Second Reading Speech
Senator Colbeck (Parliamentary Secretary to the Minister for Agriculture)The establishment of a deep and liquid retail corporate bond market in Australia is a key priority for the Gillard Government. A well performing and efficient retail corporate bond market will provide an alternative funding source for Australian companies and increase competitive pressure on lending rates to businesses.
The bond market is a significant source of funds for many Australian financial and non-financial corporations. Correspondingly, this financing activity provides investment opportunities for both Australians and non-residents.
The Johnson Report, Australia as a Financial Centre: building on our strengths, examined the lack of liquidity and diversity in Australia's corporate bond market. It also discussed why this lack of liquidity was a significant weakness in the overall assessment of Australia's financial system. At the retail level, it was considered that one action the Government could take to overcome this weakness was to introduce regulatory changes that could assist with developing the market.
The Bill that is before the House today seeks to reduce the regulatory burden on issuers of corporate bonds, while at the same time ensuring that appropriate standards of consumer protection are maintained.
The introduction of Schedule 1 of the Bill follows the passage of the Government's legislation to facilitate retail trading in Commonwealth Securities (CGS) late last year. Having an active retail CGS is an important step in establishing a wider retail corporate bonds market by providing a visible pricing benchmark for retail investors in corporate bonds.
Schedule 1 to the Bill, delivers on the Government's commitment to reduce regulatory burdens and barriers for offers of corporate bonds to retail investors.
The measures in Schedule 1 enable companies to offer simple corporate bonds by releasing a shorter offer-specific prospectus as long as they have lodged a base prospectus with ASIC for the purpose of making an offer under the new 2-part simple corporate bond prospectus regime.
Schedule 1 of the Bill removes the civil liability that applies to directors and proposed directors for the offer of simple corporate bonds and provides clarification around the due diligence defence in respect to directors' criminal liability in offering corporate bonds.
Schedule 1 to the Bill also contains amendments to the Corporations Act to enable parallel trading of simple corporate bonds in the wholesale and retail markets.
The measures in Schedule 1 are another major initiative that the Government has delivered on in its long term commitment to encourage the development of a deep and liquid bond market in Australia. The measures provide companies with another source of fundraising and signal that it is their time to contribute to the development of Australia's corporate bond market.
The other measures in the Bill, contained in Schedule 2, amend the Corporations Act 2001 to define in the law terms 'financial planner' and 'financial adviser'. These amendments make it an offence for anyone to call themselves a financial planner or financial adviser, unless they are appropriately authorised under the Australian financial services licensing regime.
The amendments contained in Schedule 2 follow the passage of the Future of Financial Advice (FOFA) legislation last year. Key elements of the FOFA reforms include the imposition of a statutory best interests duty on financial advisers, two-yearly opt-in arrangements and annual fee disclosure statements, and a ban on the receipt of conflicted remuneration arrangements, including commissions.
The Government is committed to increasing investor protection and improving consumer confidence in the financial advice industry. This will provide the financial advice industry with a strong foundation for growth, as well as empowering Australians to obtain good quality advice about managing their wealth. The Government has delivered on its commitment through the FOFA reforms, and continues to deliver on its commitment with the Bill before the House today.
On 22 March 2012, I announced to Parliament that the Government intended to introduce legislation enshrining the terms 'financial adviser' and 'financial planner' in law by 1 July 2013. These amendments deliver on my earlier commitment. Schedule 2 to the Bill will commence on 1 July 2013 (or after the Royal Assent, if that occurs later), concurrently with the FOFA reforms.
By legislatively defining the terms 'financial planner' and 'financial adviser', the amendments enable consumers to be able to easily identify genuine financial product advice providers. By preventing anyone who is not a qualified financial planner or financial adviser from telling consumers that they are, the amendments make it easier for consumers to know who to trust with their financial affairs. The measures contained in Schedule 2 of the Bill strengthen protections for consumers.
Importantly, the amendments will help protect consumers from unlicensed persons such as 'property spruikers' who hold themselves out to be genuine providers of financial advice when they are not.
The amendments will ensure that the regulation of financial advisers and planners is consistent with other professions such as stockbrokers, where similar restrictions already exist.
Schedule 2 to the Bill makes it an offence for a person to hold themselves out to be a financial planner or a financial adviser unless they are authorised to provide financial product advice under the Australian financial services licence (AFSL) regime. Schedule 2 also makes it an offence to use terms of similar importance, so that unlicensed persons will not be able to get around the legislation by using similar terms.
Schedule 2 also allows the Government to make regulations prescribing other terms that a person must have an AFSL to use. This means that if individuals or companies start using particular terms to mislead consumers, the Government will be able to respond quickly by restricting the use of these terms.
People acting in breach of these requirements face penalties of up to 10 penalty units for individuals for every day the contravention occurs, and 50 penalty units per day for corporations.
I note that the measures in Schedule 2 have been developed in consultation with the financial services industry. Key industry bodies are supportive of the amendments. For example, the Financial Planning Association of Australia is of the view that the amendments "will provide greater consumer certainty and protection and further enable the transition of financial planning into a universally respected profession". The Association of Financial Advisers has said that they believe that this legislation "is good for financial advisers and also for the consumers who rely on financial advice", because "consumers deserve to have clarity with respect to who they are seeking advice from".
I note that there are separate, though related, amendments that are being made to the Tax Agent Services Act 2009.
In summary, the amendments contained in Schedule 2 will improve consumer trust and confidence in the financial advice industry. Australian consumers are entitled to be able to easily distinguish between genuine, authorised providers of financial product advice and unlicensed persons such as 'property spruikers' who do not have their clients' best interests at heart. The measures contained in Schedule 2 of the Bill empower consumers to make that distinction.
I commend the Bill to the Senate.