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Australian Democrats Supplementary Report
Issues raised by
authorised deposit taking institutions (ADIs)
I do not agree with the
recommendation of the majority on this issue.
Under the Bill in its present
form, basic deposit products that are for a term of 2 years or less and have no
management or break fees still fall within the definition of ‘financial
product’ but are not subject to all of the disclosure requirements.
The majority have recommended
instead that the Bill should exempt from the definition of financial product
all simple, well known basic deposit product and related non-cash payment
systems. That would remove from the Bill all safeguards in relation to these
products.
The Democrats are prepared to
accept the concessions that the government have already made in the draft
Financial Services Reform Bill on this issue and believe that the Bill in its
current form is appropriate.
Disclosure of Ethical
Investment Policies
As outlined in Chapter 5 of the
majority report, the Australian Conservation Foundation, Ethical Investment
Association and a number of other submitters advocated that the seller or
issuer of a financial product disclose:
The extent (if at all) to
which environmental, social or ethical considerations are taken into account in
the selection, retention and realisation of the investments.
Part 7.9 of the Bill could be
amended to include this requirement.
KPMG/Resnik Communications in a
survey last year showed that 69 per cent of Australians would consider socially
responsible investing if given the opportunity. The Democrats are of the view
that the investing public would welcome being given the information necessary
to allow them to know when an investment is environmentally, socially and/or
ethically responsible.
The Democrats are not attempting
to prescribe ethically or socially responsible investments, but we would like
to encourage a marketplace, which is well informed about which funds include
socially responsible considerations in investment decisions.
Ms Wade of the Ethical
Investment Association gave evidence to the Committee that:
We believe the amendment
will do two things. First of all, it will facilitate good choice by consumers,
by virtue of giving them information. Secondly, it will facilitate the growth
of the social responsible investment industry.
Mr Erik Mather, Senior Manager,
Institutional Business, Westpac Investment Management, was very supportive of a
basic level of disclosure. In evidence, he commented:
In terms of Westpac
Investment Management, the support is for a basic level of disclosure. In
fact, it would be in our best interests to oppose this disclosure, because we
could try to carve out some sort of a commercial advantage, but in reality the
long-term view is that people are wanting information in relation to this
issue, and therefore we are supportive.
The argument against mandating
this disclosure, contained in the majority report, is that market forces will
deliver consumers the most transparent disclosure of socially responsible
investments. The suggestion is that making the requirement mandatory is
unnecessary. The Democrats would like to actively progress the advent of these
types of products. It will be useful to start this process by asking in law
that those who do take into account ethical, environmental or social
considerations to state that unequivocally. In that way the interest in the
availability of ethical investments will be heightened.
Any company making a claim that
it considers environmental, social or ethical matters when making an investment
should be required to substantiate that claim, which conveys a marketing value
to the product.
ASIC should be tasked with
providing a guidance note on what would constitute reasonable substantiation.
Recommendation:
That the Bill be amended to
require that the seller or issuer of a financial product, with an investment
component, disclose to a retail client at the point of sale, the extent (if at
all) to which environmental, social or ethical considerations are taken into
account in the selection, retention and realisation of the investments.
Ownership of the ASX and
clearing and settlement facilities of national significance
As outlined in Chapter 3 of the
majority report, the current limit of a 5 per cent shareholding in the
Australian Stock Exchange is to be replaced by a 15 per cent limit on ownership
of financial market and clearing and settlement facilities that are prescribed as
being of national significance.
Additionally, it will be
possible for the Minister to approve a larger shareholding in relation to a
market or facility where this is in the public interest.
I do not object to the maximum
ownership limit on a financial market or clearing and settlement facilities
being increased from 5 per cent to 15 per cent.
However, I do not agree that the
Minister ought be given a discretion to approve a larger shareholding than 15
per cent.
I think that it is appropriate
that if a person is seeking to take their shareholding beyond 15 per cent and
the relevant Minister approves of that intention, it should be incumbent on the
Minister to return to the Parliament with amending legislation.
Recommendation:
That the Minister’s power to
approve a shareholding larger than 15 per cent in a market or clearing and
settlement facility be removed from the Bill.
Disclosure of Commission
I disagree with the majority
report in respect of the disclosure of the quantum of commission on risk
products.
It was suggested to the
Committee that agents are not influenced by commissions paid, but are concerned
with business considerations like competitive premiums and efficient claims
departments. It was further suggested that the main customer issue is that
commission is payable rather than the amount of the commission.
I can understand the argument
for complete exclusion of risk-based products from the commission disclosure
regime. If that is a view that is carried so be it. However partial
disclosure seems inappropriate.
If it is accepted that the
payment of a commission is significant to a customer then surely full
disclosure of the quantum is also important. Presumably the quantum determines
the degree to which any agent is likely to be influenced by the existence of
the commission.
Given a choice between requiring
disclosure and not, the Democrats will almost invariably err on the side of
disclosing, unless that is likely to cause too great an administrative burden,
or is unnecessary.
The vast majority of submitters
who opposed disclosure of commission on risk products did so on the basis that
the move would not benefit clients because that commission was not a factor in
making their decision. There was no recurrent suggestion that disclosure would
cause significant harm or inconvenience to any group.
Senator Andrew Murray
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