ASIC and super win under Conroy’s plan

The Financial Services sector would notice little immediate difference if the Australian Labor Party took office after November 10. Why? Because the ALP believes that the Financial Services Reform Bill (FSRB) is, essentially, a good piece of legislation.

Where the ALP would make a difference is with respect to superannuation. It still sees a formula which generates compulsory contributions of up to 15 per cent as essential to Australia's long-term retirement incomes policy.

The Opposition Spokesman on Finance Services, Senator Stephen Conroy is keen to soothe those in the financial services sector who may believe that the election of a Labor Government would presage radical change and the heavy hand of regulation.

The Conroy line is that the FSRB is an essentially sound piece of legislation with which the ALP is reasonably happy.

However Conroy makes no bones about the ALP's desire to enhance the power and funding of the industry regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

The need for enhancing the powers and funding of the regulators was, he says, brought to light by the collapse of HIH Insurance and One-Tel.

"We believe a number of things were highlighted by those events and the first of those was the argument that ASIC and APRA didn't have enough power," Conroy says.

"We don't necessarily believe that enough power did not exist. They had a whole range of powers available to them and if those powers had been utilised we believe a number of things would have come to light and been acted upon.”

Notwithstanding this belief that APRA and ASIC probably had enough power to deal with the HIH and One-Tel situations the ALP believes that both watchdogs probably did not have the capacity to do their jobs. With this in mind the Labor Party is committed to boosting their funding according to Conroy, a call which he says has been made now for over two years.

However on the question of increasing their powers, Conroy says the ALP will consider any increases only after a further examination.

"David Knott (the chairman of ASIC) has called for increased powers. If they (ASIC) can demonstrate a need for those increased powers then I think we will act," he says.

The degree to which the ALP would be prepared to act is reflected in its "Plan for Finance Services and Regulation" announced by the leader of the Opposition, Kim Beazley.

That Plan promised to:

- strengthen disclosure requirements for executive remuneration, including disclosing performance criteria for remuneration and the value of options.

- support more prompt disclosure of director's share trading and examine other initiatives, such as trading windows, to ensure that the market is always fair;

- increase funding to ASIC by $6 million over the next four years;

- examine initiatives to improve the accessibility of corporate information and increase the flow of information to all shareholders;

- examine ways to increase voting by all shareholders including, if necessary, mandating voting by trustees of superannuation funds supervised under the Superannuation Industry (Supervision) Act; and

- ensure the independence of auditors and of accounting standards, and address concerns about the independence of analysts reports.

While the ALP may regard the FSRB as a good piece of legislation, it believes that the key to its effectiveness and acceptance across the financial services sector resides with the manner in which it will be implemented.

He says he was aware of outstanding issues with the legislation across various sectors of the financial services industry and that, if elected, the Labor Party would be prepared to look at those issues on a case-bycase basis.

Conroy believes that implementation of the legislation places a heavy burden on ASIC; one similar in dimension to the burden which was imposed on the Australian Taxation Office as a result of the introduction of the Goods and Services Tax (GST).

He does not want to see a backlash directed toward ASIC and the legislation similar to that which surrounded the original Business Activity Statement (BAS) paperwork.

Notwithstanding the fact that the legislation won't come into effect until next year, Conroy doesn't want to see the regulatory framework being rushed or the legitimate concerns of industry participants being ignored.

"Our concern is that we'll some something similar to the BAS if this takes place," Conroy says.

The ALP's most radical area of difference with the Government lies in its approach to superannuation. Conroy is adamant that for the purposes of a viable Australian retirement incomes policy nine per cent simply isn't enough.

"Is nine per cent enough?. Well I've only heard three or four people suggest that nine per cent is sufficient and their names are Howard, Costello, Fahey and Hockey," he says.

The problem for Labor however is determining how an increase in superannuation would be funded, particularly in circumstances where the Treasury's release of documentation attaching to the Charter of Budget Honesty has revealed that there is no longer surplus with which to fund such an exercise.

"Given the state of the books, even in the out years, we're facing enormous constraints on what we can do. The Government simply have not spent enough on this important area,” he says.

Conroy admits that at least one formula being considered by the ALP, prior to the release of the Treasury figures, was a co-payment funded in part by the Commonwealth. He is insistent that, contrary to some Coalition claims, the ALP will not be seeking to impose a greater impost on employers.

Thus, in the absence of any obvious funding formulas the ALP would look to hold an inquiry into superannuation to determine what level of contributions (12 per cent or 15 per cent) would generate a sustainable retirement incomes policy.

Conroy believes that a Labor Government would hold an inquiry into superannuation providing a forum within which the various stakeholders could come forward with ideas and products capable of addressing the problem.

The ALP hasn't fixed a time-table for such an inquiry, but Conroy says he'd be personally arguing for one to be held within six to twelve months.

On the key question of industry self-regulation, Conroy is keen to indicate that a Labor Government would not be in the business of throwing up new external regulatory hurdles but, as indicated in the party's "Plan for Financial Services and Regulation" he makes clear that there are some areas that need to be closely examined.

One of those areas is the role of auditors and he is attracted by the US regime as overseen by the US Securities Exchange Commission and the manner in which this has established a uniform environment in the US.

However Conroy believes that whatever regime Australia decides to put in place needs to reflect the findings of the Royal Commission into the collapse of HIH Insurance and the Ramsay inquiry into the role of external auditors.

"Clearly where external auditors were concerned some of the Chinese walls broke down and we need to address that," he says.