Main Committee: Corporations and Financial Services Committee Report

Mr FLETCHER  (Bradfield) (17:31): I am pleased to be able to speak on the most recent report of the Parliamentary Joint Committee on Corporations and Financial Services into the committee's statutory oversight of the Australian Securities and Investments Commission. ASIC is responsible for monitoring the integrity of Australia's financial system and it has a broad range of responsibilities.

We have heard some interesting evidence from specialist witnesses in recent months, including Mr Michael Chaaya, a partner at Corrs Chambers Westgarth and a specialist in a number of areas that are relevant to the responsibilities of ASIC. Mr Chaaya gave evidence about what he calls the twin peaks model of regulation under the Australian system, with two peak statutory bodies, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. He made the point that such a division of responsibilities is unusual by international standards. There are both pros and cons, as might be expected. His evidence was quite interesting in light of some of the evidence that has emerged about the collapse of Trio Capital, the subject of a separate inquiry about which I will speak in a moment. One of the questions that has presented itself in that inquiry is the degree of coordination between the two principal agencies, APRA and ASIC, and whether the response to the emerging and increasingly evident difficulties at Trio Capital could have been accelerated had the regulatory and institutional structure been different. I certainly do not express a concluded view on that question, but I do note that the evidence from Mr Chaaya was relevant and interesting in that context.

Of course, the committee has also heard from ASIC. Most recently, evidence from ASIC has addressed three broad areas: actions it has undertaken to deliver on its strategic framework; its processes to ensure the integrity of licences and adequate surveillance mechanisms to minimise possibilities for fraud; and an update on the position in relation to frozen funds. I want to speak for a moment on a couple of these issues. In relation to the strategic framework I would like to commend ASIC for its work to improve financial literacy—for example, through the mortgage health campaign, the retirement guide and better communication about Australian financial services licences. But what I would like to speak about more specifically is the question of frozen funds. A number of my constituents found, to their surprise and distress, that mortgage funds in which they had invested substantial amounts of money, typically to provide for their retirement, were frozen in the wake of the global financial crisis. On the assumption, which I think is valid, that my constituents are not atypical of the broader class of persons who hold units in these funds, it is clear from the surprise expressed to me by my constituents that there is limited understanding in the community that funds of this kind, typically mortgage funds, do have the ability to freeze redemptions. I have asked ASIC a number of questions about this issue at recent hearings. At the most recent hearing the chairman of ASIC, Mr Medcraft, explained that when funds were first frozen in November 2008 the total amount involved was $23.3 billion and there were 87 funds involved. By the end of June 2011 the amount of money frozen had reduced to $17.2 billion, of which approximately $5.2 billion had been restructured with member approval. Mr Medcraft explained that this means they are 'delivering perhaps partial repayments or they are being wound up'.

The issue here is the mismatch between the nature of the assets owned by the funds and expectations on the part of unit holders, investors in the funds, as to the degree of liquidity they might expect. Mr Medcraft explained that as a result of the global financial crisis ASIC now makes it plain to investors considering mortgage trusts that such funds are not liquid funds in the same way as bank deposits. The committee is of the view generally, and it is certainly my view, that anything that can be done to increase the awareness of investors on this point is a good thing. I think it is also important—and I very much urge ASIC to do this—to maintain a continued level of very close scrutiny on funds managers who have frozen funds. I would be particularly concerned if it were the case that funds managers were continuing to draw their normal healthy commission or management expenses in circumstances where investors were not being provided with the liquidity that they had expected. Let me conclude my comments on that point.