insider trading and market abuse.

Pleasingly, additional new training and other initiatives aimed at bringing about necessary cultural change have been implemented by ASIC. However, a more aggressive move towards a risk management based operation rather than a process orientated organisation is imperative if stakeholder confidence is to be maximised. Accordingly, the committee encourages ASIC to continue with these initiatives. We are pleased that the commissioner recognised this need when he acknowledged and stated the need to develop people who are much more in tune with the market and understand what is happening so that they can give a quick response.

The need for the early identification of risk was borne out in a table presented in an answer to a question taken on notice at the hearing. The table, on page 22 of the report, shows the Australian Stock Exchange’s referrals to ASIC of potential breaches of market rules over three financial years. The table shows an increase from 29 referrals in 2005-06 to 55 in 2006-07. The 2007-08 results provided are incomplete but the total for the 2008 calendar year showed a continuing high trend of referrals. What is important is that an almost doubling of referrals in 2006-07 should have certainly triggered a dramatic response from ASIC. Unfortunately, that did not seem to be the case.

The committee has praised ASIC, though, for its honest reporting of these survey and review findings and encourages it to use its external advisory panel to stay more in tune with the market. I note that since we met in November the new chair of that advisory panel, Dr Stuckey, a former partner of management consultants McKinsey and Company, has been appointed. I also note that the panel members are still to be appointed, and I encourage ASIC to attend to that as quickly as possible. The committee stressed that the external advisory body can certainly help ASIC to stay more in tune with the market realities and the external financial landscape, which they need to be scanning at all times.

Since we met with ASIC in November the collapse of Storm Financial Limited has taken place, leading to grave personal losses for many mum and dad investors. The committee will be pursuing the issues surrounding the collapse of Storm and other similar ventures in its future inquiries and hearings with ASIC. The interests of consumers—the constituents of the members of this parliament—are paramount to us and certainly need our full attention. The committee’s comments on further improving financial literacy and the adequacy of professional indemnity insurance point to the need for further investigations of these issues.

Another pleasing development commented upon extensively in the public hearing last November by the commissioner was ASIC’s participation with the international economic community in the better regulation of international markets. The very genuine leadership being shown by ASIC in this regard is most welcome. I commend this report to the House. I acknowledge the hard work of the secretariat and members of this committee, and I thank them for it.

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