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Terms of reference
On 25 February 2009 the Parliamentary Joint Committee on Corporations
and Financial Services resolved to inquire into and report by 23 November 2009
on the issues associated with recent financial product and services provider
collapses, such as Storm Financial, Opes Prime and other similar collapses,
with particular reference to:
role of financial advisers;
general regulatory environment for these products and services;
role played by commission arrangements relating to product sales and advice,
including the potential for conflicts of interest, the need for appropriate
disclosure, and remuneration models for financial advisers;
role played by marketing and advertising campaigns;
adequacy of licensing arrangements for those who sold the products and
appropriateness of information and advice provided to consumers considering
investing in those products and services, and how the interests of consumers
can best be served;
education and understanding of these financial products and services;
adequacy of professional indemnity insurance arrangements for those who sold
the products and services, and the impact on consumers; and
need for any legislative or regulatory change.
On 16 March 2009 the Senate agreed that the following additional matter
be referred to the Parliamentary Joint Committee on Corporations and Financial
Services as part of that committee's inquiry into financial products and
services in Australia, adopted by the committee on 25 February 2009 for inquiry
and report by 23 November 2009:
The committee will investigate the involvement of the banking
and finance industry in providing finance for investors in and through Storm
Financial, Opes Prime and other similar businesses, and the practices of banks
and other financial institutions in relation to margin lending associated with
Definitions of key inquiry terms
Section 763A of the Corporations Act 2001 sets out the general
definition of a financial product as follows:
... a financial product is a facility
through which, or through the acquisition of which, a person does one or more
of the following:
makes a financial investment
manages financial risk ...;
makes non-cash payments ...
... a particular facility that is of a kind through which
people commonly make financial investments, manage financial risks or make
non-cash payments is a financial product even if that facility is
acquired by a particular person for some other purpose.
A facility does not cease to be a financial product
the facility has been acquired
by a person other than the person to whom it was originally issued; and
that person, in acquiring the
product, was not making a financial investment or managing a financial risk.
Section 766A of the Corporations Act 2001 identifies a financial
service as follows:
... a person provides a financial service if
provide financial product
deal in a financial
make a market for a financial
product ...; or
operate a registered scheme;
provide a custodial or
depository service...; or
engage in conduct of a kind
prescribed by regulations made for the purposes of this paragraph.
Conduct of the inquiry
The inquiry was advertised in The Australian newspaper, The
Australian Financial Review newspaper and through the internet. The committee
invited submissions from a wide range of interested organisations, government
departments and authorities, and individuals. The closing date for submissions
was 31 July 2009, and the committee agreed to table its report on 23 November
2009. The Senate also set 23 November 2009 as the reporting date for the
additional term of reference that was added to the committee's initial terms of
reference, although the committee subsequently sought an extension of the
Senate reporting date until 24 November in order to fit in with standard
parliamentary administrative processes.
In conducting its inquiry, the committee made a decision to focus
specifically on non-superannuation products and services.
The committee received 398 formal submissions and 37 supplementary
submissions, as well as associated correspondence and supporting material. A
list of individuals and organisations that made public submissions to the
inquiry is at Appendix 1.
The committee held nine public hearings, in Canberra (four hearings),
Melbourne, Cairns, Townsville, Brisbane and Sydney. A list of witnesses who
gave evidence at the public hearings is at Appendix 2.
Some witnesses took questions on notice at public hearings. Answers
received are published in Appendix 3.
A list of material tabled during the inquiry or provided to the
committee as additional information is published at Appendix 4.
Acknowledgement and thanks to contributors
The committee thanks those organisations and individuals that made
written submissions and gave evidence at the public hearings. In particular,
the committee recognises the trauma experienced by many investors in Storm
Financial, Opes Prime and similar collapsed providers and is grateful to
investors who were prepared to share their experiences with the committee.
Across the program of public hearings, the committee's aim was to hear
from a balanced selection of investors, advisers, product providers, finance
providers, representative groups and individuals. Nevertheless, the committee acknowledges
that there were many people who wanted to give evidence at hearings but who did
not get the opportunity to do so. The committee thanks all of these people for
their willingness to assist the committee in its work.
Note on references
References to submissions in this report are to individual submissions
received by the committee and published on the internet.
References to the committee Hansard are to the official Hansard transcript of
the public hearings, with the exception of the 28 October hearing, for which
only a proof transcript was available at the time of writing.
Please note that page numbers may vary between the proof and the official
Chapter 2 summarises the current regulatory regime for financial
services and products in Australia, particularly the provisions of Chapter 7 of
the Corporations Act 2001, and the role of the regulator, the Australian
Securities and Investments Commission (ASIC). This chapter also provides a
current snapshot of Australia's financial advice sector.
Chapter 3 addresses the events surrounding the collapse of Storm
Financial, the consequences of that collapse, and the evidence provided to the
committee about what caused the collapse and why it has been so devastating for
so many investors.
Chapter 4 presents the evidence the committee received regarding the
collapse of Opes Prime, including the effect on investors, the evidence
received by the committee about what caused the collapse, and the scheme of
arrangement accepted by creditors to recover a portion of their money.
Chapter 5 highlights problems or issues in the provision of financial
products and services that were drawn to the committee's attention during the
course of its inquiry. Matters discussed include the sales-advice conflict;
whether it is poor advice or poor products that lead to poor investment
outcomes; the adequacy (or otherwise) of the current regulation of financial
advice provision, including the conduct and disclosure-based approach to
managing conflicts of interest; the Australian Financial Services licensing
regime; professional indemnity (PI) insurance arrangements; and financial
literacy levels. The suggestion that the current regulatory regime is
appropriate but is not effectively enforced is also discussed in this chapter.
Chapter 6 sets out a range of solutions or reforms that were proposed to
the committee during the course of the inquiry. Suggestions for change in the
sector that are canvassed in this chapter include raising standards of advice;
making disclosure more effective; removing conflicted remuneration practices;
ensuring better transparency, competency and accountability through the financial
services licensing system; reforming lending practices; limiting access to
complex and/or risky investment products; and introducing a last resort statutory
compensation scheme. The committee makes eleven recommendations in this
Chapter 7 summarises the committee's views and reiterates the
committee's recommendations for change arising out of this inquiry.
During the course of the inquiry, a matter of parliamentary privilege
arose. A person who had made a submission to the inquiry drew the committee's
attention to a letter in which they were threatened with a penalty as a direct
result of making that submission.
The committee considered this to be a serious incident and took
immediate action to resolve the matter, as detailed in Appendix 5.
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