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2016-2017
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
BANKING AND FINANCIAL SERVICES COMMISSION OF INQUIRY
BILL 2017
EXPLANATORY MEMORANDUM
(Circulated by the authority of Senators Whish-Wilson, Hanson, Hinch, Lambie,
Roberts and Xenophon)
BANKING AND FINANCIAL SERVICES COMMISSION OF
INQUIRY BILL 2017
OUTLINE
This Bill seeks to establish a parliamentary inquiry into the banking and financial
services sector that reports to Parliament on particular matters.
The Bill responds to episodes of misconduct that have been uncovered in the banking
and financial services sector in recent years. The most conspicuous of these are
instances of misconduct within the wealth management arms of vertically integrated
banks, particularly instances of retail customers having been given wrong and
inappropriate financial advice, including being sold highly risky financial products.
Allegations have also arisen regarding wrongfully and fraudulently denied insurance
claims, and court action has been initiated regarding the manipulation of overnight
interest rates and improper mortgage lending.
These issues have arisen sporadically, usually as a result of the actions of whistle-
blowers from within institutions or as a result of investigations by regulators.
Inquiries of parliamentary committees and government have also helped examine
these matters. However the full extent of misconduct with the banking and financial
services sector has not been discovered, particularly given the limited time and
resources available to committees of the parliament, and the inability to utilise expert
legal cross-examination and forensic analysis.
This Bill seeks to ensure that the extent of misconduct with the banking and financial
services sector is exhaustively examined and that the impact on victims of misconduct
is fully understood. This Bill appoints a Commission to establish the causal factors for
this misconduct, including misaligned incentives, culture, inadequate regulation and
regulatory power, and 'moral hazard' extending from government guarantees.
This issue is of concern given the size of the banking and financial services sector,
and its importance to the functioning of the Australian economy.
NOTES ON CLAUSES
Part 1--Preliminary
Clause 1: Short title
1. This clause provides that the Bill, when enacted, can be cited as the Banking
and Financial Services Commission of Inquiry Act 2017.
Clause 2: Commencement
2. This clause provides for the Act to commence on the day after it receives the
Royal Assent and the day that the Consolidated Revenue Fund is appropriated to fund
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the Commission of Inquiry. Both of these conditions have to be satisfied to enable
commencement.
Clause 3 - Schedule(s)
3. This clause specifies that each Act specified in a Schedule to this Act is
amended or repealed as is set out in the applicable items in the Schedule. Any other
item in a Schedule to this Act has effects according to its terms.
Clause 4 - Act Binds the Crown
4. This clause stipulates that the Act will bind the Crown in all its aspects.
Clause 5 - Definitions
5. This clause specifies the meaning of terms within the bill. All of the
definitions are self-explanatory; however Financial service entity defines a class of
financial service entities for the purposes of the application of the terms of reference.
Namely, this covers authorised deposit taking institutions (banks), insurance
companies, superannuation funds, credit providers (including payday lenders),
financial advisors, financial product retailers, or any other financial services license
holder.
Part 2--Establishing the Banking and Financial Services Commission of Inquiry
Clause 6 - Establishment of Commission
6. This clause specifies the name of the Commission to be the Banking and
Financial Services Commission of Inquiry (the Commission), that the Commission be
constituted of one member appointed by resolution of the Senate, and that this
Commissioner must be or have been a Judge.
Clause 7 - Terms of reference
7. This clause specifies the terms of reference for the inquiry that will guide the
work of the Commission. The terms of reference are drafted broadly and without
reference to any particular industry bodies so as to provide for the Commission to
examine any and all relevant matters, and not to be limited to any particular sub-
sectors or any particular corporate entities.
A detailed explanation of Clause 7(1) is as follows:
o Clause 7(1)(a) provides for the discovery of misconduct within the
sector, and for an examination of the effect of any misconduct on the
financial system and broader economy,
o Clause 7(1)(b) provides for an examination of incentives for
individuals and incentives within corporate structures, and the role of
these incentives in relation to any misconduct within the sector,
o Clause 7(1)(c) provides for an examination of the risk borne by the
Commonwealth as an implicit guarantor to the sector should a
significant event impact on the banking and financial sector, and the
risk borne by the sector itself,
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o Clause 7(1)(d) provides for an examination of the efficacy of existing
rules and regulations in defining, investigating and penalising
misconduct,
o Clause 7(1)(e) provides for an examination of the efficacy of existing
consumer complaint handling and restitution,
o Clause 7(1)(f) provides for an examination of the funding and
performance of regulators and the extent, if any that regulators are in
any way captured by those entities they regulate.
o Clause 7(1)(g) provides for an examination of the influence of
lobbying activity on behalf of and donations from the sector on the
impact of regulatory settings or overarching public policy decisions,
and
o Clause 7(1)(h) is required to cover any areas of investigation that are
incidental to the matters listed above.
Clause 7(2) ensures that the conduct of this inquiry does not adversely
interfere with any current investigation by ASIC, or any matter before the
courts; and
Clause 7(3) allows the Commission to prioritise its investigation and reporting
to those areas of the Terms of Reference, that in the Commissioner's opinion
would have the greatest actual or potential harm to the public good.
Clause 8 - Report to the Parliament
8. This clause specifies that the Commission is to report to both houses of
Parliament within one year of commencement of the inquiry. This reporting time
period can be extended through resolution of the Senate. Once the report is provided,
the Presiding Officers are required to make this report public as soon as practicable.
9. The report is to contain findings of fact and make recommendations
considered relevant, and back this up with by a record of evidence.
10. The Commission may also submit a separate report detailing any findings or
recommendations that may prejudice current criminal proceedings or investigations;
that may disclose confidential sources; or that may prejudice or endanger a person.
11. This separate report and statement of opinion would not be tabled in
Parliament, but would be issued to the Offices of the Presiding Officers who will have
authority over those separate reports.
Part 3--Powers of the Banking and Financial Services Commission of Inquiry
Clause 9 - Hearings
12. This clause provides for the Commission to hold hearings anywhere in
Australia. Hearings are to be public unless otherwise determined by the Commission,
in which case the Commission can hold closed hearings. People appearing before the
Commission can be represented by a lawyer.
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13. The Commission has the power to provide direction relating to the publication
of proceedings of the inquiry, and must ensure that any publication does not prejudice
or endanger a person, or interfere with a fair trial.
Clause 10 - Counsel assisting the Commission
14. This clause provides for the Commission to appoint lawyers assisting, either in
general or in relation to particular matters.
Clause 11 - Power to summon witnesses and take evidence
15. This clause provides the Commission with coercive powers to compel a
witness to attend a hearing, to produce evidence and to answer questions. Counsel
assisting the Commission may also cross-examine a witness as well as people called
to give evidence or their legal practitioners.
16. The Commission also has the power to compel the production of documents or
things, irrespective of whether they have been called to give evidence.
Clause 12 - Arrest of witness failing to appear
17. This clause provides the Commission with the power to issue an arrest warrant
to bring a witness before a hearing or hold them in custody until ordered by the
Commissioner.
18. The execution of the warrant will be carried out by the Australian Federal
Police or a police officer of a State or Territory who will have legal access to
premises.
Clause 13 - Search warrants
19. This clause provides the Commission with the power to issue a search warrant
to obtain relevant material if they have reasonable grounds to suspect that the
documents or material would be concealed, lost, mutilated or destroyed if
summonsed.
20. The execution of the warrant will be carried out by the Australian Federal
Police or a police officer of a State or Territory who will have legal access to
premises.
Clause 14 - Access to certain material held by ASIC, APRA or RBA
21. This clause provides the Commission with the power to obtain relevant
material from the three financial regulators, the Australian Securities and Investments
Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the
Reserve Bank of Australia (RBA).
Clause 15 - Powers of Commission in relation to document and other things
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22. This clause provides the Commission with the power to retain and inspect
documents in its possession for as long as deemed necessary. It also requires the
Commission to return these documents when finished or no longer needed.
Clause 15 - Powers of Commission in relation to document and other things
23. This clause provides the Commission with the power to retain and inspect
documents in its possession. It also requires the Commission to return these
documents when finished.
Part 4--Offences
24. This section sets the penalty regime for various offences relating to the
conduct of the inquiry.
Clause Title Penalty
16 Unauthorised presence 6 months
at hearing or imprisonment
publication of
evidence
17 Failure of witnesses to 6 months
attend or produce imprisonment
documents
18 Refusal to be sworn or 6 month
give evidence imprisonment
20 False or misleading 5 years
evidence imprisonment
21 Destroying documents 2 years
or other things imprisonment
22 Intimidation or 5 years
dismissal of witnesses imprisonment
23 Preventing witnesses 12 months
from attending imprisonment
24 Bribery of witness 5 years
imprisonment
25 Fraud on witness 24 months
imprisonment
26 Contempt of 12 months
Commission imprisonment
25. Clause 19 clarifies that each act or omission under Clause 17 constitutes a
separate offence.
Part 5--Operation of the Commission
Clause 27 - Death or incapacity of a member
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26. This clause stipulates that should the Commissioner have to step down due to
death or physical or mental incapability, notice be provided to the President of the
Senate and that the new appointment will be made by a resolution of the Senate.
Clause 28 - Remuneration and allowances
27. This clause sets remuneration and allowances as though they are a Federal
Court Justice. This clause also stipulates that they will cease to be remunerated from 7
days after they have provided the report to the Presiding Officers of the Parliament.
Clause 29 - Staff of the Commission
28. The Commission will have authority over hiring the relevant number of staff
and setting their terms of appointment and remuneration and that staff must conduct
themselves in accordance with the directions provided by the Commission.
Clause 30 - Protection of member and others
29. The protections and immunities of the Commissioner will be the same as
though they are a Justice of the High Court. Similarly a legal practitioner has the same
protections as a Barrister appearing in the High Court.
Clause 31 - Legal and financial Assistance
30. For witnesses that would undergo financial hardship for the retaining of legal
practitioners, this clause provides that legal expenses can be covered where the
circumstances of the person's particulars require it. An application by the
Commission has to be approved by the President of the Senate.
Clause 32 - Reimbursement of witness expenses
31. Witnesses that are not part of a financial service entity are entitled to
reimbursement according to existing scales and programs that operate in the High
Court.
Clause 33 - Commission may communicate information
32. The Commission is empowered to communicate to relevant regulatory and law
enforcement authorities any information regarding actual or potential illegal acts
where, in the Commission's view it is appropriate to do so.
Clause 34 - Rules
33. The Minister is able to issue rules to assist the functioning and operation of the
Commission of Inquiry. The boundaries of the Minister's powers are clearly set out in
subsection (2).
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STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011
Banking and Financial Services Commission of Inquiry Bill 2017
This Bill is compatible with the human rights and freedoms recognised or declared in
the international instruments listed in section 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011.
Overview of the Bill:
This Bill seeks to establish a parliamentary inquiry into the banking and financial
services sector that reports to Parliament on particular matters.
The Bill responds to episodes of misconduct that have been uncovered in the banking
and financial services sector in recent years. The most conspicuous of these are
instances of misconduct within the wealth management arms of vertically integrated
banks, particularly instances of retail customers having been given wrong and
inappropriate financial advice, including being sold highly risky financial products.
Human Rights Implications:
This Bill engages the legal rights of witnesses who are summonsed to appear as
witnesses or surrender documents or information to the Commission. All the relevant
protections afforded to witnesses in Royal Commissions and judicial trials are
replicated by this Bill.
Evidence that threatens the safety or reputation of witness, exposes the identity of a
confidential source, would prejudice a fair trial or an investigation shall not be
publicly disclosed. Similarly, the Commission has the power to hold private hearings
to ensure the rights of witnesses are protected.
Conversely, the establishment of the Commission ensures that those who have
undergone financial hardship due to another's unlawful misconduct will have access
to justice and a platform from which to pursue their rights.
As such the Bill does not infringe any of the applicable rights or freedoms.
Conclusion:
This Bill is compatible with human rights.
Senators Whish-Wilson, Hanson, Hinch, Lambie, Roberts and Xenophon