1. Introduction
1.1
Labor Senators were supportive of the majority of recommendations and commentary provided in the Interim Report tabled regarding the ongoing Inquiry into Financial Technology and Regulatory Technology by the Senate Select Committee.
1.2
Evidence provided to the inquiry to date has overwhelmingly demonstrated the opportunities that exist for the development of innovative financial and regulatory technologies, and Labor is supportive of this sector continuing to grow and flourish.
1.3
It was inspiring for Labor Senators to hear the stories of entrepreneurs of these technologies who have given evidence to the inquiry describing the challenges and obstacles they are overcoming to get their innovative products to market and to realise their future growth. We also note that these entrepreneurs are located beyond the confines of Sydney and Melbourne, bringing job growth and opportunity to our other capital cities and regional areas.
1.4
Evidence to the inquiry has highlighted the need for the modernising of current regulatory frameworks to ensure the benefits of these innovative products can be better realised by Australian consumers and the broader economy.
1.5
Notwithstanding this, Labor Senators are firmly aware that the successful transition into the greater use of digitalised financial products amongst the Australian community will also require the modernisation of consumer protections.
1.6
It is on this basis that Labor Senators provide the following Dissenting Report which sets out our conclusions on the Interim Report. This report should not be taken as a dissent from the broader work of the committee, which has worked for the most part in a bipartisan and effective way.
This report is divided into two sections, those being:
Hybrid/Virtual Meetings
Recommendation 1
The committee recommends that the Corporations Act 2001 be amended to allow companies to decide the best format for holding their annual general meetings and other prescribed meetings (whether through virtual meetings, in‐person meetings or hybrid meetings), while ensuring the needs of shareholders are taken into account.
2.1
The committee’s recommendation was not supported by Labor Senators and we provide the following dissenting comments:
2.2
Labor Senators support the use of technology enablers including videoconferencing of Annual General Meetings; however, these should be conducted through a hybrid model to ensure fair and equitable participation among shareholders.
2.3
The committee’s recommendation allows companies to provide exclusively virtual annual general meetings. Labor Senators do not support the exclusive use of virtual meetings beyond the pandemic. Hybrid meetings would ensure the fair participation of older, regional and rural shareholders, as well as those with a disability, whilst still providing virtual participation options.
2.4
The Australian Shareholders Association which is the main representative body of Australian shareholders noted to the inquiry its support for the increased use of hybrid AGMs, as opposed to fully virtual meetings. The ASA see this as a long-term initiative to increase shareholder engagement while maintaining corporate accountability and ensuring disenfranchised shareholders continue to receive adequate engagement:
The ASA has long supported hybrid meetings—a physical meeting with an online meeting—because those people who are disenfranchised from attending due to, say, their rural location, mobility issues or illness can attend from home while there are also people attending via physical presence. We are quite supportive of hybrid meetings being the way forward to encourage greater engagement overall, but we also note that goodwill is required on the part of the company as well as the part of the shareholders to make those meetings work.
Digital Identity
Recommendation 7
The committee recommends that the Digital Identity reforms led by the Digital Transformation Agency be accelerated in order to deliver a national, economy-wide framework for the operation of a federated digital identity ecosystem as soon as possible.
The committee’s recommendation was not supported by Labor Senators and we provide the following dissenting comments:
2.6
The myGovID is the digital ID system for interacting with online government services. The digital ID will replace myGov’s existing two-factor authentication system, allowing citizens to verify their identity when applying for passports, driver’s licences, Medicare cards and other documents, as well as to access other government and private sector services.
2.7
If successful, Australians will find they should no longer have to fill in the same forms for government services repeatedly, queue for hours at Centrelink shopfronts to provide hard copy identification or spend needless time looking for the same documents when they need to provide proof of identity. Instead, these credentials will be stored in the one easily-accessible place.
2.8
There have been considerable delays to the suite of digital reforms promised by the Morrison Government this year.
Specifically on the myGovID project:
The DTA had announced last year that myGovID would be fully up and running by the end of the 2019-20 financial year
As it stands, only two government-funded digital identity services have so far been accredited: ATO and Australia Post
2.9The project deliverables that remain outstanding are significant and include:
Plans to integrate the digital identity with the new myGov interface
Introduction of facial recognition technology
Accreditation of private sector companies into the scheme
A public awareness and education campaign
Ironing out technical flaws highlighted in their initial beta testing
2.10
While we support improvements to the government owned and operated digital identity platform, and strongly support the extension of those learnings to the private sector where appropriate, we believe there is clearly a lot more work to be done to build the infrastructure, as well as educating the public on what these reforms look like. Prioritising expediency over care isn’t the best way to achieve this.
2.11
We are concerned about reports that the DTA don’t consult well with the broader tech community. Reports from the tech community on the rollout of the COVIDSafe app is that constructive feedback wasn’t sought early enough, that it was difficult to find the avenues to provide it, and that it was sat on or ignored for long periods. We encourage the DTA to improve these relationships for future partnerships to ensure a robust dialogue an engagement going forward.
Governance Arrangements for the New CDR
Recommendation 19
The committee recommends that the Australian Government establish a new national body to consolidate regulatory responsibilities in relation to the implementation of the Consumer Data Right.
2.12
The committee’s recommendation was not supported by Labor Senators and we provide the following additional comments:
2.13
Labor Senators are aware of the benefits that could be achieved by consolidating national data policy under a single agency. We further note Singapore’s paired brake/accelerator model reports under a single statutory authority (separate sub-branches) which we understand requires decisions to be made that might require consideration of trade-offs between privacy and innovation.
2.14
However it is the view of Labor Senators that immediate concerns related to the roll-out of Open Banking necessitate that in the immediate term the ACCC should remain the primary regulatory body in this area as it operates with clear and concise Competition and Consumer Protection mandates. Labor Senators note that the ACCC has been working with the Office of the Australian Information Commissioner (OAIC) and the Data Standards Body (DSB) in the development and implementation of the CDR.
Accreditation issues and access to CDR Data
Recommendation 20
The committee recommends that the Australian Competition and Consumer Commission, or the new proposed national Consumer Data Right (CDR) body, finalise the rules for intermediary and third-party access to CDR banking data by late 2020 and enable intermediaries to enter the CDR ecosystem as soon as possible thereafter.
2.15
The committee’s recommendation was not supported by Labor Senators and we provide the following additional comments:
2.16
As noted earlier in this report, Labor Senators are not supportive of the establishment of a new national Consumer Data Right (CDR) body at this time.
2.17
Labor Senators otherwise support the recommendation’s call for the implementation of an accreditation system for intermediary and third-party access to CDR data.
2.18
Labor Senators support evidence provided to the inquiry by the Financial Rights Legal Centre and the Consumer Action Law Centre which states that such accreditation should be accompanied by rules that ensure:
if a CDR Consumer provides their CDR Data that it has received from a Data Holder, to a third party, the privacy protections afforded to that CDR Data under the CDR regime will continue to apply to the CDR Consumer.
Intermediary and third-party recipients 'have clear obligations about the handling of CDR Data they receive’.
Future of screen scraping
Recommendation 22
The committee recommends the Australian Government maintain existing regulatory arrangements in relation to digital data capture.
2.19The committee’s recommendation was not supported by Labor Senators andwe provide the following dissenting comments:
2.20
Labor Senators note that the ePayments Code provides that where a service provider can prove on the balance of probability that a user contributed to a loss through fraud, or breaching the pass code security requirements in the Code, the customer is liable in full for any losses that occur until the point this is reported to the service provider.
2.21
In its submission to the inquiry, the Financial Rights Legal Centre expressed concerns that customers may be held liable in cases of fraud after providing their banking details to third parties providing legitimate banking services using Digital Data Capture (DDC). Labor Senators encourage ASIC to clarify this issue in its current review of the ePayments Code.
2.22
Labor Senators believe that it is premature for the committee to provide the above recommendation which effectively calls for the permanent maintenance of DDC, prior to ASIC providing further guidance on any potential consumer liability under the ePayments code.
2.23
Labor Senators acknowledge the legitimate concerns of primary service providers regarding unauthorised access to their online security systems.
2.24
Labor Senators are also aware that DDC has been a useful tool for service providers to comply with their responsible lending obligations, however we remain hopeful that the practice will no longer be required pending a successful transition into Open Banking.
Digital or Online Hawking
2.25
Labor Senators are strongly of the view that data obtained from DDC should only be used for the express purpose authorised by a customer.
2.26
It was submitted to the inquiry by the Financial Rights Legal Centre and the Consumer Action Law Centre that ‘financially vulnerable clients (are) providing log-in details to payday lenders, only to have the payday lender use the log-in details later to identify when a consumer is getting low on cash and subsequently directly advertise to that consumer. This has the effect of exacerbating financial hardship.
2.27
Labor Senators are disappointed that the committee chose not to incorporate this evidence provided by the FRLC and CALC regarding the issue of digital or online hawking.
2.28
Labor Senators support the suggested recommendation provided by the FRLC and CALC which called for an amending of both the law, and ASIC regulatory guidelines for hawking (RG 38 (2005)), to capture digital or online hawking.
Expansion of Consumer Data Right to Other Sectors
Recommendation 23
The committee recommends that the Australian Government expand the Consumer Data Right to include other financial services, starting with the superannuation sector and then including sectors such as general insurance.
2.29
The committee’s recommendation was not supported by Labor Senators and we provide the following dissenting comments:
2.30
Labor Senators are of the view that far greater immediate consumer benefits would be realised by expanding the Consumer Data Right to other sectors such as the Telecommunications and Energy sectors.
2.31
The Financial Services Council (FSC) provided evidence to the inquiry that a 'significant pipeline of reform' is currently underway in the superannuation system, and that 'other reforms flagged by the Productivity Commission and Royal Commission are likely to offer a greater benefit to consumers with a CDR regime’. It is the FSC’s view that the development of Open Super should be delayed until 2022 to allow the appropriate level of resources to be dedicated to this important reform.
3. Additional Comments
Supporting Innovation via self-regulation
Recommendation 16
The committee recommends that the Australian Government establish a culture of innovation and competition in financial services by supporting self-regulation where innovative products emerge, whilst ensuring strong consumer protection.
The committee’s recommendation was supported by Labor Senators and we provide the following additional comments:
3.2
Labor Senators note the concerns of the Financial Rights Legal Centre and Consumer Law Action Centre expressed through this inquiry regarding the gaps they believe exist in the protection of consumers with the current regulation of the BNPL sector.
3.3
Whilst not necessarily suggesting that BNPL products need to be regulated through the National Credit Act, Labor Senators believe that the current Code being drafted by the Australian Financial Industry Association (AFIA) should continue to be consulted on with consumer groups.
3.4
Labor Senators understand that AFIA have adopted many of the regulatory suggestions in their draft Code made by consumer groups but that that there are other necessary measures that have been suggested which are missing.
3.5
In its submission to the inquiry the Financial Rights Legal Centre and the Consumer Action Law Centre provided a list of measures that they believe must be included in any self-regulatory code for the BNPL sector. These items (whilst not exhaustive) are noted below.
responsible lending checks;
internal dispute resolution;
external dispute resolution;
access to financial hardship arrangements;
limiting multiple accounts;
ensuring appropriate identity checks;
ensuring users who have been blocked from further borrowing can still access their accounts for the purposes of monitoring their debt, repayments and the application of any fees and charges; and
restricting the use of these services by minors.
Superannuation Funds Investing in Start-Ups
Recommendation 27
The committee recommends that the Australian Government foster a culture where superannuation funds invest more widely, including in Australian startups, without undermining the sole purpose test.
3.6
The committee’s recommendation was supported by Labor Senators and we provide the following additional comments:
3.7
Labor Senators supported the above recommendation however we also wish to clarify and strongly assert that superannuation funds have a long track record of investing in Australia to the benefit of its members and the broader Australian economy.
3.8
Throughout the pandemic, the Government’s Early Access to Superannuation Scheme has undermined our superannuation system. We note that now is not the time to further weaken the superannuation system, including through amending the legislated scheduled superannuation increase.
Financial Literacy and the Digital Divide
3.9
Labor Senators note FRLC’s evidence to the inquiry that the implementation of Open Banking and CDR could further exacerbate the “digital divide” with respect to those who have access to technologies and those who don’t; and more importantly, those who understand technology and those who don’t:
We have found that there are becoming 'digital haves' and 'digital have‑nots'. Even those who do have access to technology find themselves in difficult circumstances. I'm thinking of people in rural or remote communities who don't have access to a wide range of ATMs or digital services and are forced to go to the only ATM in town, which charges them quite a lot. This came up during the royal commission. Palm Island is an example. Yes, there are a lot of people who are not able to access, for example, technologies to receive their bills electronically. They're either charged for a paper bill, in some circumstances, or end up not being able to receive bills, and they may fall behind. So, yes, there are a lot of benefits that the fintech sector and fintech products will be able to provide for most Australians, who are on smartphones, but, yes, unfortunately there will be some losers in this situation.
3.10
Labor Senators believe that the Government should be addressing the Financial Literacy needs of the Australian community as we see an increase in the amount of financial technology products coming to market. The FRLC provided evidence to the inquiry noting that:
Our organisation is pretty small and under-resourced. It's basically me and another policy officer.
…
We're one of the few organisations that do have a policy person who can deal with these [Fintech related] issues.
…
With the royal commission, we've basically had to put all our resources into fixing problems now, and very few of us in the consumer movement can even have the time to think about what the problems are in the future. We've decided to do that [now focus on issues related to CDR] because we see a lot of poor people calling us worried about data. We've discovered some problems, so we decided to put some effort into providing a submission to this inquiry and other inquiries around the CDR. We will continue doing so where we can.
…
Our organisation is not funded to do that [Financial Literacy], but sometimes we get funding to do a project from Ecstra or its predecessor, Financial Literacy Australia, to do a small financial literacy project. One I can think of is one that we did around payday loans recently. It's very rare that we are able to do it, because we're not funded to do it.
…
There is nobody out there providing financial literacy information about the problems inherent in buy now, pay later, and debt more generally, that would enable people to have a bit more understanding of the problems that may arise when you're using a buy now, pay later service to buy essential goods like toilet paper.
3.11
Labor Senators note specific evidence provided by the FRLC that younger people are increasingly looking for help through its advocacy services when they are faced with issues from the use or misuse of buy now, pay later services.
3.12
Labor Senators acknowledge that innovation in the financial technology space is an exciting development for the Australian economy, including for consumers. However, its true potential will only be fulfilled if their availability results in a narrowing of the digital divide and they are easily understood by consumers.
Senator Marielle Smith
Senator Jess Walsh
Deputy Chair