House of Representatives

Second Reading Speech

Mr Bowen (Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services)

I move:

That this bill be now read a second time.

Today I introduce a bill which will amend the Corporations Act 2001 to reform the way financial markets in Australia are supervised. In doing so, the bill will enhance the integrity of Australia's financial markets and contribute to the goal of making Australia a financial hub.

The bill removes the inherent conflict of interest present in the current law, whereby financial markets supervise themselves, and transfers the supervisory responsibility to the Australian Securities and Investments Commission (ASIC).

The bill contains three primary measures.

Firstly, it amends the obligations on licensed financial markets operating in Australia. At present market licensees, and prospective market licensees, are required to have arrangements and resources devoted to supervising trading on their market.

The bill amends this obligation. Markets will no longer be required to supervise trading on their own market, but must still have arrangements and resources to operate their market. This includes arrangements for enforcing compliance with a market's operating rules. Individual markets will retain responsibility for supervising listed entities.

Secondly, the bill confers on ASIC the explicit function of supervision of domestically licensed financial markets.

It is important that the supervision of Australia's financial markets be transparent and independent. It is important that any actual or perceived conflicts of interest be avoided.

Consequently, it is more appropriate for an agency of the government to perform this important function. The decision to transfer responsibility for supervision of Australia's financial markets to ASIC is a significant one which will stand the operation of Australia's financial markets in good stead.

By removing the inherent conflict of interest in having markets supervise themselves, this bill is in line with Australia's G20 commitment to protect the integrity of financial markets by avoiding conflicts of interest.

This reform is in line with the move towards centralised or independent regulation in other leading jurisdictions.

Thirdly, the bill establishes a new rule-making regime, whereby ASIC will have the ability to set 'market integrity rules'.

Markets currently play a significant role in determining acceptable conduct by participants in Australia's financial markets, as markets are responsible for setting and enforcing their own operating rules.

The bill amends the role of operating rules, and establishes ASIC-set 'market integrity rules'. These rules will be made by ASIC for the protection of the integrity of the market. These market integrity rules will be the primary determiners of behaviour on Australia's financial markets. Markets will still be able to make operating rules. However if an operating rule conflicts with a market integrity rule, the market integrity rule prevails.

This is a further step in the government's drive to improve regulation of the financial industry.

Commensurate with ASIC's new responsibilities, the bill provides ASIC with additional enforcement powers and remedies.

The bill provides that a breach of an ASIC-set market integrity rule is a breach of a civil penalty provision, which can be taken to court and enforced. The maximum penalty that can be imposed is $1 million. This was reduced from the amount in the exposure draft of the bill to reflect concerns that the higher amount might be inappropriate.

However, the bill also establishes a framework for alternatives to civil penalty proceedings. The bill sets the groundwork to allow the regulations to establish alternatives to civil proceedings, such as an infringement notice and enforceable undertaking regime.

This will allow persons who are alleged to have contravened a market integrity rule to avoid court by opting for an alternative penalty. The monetary amount which can be included in an alternative penalty is limited to three-fifths of what a court could order.

Such remedies are vital to the ongoing success of the market integrity rule framework as they provide ASIC with a fast and effective remedy, akin to the remedies available to markets under the current operating rule framework.

This bill also makes consequential amendments to other parts of the act, specifically to the qualified privilege and court order provisions to reflect the new functions of ASIC and the change in obligations on market operators.

The transfer of supervisory responsibility is an important step in enhancing the regulation of Australia's financial services industry.

These reforms will stand Australia in good stead, going into the future, by ensuring that Australia's markets remain fair, orderly and transparent into the future.

Debate (on motion by Mrs Gash) adjourned.