I rise to speak in support of the Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill 2018. Responding to the recommendations of the Financial System Inquiry and the ASIC capability review report, this bill makes two important changes to the ASIC act that will help provide a more competitive financial system overseen by a more effective regulator. Australia has one of the best financial systems in the world, with a well-considered balance between the need for regulation but at the same time the need not to over burden the system so it negatively impacts on the ability of businesses to get on with doing their business.
The government believes that competition, not regulation, is the best means of ensuring consumers get value for money in financial services. This has always been a feature of coalition governments in Australia. When one takes it to its extreme, the ultimate form of regulation is nationalisation and, of course, this level of control has demonstrably failed everywhere it has been implemented. There needs to be a careful balance between what needs to be controlled and the freedom to get on with the enterprise that has contributed so much to Australia's success. Greater competition leads to greater innovation, and that is what grows economies, and creates jobs and wealth for its citizens. Regulatory reform is also necessary to create that balance because unmitigated competition has its downsides. In pursuing regulatory reform, care needs to be given to designing it in a manner that minimises the risk of failure and to ensure that it doesn't create suboptimal results for business and the regulators themselves.
So why is competition superior to regulation in most circumstances? Over regulation can demonstrably leave a large number of people with reduced real income and a lower living standard. Additionally, regulation can leave costs on society through its establishment and administration. It can have a distorting effect on efficiency and, potentially, a time and cost impost in the reduction of over regulation. In situations of over regulation, it can be shown that deregulation results in the reduction of costs to consumers and substantial improvement in quality and service delivery. A review in the United States into the deregulation of natural gas, long-distance communication, airlines and the trucking and rail industries reported that real prices dropped by 25 per cent and sometimes close to 50 per cent within 10 years of those industries being deregulated. How important, though, is this to an economy?
Over the longer term, it results in a growth in productivity, because competition enhances innovation, which leads to more jobs, a growth in living standards and an overall increase in GDP. Measured provision of regulation is also necessary but certainly not over regulation. Let's think about what are the benefits of measured regulation. One benefit is the provision and the prevention of market failure. Australia has demonstrated, over many years, it's capacity to provide a balanced and well-tuned business environment. Regulation is largely not only balanced to protect the public interest but more importantly to assist in the transition to a competitive market. For competition to be successful in a market, there must, of course, be competitors, and over regulation can result in monopoly like situations where entry into the market is just so difficult that it deters the entry of competitors who, by their presence, will make the market more effective and efficient.
Broadly speaking, Australia has an effective regulatory environment for business, but the absence of balance in the consideration of competition as a factor is a shortcoming that this bill is designed to correct. These sorts of results demonstrate the criticality with this bill of ensuring competition gets equal billing with regulation in any work that ASIC undertakes. That's why schedule 1 amends the ASIC Act to require ASIC to consider the impact of its actions on competition.
The financial services inquiry, or the FSI, found that competition is generally adequate in the financial system but noted that there needs to be a stronger focus on competition in the financial sector. In particular, the FSI was concerned that regulators' mandates adopted an inconsistent approach to competition, with ASIC lacking an explicit competition mandate. The FSI recommended that the ASIC mandate should 'include a specific requirement to take competition issues into account' as part of its decision-making, and that's what this bill seeks to do.
Schedule 1 of the bill amends the ASIC Act 2001 to mandate that ASIC must consider the effects that the performance of its functions and the exercise of its power will have on competition in the financial sector. This will provide ASIC with certainty by obliging it to take into account competition issues when considering the impact of its regulatory decisions. This will no doubt lead to more competition and better outcomes for consumers in the financial system. For instance, some of the specific aspects of competition that ASIC may have regard to include barriers to entry; regulatory advantages for some firms over others; and the imposition of disproportionate obligations on smaller-sized entities.
There are many measures that this government has taken to promote competition in the financial system. For instance, the government has tasked the Productivity Commission to review competition in Australia's financial system, focusing on retail banking, mortgage brokers, new entrants and innovation, general insurance and regulatory responsibilities for promoting competition. We've also tasked the ACCC to undertake regular in-depth inquiries into specific financial system competition issues, through a new and dedicated unit. The government is also mandating comprehensive credit reporting, which will open up the lending market to new players by enabling them to better assess the credit risk of customers and, at the same time, reduce their exposure to defaults. Further, the government is implementing the open banking regime, to empower Australian customers to seek out banking products better suited to their needs. In addition, the government has provided the Australian Competition and Consumer Commission with $13.2 million to undertake inquiries into financial system competition issues. Schedule 1 of this bill complements this suite of measures, which will ultimately ensure a more competitive financial system. That's good for both consumers and financial services firms, particularly new entrants.
Furthermore, the ASIC capability review report recommended that the government remove ASIC from the Public Service Act as a matter of priority to support more effective recruitment and retention strategies, and to increase operational efficiency. Schedule 2 of the bill seeks to fulfil this recommendation. Let's unpack this. Why does it need to occur? To be able to perform their roles effectively, in accordance with their legislative mandate, these regulators need to be able to attract and retain suitably skilled and experienced staff. Regulators such as ASIC face challenges in doing so, because of the inflexibilities of the Public Service Act. These inflexibilities include the classification and remuneration of staff, the length of employment of temporary staff, management decisions affecting staff, and the coverage of any enterprise agreement.
It's important that ASIC has the capability to recruit staff with in-depth knowledge of financial markets and financial services. The current inflexibilities inhibit this process and place ASIC in direct competition with the private sector, and it's difficult for them at times to compete. As such, schedule 2 of this bill amends the ASIC Act to remove the requirement for ASIC to engage staff under the Public Service Act; thereby removing the constraints that make it difficult for them to compete with the private sector. Consequential amendments are also made to the Business Names Registration Act, the Corporations Act and the Mutual Assistance in Business Regulation Act. This measure will also bring ASIC into line with other financial regulators such as APRA and the RBA, who are also not required to engage staff pursuant to the Public Service Act. Removing the obligation for ASIC to engage staff under the Public Service Act means ASIC will be able to compete more effectively for suitable staff. It will allow ASIC to better tailor its management in staffing arrangements, ensuring that it is fit for purpose and more operationally efficient.
Both schedule 1 and schedule 2 of this bill will go a long way to providing a more competitive financial system overseen by a more effective regulator. I support the provisions of this bill, which will contribute to improving Australia's economy and the competitiveness of Australia's financial system.