Second Reading SpeechMs O'Dwyer (Minister for Revenue and Financial Services)
That this bill be now read a second time.
Today, I introduce a bill to amend the Corporations, Terrorism Insurance and Income Tax Assessment Acts.
This bill has the complementary objectives of maintaining trust and confidence in the financial system, while also promoting entrepreneurialism-and it does that across three fields.
First, it will provide greater consumer protection for retail client moneys held by financial services licensees in relation to over-the-counter-or OTC-derivatives. This will better meet community expectations of consumer protection.
Second, it will limit the requirement to make public the disclosure documents given to employees under an eligible employee share scheme and lodged with the Australian Securities and Investments Commission.
And third, it provides clarity that the terrorism insurance scheme administered by the Australian Reinsurance Pool Corporation covers losses as a result of a declared terrorist incident using chemical, biological or other similar means.
In addition, this bill makes changes to the Income Tax Assessment Acts of 1936 and 1997 to include six new organisations as deductible gift recipients and to provide ongoing tax relief for assistance payments provided to eligible New Zealand special category visa holders who are impacted by disaster events in Australia.
Let me take you through the contents of this bill in some detail.
I will start with terrorism insurance.
Schedule 1: Terrorism Insurance Act 2003
The bill includes an amendment to the Terrorism Insurance Act 2003.
The amendment clarifies the existing provisions to ensure the terrorism reinsurance scheme operates as originally intended, that is, to provide insurance against a declared terrorist incident, including when carried out by chemical, biological or other similar means.
Schedule 2: employee share schemes
This bill also introduces a measure fulfilling the government's commitment to make it easier for start-up companies to provide incentives to their employees through an employee share scheme, or ESS.
In many cases, under the current law, companies wishing to utilise an ESS must provide a disclosure document to their employees that complies with the Corporations Act.
These documents contain information about the business so that employees are properly informed about their interests.
Under the current law, the company must also lodge these documents with ASIC, who then places them on the public register.
This is discouraging certain small companies and start-ups from implementing an ESS because it could result in the release of commercially sensitive information.
As part of the National Innovation and Science Agenda, we committed to removing the requirement for eligible ESS disclosure documents lodged with ASIC to be made available to the public.
This legislation will amend the Corporations Act so that disclosure documents for ESS will not be made public if all the companies in the group are unlisted, have been incorporated for less than 10 years and have an aggregated turnover of less than $50 million.
This legislation removes an impediment to entrepreneurialism and helps start-ups attract skilled employees at a time when they may be cash-poor. This will benefit both start-up companies and their potential employees and contractors.
Schedule 3: DGR specific listings
Schedule 3 to this bill amends division 30 of the Income Tax Assessment Act 1997 to add six entities as deductible gift recipient specific listings: The Australasian College of Dermatologists; College of Intensive Care Medicine of Australia and New Zealand Ltd; The Royal Australian and New Zealand College of Ophthalmologists; Australian Science Innovations Incorporated; The Ethics Centre Incorporated; and, for a five-year period, Cambridge Australia Scholarships Limited.
Organisations may be specifically listed by name in the tax legislation only in exceptional circumstances where they also provide broad public benefits to the Australian community.
The Australasian College of Dermatologists trains and provides continuing professional development to dermatologists, supports scientific research, is an educator about dermatological matters and an advocate for the field of dermatology.
College of Intensive Care Medicine of Australia and New Zealand Ltd cultivates and encourages high principles of practice, ethics and professional integrity in relation to intensive care medicine practice, education, assessment, training and research.
The Royal Australian and New Zealand College of Ophthalmologists trains and develops ophthalmologists. Through continuing professional training, education, research and advocacy, it leads improvements in eye health care and facilitates the improvement of eye health care internationally, particularly in relation to indigenous populations.
Australian Science Innovations Incorporated organises, fosters and promotes Australian participation in the International Biology, Chemistry, Physics and Earth Science Olympiads and related activities, as well as engaging in other activities designed to encourage science excellence in secondary education.
The Ethics Centre Incorporated's core objective is to relieve the significant distress faced by those struggling with complex ethical decisions and the personal and community suffering resulting from unethical behaviour.
Cambridge Australia Scholarships Limited is established and located in Australia and widens access to the University of Cambridge for outstanding Australian students from all backgrounds.
By obtaining deductible gift recipient status, these entities will be able to attract additional public financial support for their activities, as taxpayers can claim an income tax deduction for certain gifts to deductible gift recipients.
Schedule 4: ex gratia disaster recovery payments
Schedule 4 to this bill make amendments to theIncome Tax Assessment Acts of 1936 and 1997to provide ongoing income tax relief to ex gratia disaster assistance payments made to eligible New Zealand special category visa (subclass 444) holders.
The Australian government gives eligible individuals adversely affected by a disaster event a helping hand by providing disaster recovery payments or income support allowances. At this difficult time, it is important that these payments are not subject to tax.
Exempting disaster recovery payments from tax, or providing a rebate for income support allowances, maximises the value of the payments for people whose lives are affected by a disaster event. It also ensures that the payments are treated in the same way as disaster assistance payments made to Australians.
Providing ongoing tax relief will provide recipients with certainty that their payments will be free from tax, or that a rebate is available. This will remove one concern from individuals who have been affected by a disaster event.
Schedule 5: client money
Honourable members may recall that, in introducing this bill, the government is not only implementing a commitment set out in our response to the financial system inquiry, we are also responding to a view, long held by ASIC, that the current regime provides inadequate protection for retail client moneys.
We know that trust and confidence in the sector have been diminished by the actions of some industry participants.
Once diminished, one has to work hard to restore them.
This government is prepared to work hard.
This bill is just one part of our agenda to ensure that Australia's financial services regulatory regime can inspire confidence and trust.
And we have consulted extensively on this measure.
While views differed on the best approach to protecting client money, most stakeholders agreed that the regime as it currently stands is inadequate.
And that is why we are working to foster an environment where consumer protection matches the level of risk as it is understood by the client.
Let me explain.
Currently, Australia's regulatory arrangements governing the use of client money by OTC derivatives providers put retail clients at risk of losing their money in the event of the licensee's insolvency.
If client money relating to a derivative, or a dealing in a derivative, continues to be allowed to be used by financial services licensees to meet various obligations, which they themselves have incurred, confidence in our financial system will continue to be undermined.
Once client money has been withdrawn from client accounts by the licensee, it is no longer protected.
Instead, clients are exposed to higher levels of risk, particularly counterparty risk, and they might consequently be unable to recover their money if a licensee becomes insolvent.
Compared to experienced OTC derivatives traders, retail clients (who are usually mum-and-dad investors or small businesses) often have less experience and may not understand or be able to evaluate the risks associated with their client money being used to meet the licensee's own obligations.
Certainly, for the vast majority of financial products and services, the client money regime already prohibits licensees from using client money and client property for their own purposes-in other words, most of the time, client money is held on trust for the client.
In those cases, client money is returned to clients if the licensee becomes insolvent, rather than being added to the pool that is distributed among all the licensee's creditors, in accordance with the insolvency laws.
By pursuing these reforms, we are closing a loophole, which will ensure that all retail client money is protected, in accordance with the same standards.
Honourable members, the reforms I introduce today will better protect client money provided for retail derivatives by ensuring that retail client money must be held on trust for the client.
The reforms do not ban licensees from hedging or prevent them from managing their own business risks.
Indeed, licensees are required by law to have adequate risk management practices in place.
But licensees' risk management practices need to be self-sustaining-they cannot continue to facilitate their own risk management by placing retail client money at risk. And I appreciate that many licensees already choose both to hedge with their own money and respect clients' expectations that their money will be segregated and held on trust.
These reforms also provide ASIC with the power to effectively monitor the limitations on the use of derivative client money by enabling ASIC to make client money reconciliation and reporting rules.
The financial system is certainly more resilient than before the global financial crisis.
Nevertheless, I agree with the financial system inquiry's conclusions that, while consumers are ultimately responsible for the consequences of their financial decisions, they must be treated fairly and ethically.
Furthermore, the regulatory regime should engender confidence and trust in the system-because reduced trust represents a barrier to consumers engaging with the Australian financial system and blocks investment in Australian businesses.
That is why the government has already introduced a number of measures to improve consumer protection within the financial system. We have established a register of financial advisers that allows consumers to verify the credentials of financial advisers and be confident that they are appropriately qualified and experienced.
We are progressing reforms to lift the professional, educational and ethical standards of financial advisers who provide advice on more complex financial products to retail clients.
And, we are progressing reforms to life insurance advice remuneration structures, which are important steps towards addressing concerns that remuneration incentives are affecting the quality of advice provided to consumers and encouraging the unnecessary turnover of policies.
Full details of the measures are contained in the explanatory memorandum.
In closing, I note that these reforms represent necessary and valuable changes to the current regulatory environment, both for the treatment of client moneys and the disclosure requirements for employee share schemes.
Not only will they deliver significant benefits to consumers, start-ups and employees, they will also help maintain trust and confidence in the financial system.
I commend this bill to the House.