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senate vote 2018-02-07#1
Edited by
mackay staff
on
2023-07-28 08:53:40
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Title
Bills — Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018; in Committee- Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018 - in Committee - ADI pecuniary penalty
Description
<p class="speaker">Peter Whish-Wilson</p><p>The Greens have two amendments to move this morning to the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. The first one I will move immediately. By leave, I move Greens amendment (1) on sheet 8342 revised:</p>-
- The majority voted against [amendments](https://www.openaustralia.org.au/senate/?id=2018-02-07.8.1) introduced by Tasmanian Senator [Peter Whish-Wilson](https://theyvoteforyou.org.au/people/senate/tasmania/peter_whish-wilson), which means they failed.
- ### What do these amendments do?
- Senator Whish-Wilson [explained that](https://www.openaustralia.org.au/senate/?id=2018-02-07.8.1):
- > *This amendment in a nutshell directly relates any penalties or punitive measures to accountable persons or executives to their size under this scheme. We believe that an ADI, an authorised deposit-taking institution, which is liable for pecuniary penalties, should receive a penalty in line with their company size or their value. So the bigger the bank the bigger the fine. It's pretty simple and it's outlined in the amendment. We believe that the maximum amount of pecuniary penalties is an amount at the rate 10 penalty units for every million dollars in assets for those ADIs that are captured by this legislation.*
- ### Amendment text
- > *(1) Schedule 1, item 1, page 20 (lines 8 to 25), omit section 37G, substitute:*
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- > *37G Pecuniary penalty for non-compliance with this Part.*
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- > *(1) An ADI is liable to a pecuniary penalty if:*
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- >> *(a) an ADI contravenes its obligations under this Part (other than this Division); and*
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- >> *(b) the contravention relates to prudential matters.*
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- > *(2) The maximum amount of pecuniary penalty is an amount at the rate of 10 penalty units for every $1,000,000 in assets, of the ADI within the control (however described) of the part of the ADI's banking business that is carried out in Australia.*
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- > *(3) In determining the pecuniary penalty, the Federal Court of Australia must have regard to the impact that the penalty would have on the viability of the ADI.*
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- > *(4) Subsection (3) does not limit subclause 1(3) of Schedule 2.*
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- > *(5) This section is a civil penalty provision.*
<p class="italic">(1) Schedule 1, item 1, page 20 (lines 8 to 25), omit section 37G, substitute: 37G Pecuniary penalty for non-compliance with this Part.</p><p class="italic">  (1) An ADI is liable to a pecuniary penalty if:</p><p class="italic">  (a) an ADI contravenes its obligations under this Part (other than this Division); and</p><p class="italic">     (b) the contravention relates to prudential matters.</p><p class="italic">  (2) The maximum amount of pecuniary penalty is an amount at the rate of 10 penalty units for every $1,000,000 in assets, of the ADI within the control (however described) of the part of the ADI's banking business that is carried out in Australia.</p><p class="italic">  (3) In determining the pecuniary penalty, the Federal Court of Australia must have regard to the impact that the penalty would have on the viability of the ADI.</p><p class="italic">  (4) Subsection (3) does not limit subclause 1(3) of Schedule 2.</p><p class="italic">  (5) This section is a civil penalty provision.</p><p>This amendment in a nutshell directly relates any penalties or punitive measures to accountable persons or executives to their size under this scheme. We believe that an ADI, an authorised deposit-taking institution, which is liable for pecuniary penalties, should receive a penalty in line with their company size or their value. So the bigger the bank the bigger the fine. It's pretty simple and it's outlined in the amendment. We believe that the maximum amount of pecuniary penalties is an amount at the rate 10 penalty units for every million dollars in assets for those ADIs that are captured by this legislation. There are some more detail in there, and I presume, of course, all the senators have read it. We think it's pretty straightforward and self-explanatory. I'm not sure why you wouldn't support it.</p><p>Just before we put that to the vote, I do need to clarify one thing you said, Senator Cormann, in relation to deferred remuneration. In your second reading speech you talked about deferring the variable component of captured persons under this legislation and you said it was for at least four years. My understanding is that it was up to four years in the legislation. Could you clarify that, please?</p> <p class="speaker">Mathias Cormann</p><p> ) ( ): The legislation prescribes four years, and so it will be four years unless there are exceptional circumstances.</p> <p class="speaker">Peter Whish-Wilson</p><p>Just to be clear, Minister, up to four years or at least four years? In your second reading speech you implied it was a minimum of four years, but my understanding is it is up to four years—so a maximum of four years.</p> <p class="speaker">Mathias Cormann</p><p>It is four years.</p> <p class="speaker">Peter Whish-Wilson</p><p>Could it be one year? Could it be two years? Could it be three years? Can we clarify this, please.</p> <p class="speaker">Mathias Cormann</p><p>My advice is that the minimum amount to be deferred must be deferred for at least four years.</p> <p class="speaker">Peter Whish-Wilson</p><p>Thank you for clarifying that, Minister.</p> <p class="speaker">Mathias Cormann</p><p>I'm now speaking to the amendments moved by Senator Whish-Wilson. The government will be opposing this amendment. The government considers the civil penalties are set up at an appropriate level to provide a strong deterrent for poor behaviour by banks. These penalties equate to maximums of $10.5 million for small authorised deposit-taking institutions, $52.5 million for medium-sized authorised deposit-taking institutions and $210 million for large authorised deposit-taking institutions. These are tough penalties and substantially higher than the penalties generally available under the Commonwealth legislation. They provide a clear incentive for banks to ensure they comply with the requirements of the Banking Executive Accountability Regime. In contrast, the penalties proposed in this amendment would, in many cases, grossly exceed the maximum penalties currently provided for under the Banking Executive Accountability Regime. For example, for large authorised deposit-taking institutions, the maximum penalty would increase from $210 million to over $1 billion. The maximum penalties for some small and medium authorised deposit-taking institutions would also increase under the proposed amendment. The Banking Executive Accountability Regime has been carefully calibrated to operate proportionately across banks of different sizes. This amendment would adjust that calibration to the detriment of the small and medium authorised deposit-taking institutions. The civil penalties proposed by the government strike the right balance between providing a strong deterrent to poor behaviour by banks and ensuring they are proportionate to the size of authorised deposit-taking institutions.</p><p>I also reiterate that these are maximum penalties. In imposing a civil penalty, a court is required to take into account the nature of the breach of the Banking Executive Accountability Regime, the extent of loss suffered and the impact of the penalty on the viability of the bank, amongst other factors.</p> <p class="speaker">Deborah O'Neill</p><p>Labor will not be supporting this amendment. This amendment seeks to replace the current tiered penalty regime under the BEAR with a sliding scale of penalties. We note that submissions to the Senate inquiry into this bill stated that the maximum penalties under the government's bill are a greater proportion of the size of small and medium ADIs compared to the large banks. However, this amendment ties the penalties to what seems an uncertain definition of what the banks' assets are. This would lead to uncertainty over applicable penalties for individual ADIs. While we note the intent to have penalties set at a more proportionate level, an effect of the formula in this amendment will be to significantly increase penalties for many small and medium ADIs. This could have an impact on the ability of these small and medium ADIs to compete.</p> <p class="speaker">Peter Whish-Wilson</p><p>Before I get to another question to Senator Cormann, I have to respond to Senator O'Neill. I've been hearing about grizzly bears and teddy bears in this place for two days now from the Labor Party. They wanted a regime that's going to be like a grizzly bear—a bear that's got teeth and claws and rips into the banks and makes sure we get some solid action here—and here they're knocking back a simple amendment that, yes, would significantly increase potential pecuniary fines on the banks for bad behaviour. That's why we've done it. I would have thought that was pretty straightforward and exactly what you were seeking, having listened to all your second reading speeches. So I am disappointed that Labor will not support this.</p><p>I do take on board your views about total assets, but that is actually quite clearly defined. In any banking analyst's report, you'll get a definition of how the assets or net assets are calculated for the bank. So I don't personally think that's an issue, but, if the Labor Party had a problem with that, they could have talked to us about it and we could have clarified that or included it in the amendment. The amendments have been circulated for some days now, so I do see it as probably a bit of an excuse to just not support a good Greens amendment.</p><p>Minister, you mentioned that there's a gradation in the fines or pecuniary penalties for different sized banks and that the top-tier banks' penalties are set at a maximum of $210 million. Is the minister aware that the size of those tier-1 banks is very variable? For example, the market capitalisation of the Commonwealth Bank is about $140 billion as we speak, whereas National Australia Bank is half that at just over $70 billion. How is it fair that the Commonwealth Bank, which is a much larger bank, gets to pay the same penalty as a bank half its size?</p> <p class="speaker">Mathias Cormann</p><p>Yes, I'm aware that different businesses in Australia are of a different size. I'm aware that different banks are of a different size. I know that, among the big banks, some are bigger than others. But it's not appropriate for parliament, the government or legislators to tailor-make penalty arrangements for individual businesses. It's not unusual for certain tiers to be determined and for certain categories to be established and, as I indicated in my primary response to the Greens amendment, the government believe that we've got the balance right and that we've got the categorisation of small, medium and larger banks right.</p> <p class="speaker">Rex Patrick</p><p>I'd like to take this opportunity to put on the record the Nick Xenophon Team's support for this bill. A new accountability framework for the banks and for senior bank employees is long overdue. The Nick Xenophon Team welcomes the delayed implementation for small and medium banks, credit unions and building societies. While the bill may not be perfect, it should not be opposed. The royal commission into misconduct in the banking superannuation and financial services industry is finally underway, and I sincerely hope this will lead to a change in the culture that has adversely affected the lives of so many consumers.</p><p>The royal commission will also examine the need for a last-resort compensation scheme for victims of bad financial advice and misconduct. A number of senators in this chamber would be aware of the strong advocacy by former Senator Nick Xenophon on the issue of a last-resort compensation scheme. A last-resort compensation scheme is the only way to ensure that customers who suffer loss from misconduct are compensated. It is a missing piece of a financial services regulatory framework. The Nick Xenophon Team looks forward to seeing the recommendations of the royal commission in relation to last-resort compensation schemes.</p><p>I will also take this opportunity to indicate the Nick Xenophon Team's position on the amendments circulated by Senator Whish-Wilson. We do not support the amendment on sheet 8342 relating to executive caps. Whilst we agree that the pay packets of many CEOs in the financial services industry are far from perfect and ought to be reformed, it is the shareholders who ultimately bear the cost of paying the CEO. The direct intervention approach as proposed by the Greens is not an approach that is supported by the Nick Xenophon Team, but we do believe that the issue of executive pay is a debate worth having.</p><p>I can indicate that we will be supporting the amendment on sheet 8343, as the penalty regime does not adequately reflect the difference in size between big banks and the smaller regional and customer owned banks. The entire profit of the customer owned banking sector in 2016-17 was $487 million. In contrast, the Commonwealth Bank announced today a $4.8 billion half-year profit. We believe that this amendment will prevent any disproportionate impact on smaller banks and assist in discouraging activity within banks that gives rise to prudential risk. In closing, I'd like to acknowledge the work of the Economics Committee and thank those who made submissions to the inquiry into this bill.</p> <p class="speaker">Peter Whish-Wilson</p><p>Before I get to my next question to Senator Cormann, I might say, for Senator Patrick's benefit—and I did cover this in my second reading contribution yesterday—that the Israeli parliament looked at this issue of executive caps, starting with their own version of a parliamentary inquiry in 2010. At the time it was very progressive legislation around executive caps, and it took the approach that you mentioned, whereby they said that they wanted to give shareholders, especially, more transparency and more say in setting executive caps for the banking sector. That legislation was passed in 2012, but they found that it led to no change at all in the executive salary caps. Then in 2016, four years later, they passed the first legislation internationally capping executive salaries at very similar levels to what we're proposing. Any banker who earns more than that gets a massive amount of tax, and basically it's not worth it. They came to the conclusion that, left to their own devices—many of the big institutional shareholders that control the banks are part of the market system and part of the same ethos, the profit ethos, that drives the banks and a lot of the bad behaviour. But their decision wasn't just about bringing the banking sector into line and holding it to account. It was also fundamentally a question of equity and a moral argument about inequality in their own country. If a banker earns $1½ million, that's still a hell of a lot more than most people will ever earn. It's still 100 times your average weekly earnings. They felt that was sufficient.</p><p>Interestingly enough, the bankers association in Israel challenged it in the Supreme Court, as you'd expect they would, and failed. So, they were the first country in the world to do it. And I don't often get up in this place and speak about Israel, but in this case I think they've led the way and there's absolutely no reason we can't do the same thing. So, I will just say that, which I did cover during the second reading debate yesterday.</p><p>Senator Cormann, my last question to you, you'll be pleased to know, on this amendment is on the differences in the sizes of the tier 1 banks. As you just agreed, those banks are very different sizes. The Commonwealth Bank is nearly twice the size of the National Australia Bank. Isn't that fundamentally also accepting that those different banks will have different advantages and disadvantages in funding a penalty, if it's capped at $210 million? Essentially, by saying that, given the funds available to CommBank, it'll be twice as easy for them to pay a fine of $210 million based on their market capitalisation. I think that we actually need to differentiate all banks on the size of their assets.</p> <p class="speaker">Mathias Cormann</p><p>I've answered that question. The answer to the initial question is no, and the government believe that we've appropriately calibrated the penalties according to the various tiers, as I indicated in my initial response. We believe we've struck the right balance, and there's not really anything further I can add.</p> <p class='motion-notice motion-notice-truncated'>Long debate text truncated.</p>-
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