Senator the Hon Mathias Cormann
Minister for Finance
Date: Tuesday, 1 July 2014
SARAH FERGUSON: Mathias Cormann welcome to 7.30.
MATHIAS CORMANN: Good to be here.
SARAH FERGUSON: Victims of the Commonwealth Bank are asking for a Royal Commission so is your colleague Senator John Williams. Why are you resisting?
MATHIAS CORMANN: The Senate Economics Committee conducted a very comprehensive inquiry and they did a very good job in exposing some very concerning issues. What I have said since that report was released is that the Government would carefully study the report. It goes over more than 550 pages, 61 recommendations and when we have properly considered all of the issues, we will provide a considered response. The other point I made is that other than addressing the policy issues and the issues specific to ASIC's performance that need to be addressed, the most important question on my mind is what course of action will be the most effective and the most efficient in achieving a resolution to any unresolved and outstanding issues for victims and...interrupted
SARAH FERGUSON: Does that mean you're still considering a Royal Commission?
MATHIAS CORMANN: I am not convinced that yet another inquiry after the inquiry that we have just had through the Senate Economics Committee and a series of other similar inquiries in the past is the best way forward at this point. What I want to see, I have said a number of times now that the initial response by the Commonwealth Bank was inadequate. I'm expecting a more comprehensive and a more considered and full response to the issues raised by the Senate Economics Committee and having spoken to Mr Narev last Friday, I'm confident that the Commonwealth Bank will provide a further response and I will reserve my judgments in relation to next steps on any further inquiries that may or may not be required until that time.
SARAH FERGUSON: Did you ask Mr Narev for a number of the total number of victims of this dodgy financial advice?
MATHIAS CORMANN: What I have indicated to him is that issues that were raised by the Senate Economics Committee report were serious and that I expected a proper and full and considered response in relation to the issues raised.
SARAH FERGUSON: Alright, I will come back to the Commonwealth Bank in just a moment. But there are allegations too against other banks which is one of the reasons why a Royal Commission is being called for. Serious concerns about Macquarie Private Wealth as well as ANZ Custodians and UBS Wealth Management, according to ASIC. How widespread do you believe dishonest practice is in financial advice?
MATHIAS CORMANN: Well we have got to remember that the events that were investigated by the Senate Economics inquiry are some time in the past and a lot has changed since that time. I mean under the previous government...interrupted
SARAH FERGUSON: Hold on one moment, you just said in the past and I heard you out on the first two answers, so I'll jump in there because it is only in May this year that ASIC were told that the Commonwealth Bank had not been, had in fact misled ASIC on the number of victims and the nature of compensation. So why would you have confidence given how recent that is?
MATHIAS CORMANN: I am very concerned about that particular aspect and I am certainly looking forward to a proper response to that particular aspect of what is reported in the Senate Economics Committee Report. What I am talking about when I talk about events some time in the past are the transactions that took place in a particular context. And since that time, since the time of those transactions, under the previous government, with our support and indeed since then there has been a significant effort undertaken by the industry to lift professional, ethical and educational standards. The regulatory environment is now different and will continue to be different after the changes that we are pursuing to improve our financial advice laws so the sales culture and the commissions based sales culture that was underpinning a lot of the concerns that have emerged in the context of this inquiry have largely been addressed and that is work in progress.
SARAH FERGUSON: But Mr Cormann, if you're familiar at all with the report and the toings and froing...
MATHIAS CORMANN: I am.
SARAH FERGUSON: ...of the Senate Committee, you will be aware for example that the bank itself identified I think 38 financial planners who were considered to be very high risk, now nine of those financial planners are still working for the bank. Is that acceptable?
MATHIAS CORMANN: Again I go back to my initial answer. I expect the Commonwealth Bank to provide a full and proper and considered response to the issues raised in...interrupted
SARAH FERGUSON: But what do you think about that?
MATHIAS CORMANN: Well as I have said I am concerned about a number of the issues that are raised in the Senate Economics Committee Report as it goes to matters related to the CBA and I want to see a proper and full response to those issues.
SARAH FERGUSON: You're also aware at the same time that not only do we not have a number of the total victims who suffered at the hands of these dodgy financial planners; we also don't know how many files have disappeared, how many files haven't been re-examined. It sounds like there is a lot more grounds for inquiry.
MATHIAS CORMANN: We have had a very comprehensive inquiry which has just been undertaken by the Senate Economics Committee and that has raised a series of very serious issues. I think that the next piece of information that we need is the information in relation to what action the Commonwealth Bank in particular proposes to take in response. Now, I have been very clear, I am of the view that the initial response was inadequate. I am of the view that there is a need for a more comprehensive and a more considered response to the issues that have been raised by the Senate Economics Committee from the Commonwealth Bank in particular. I look forward to that response sometime this week. Once that response has been forthcoming, we will be able to form further judgments.
SARAH FERGUSON: Did you ask Mr Narev for money to be put aside for compensation?
MATHIAS CORMANN: What I have indicated to him is that one, there ought to be a proper and considered response to the issues raised and that there ought to be a process to quickly resolve any legitimate outstanding issues from aggrieved customers. What form that might take, I will leave that to them.
SARAH FERGUSON: Let's have a look at the proposed changes now to the financial planning regulations. Under your proposed changes, bank staff and financial planners can still get bonuses for pushing products via general advice. Why would you allow that perverse incentive to remain?
MATHIAS CORMANN: Well that is actually completely inaccurate. What we have put beyond doubt in the regulations that came into force today is that there is absolutely no capacity for conflicted remuneration for employees of banks providing general advice which would lead to product sales.
SARAH FERGUSON: But it is still the case that tellers can get bonuses for sales for pushing products?
MATHIAS CORMANN: No, that is not the case that they can receive conflicted remunerations, commissions or indeed any payments solely made as a result of general advice provided to issue or sell product.
SARAH FERGUSON: But it is the case that peoples' bonuses can be constructed in a way that there is an incentive for them pushing bank products.
MATHIAS CORMANN: No, that is my point. You see, we are certainly not suggesting that the banks are not allowed to remunerate their staff for providing services. Of course banks and indeed any other business will remunerate their staff for the services they provide and I don't think that anyone, not even the Labor party are suggesting that we scrap all remuneration for bank employees. What we have said and what we have made very clear is that there is no capacity to remunerate bank employees in a way that would in any way conflict the advice given including general advice.
SARAH FERGUSON: Alright. Let me ask you this, if a commission for selling a product can alter the nature of advice, why can't a bonus for pushing a product over the counter also pervert the nature of the advice?
MATHIAS CORMANN: Well I am just saying that it is just not possible for that payment to be made. What we have made very clear in the regulations that came into force today is that any payment solely as a result of general advice that leads to the sale of a product is going to be prohibited. There is absolutely no capacity to provide an incentive payment, a bonus, a commission, an upfront commission, a trailing commission, you name it, in relation to general advice provided to sell a product. It is absolutely and totally prohibited as a result of the changes that we have announced a few weeks ago now.
SARAH FERGUSON: In the United Kingdom they have moved to take selling bank products out of the bank. I think of the case in Australia, 80 per cent of the products that tellers are pushing, that financial advisers are pushing belong to the banks. Do you think we should follow the UK model?
MATHIAS CORMANN: That is certainly not the conclusion that parliamentary inquires here in Australia have reached in the past and we have had some very high quality bipartisan committees, including the committee chaired by the now Shadow Minister for Financial Services Bernie Ripoll, which have made strong recommendations on how to improve the regulatory arrangements for financial services, such as by introducing a statutory requirement for advisers to act in the best interest of their client, such as introducing a ban on conflicted remuneration, things that we have supported in Opposition and we're still supporting now in Government. I don't believe that overnight we should completely turn around the financial services market as it is currently operated, but we need to ensure that we've got the right balance between appropriate consumer protections while making sure that access to high quality advice remains affordable for all Australians.
SARAH FERGUSON: Right let me come back finally to the question of what happens when we get to hear from the Commonwealth Bank. What are you going to do if you're not satisfied with the Commonwealth Bank's response?
MATHIAS CORMANN: I will cross that bridge when I get there. Right now we are very carefully studying the 550 plus page report from the Senate Economics Committee. We're carefully considering the 61 recommendations. I believe that I do need to be able to review the Commonwealth Bank's response to the Senate Economics Committee report before I give a full, final judgment on what the right and appropriate way forward is going to be.
SARAH FERGUSON: So we have to wait until you have read the report?
MATHIAS CORMANN: I have read the report, but I'm not in a position right now to consider the Commonwealth Bank's response, because so far we haven't had the comprehensive report from the Commonwealth Bank that I'm looking for.
SARAH FERGUSON: Thank you very much indeed for joining us Mathias Cormann.
MATHIAS CORMANN: Always good to be here.