THE Financial Services Council (FSC) has urged the Federal Government to amend the proposed Compensation Scheme of Last Resort (CSLR) to prevent the 'moral hazard' of shifting costs onto companies and consumers who have done nothing wrong.

The FSC also calls on ASIC to strengthen enforcement of existing laws to prevent the source of unpaid determinations resulting from advice failures.

The proposed design of the CSLR does little to reduce the risk of unpaid Australian Financial Complaints Authority (AFCA) determinations and simply shifts the cost, via levies, to financial services companies that have done nothing wrong.

EY economic modelling commissioned by the FSC demonstrates the future cost of advice failures for the CSLR is likely to be $59.2 million, significantly higher than the $8 million forecast by the Government, once ‘black swan’ events, such as a financial crisis, are taken into account.

The FSC is recommending:

• ASIC introduce minimum capital requirements for advice licensees;
• ASIC has proactive oversight of Professional Indemnity Insurance (PI) held by advice licensees;
• Provisions in the CSLR are introduced to prevent phoenixing;
• Retaining the $150,000 cap on claims proposed by the Federal Government; and
• House the CSLR in Treasury to remove conflicts of interest and reduce operational costs.

The FSC’s recommendations would lower costs and protect all advice businesses that act with integrity from those that are unable to meet compensation demands and instead push the cost of failure onto the broader industry

FSC CEO Sally Loane said, “For the CSLR to genuinely be a scheme of last resort for consumers ASIC must strengthen its oversight of existing requirements for advice licensees to have appropriate capital, professional indemnity insurance and compensation arrangements in place.

“Weak enforcement has been a significant contributor to the current scale of unpaid determinations and the future cost of the scheme, and a more proactive approach to enforcing the law is essential.

“Why put a safety net under a leaky bucket? Mandating that sound financial services businesses to fund consumer compensation for those businesses which have failed is moral hazard writ large.

“The FSC recommends ASIC undertake risk-based reviews of a representative sample of advice licensees to encourage good practice and reduce the risk of consumer unpaid determinations arising from those businesses that are undercapitalised and have inadequate insurance,” Ms Loane said.

“The CSLR should also be amended to prevent phoenixing, where an operator abandons a company to avoid compensation and shifts the cost onto the CSLR, only to start a new company in the same sector. In the UK phoenixing has contributed to the ballooning £700 million cost of their compensation scheme.”

EY economic modelling demonstrates that if the FSC’s recommendations are implemented by the Federal Government, future costs arising from the CSLR can be reduced from $59.2 million to $7.8 million through the following measures:

• Introducing capital requirements and stronger ASIC oversight of PI insurance, in addition to requiring the scheme operator to comprehensively pursue third party recovery, would reduce the cost of the scheme by $46.4m; and
• Introducing measures to prevent phoenixing would reduce the scheme by $5m.

Simplifying the governance of the scheme would be expected to have a modest impact on reducing the operational costs of the scheme over time but were not included in the EY modelling.

These measures show that sensible scheme design measures, as well as concurrent reform to strengthen advice licensees, can significantly lower future CSLR costs whilst also providing a significant safety net for consumers.  

For a copy of the key findings of the EY Report: https://fsc.org.au/resources/2267-ey-economic-analysis-cslr-summary/file

About the Financial Services Council
The Financial Services Council (FSC) has over 100 members representing Australia's retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks and licensed trustee companies. The industry is responsible for investing almost $3 trillion on behalf of more than 15.6 million Australians. The pool of funds under management is larger than Australia’s GDP and the capitalisation of the Australian Securities Exchange and is the fourth largest pool of managed funds in the world.

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THE House of Representatives Standing Committee on Economics will hear from super funds and fund managers about common ownership and capital concentration at a public hearing on Monday, September 20, 2021.

Committee chair Tim Wilson MP said, "Super funds control vast assets within Australian listed equities and unlisted assets, often across competing entities. The committee wants to discover whether such concentration of capital and common ownership structures causes negative outcomes for smaller retail shareholders and consumers more generally.

"At our previous hearing, the committee was able to hear from the world’s foremost experts on the theoretical underpinnings of this issue. This hearing gives the committee a chance to question the super funds on the real-world impacts of how the sector’s control of $760 billion in Australian citizens’ retirement savings impacts competition within the Australian market.

"Regulators have raised questions about the consequences of common ownership, and academics have raised concerns about the role of hedge funds, index funds, proxy advisers and super funds in supressing competition and the risks of inaction," Mr Wilson said.

The full Terms of Reference for the inquiry into common ownership and capital concentration are available on the committee’s website.

Public hearing details

Date: Monday, 20 September 2021
Time: 9am to 2pm

A program for the hearing is available on the committee’s website.

Due to health and safety concerns relating to the COVID-19 pandemic, this hearing is not currently scheduled to be open for public attendance. Interested members of the public will be able to view proceedings via the live webcast at aph.gov.au/live.

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ON MONDAY the House Standing Committee on Social Policy and Legal Affairs will hold its first public hearing for its inquiry into constitutional reform and referendums.

The Committee will hear from a range of witnesses, including academics, research institutes and the Attorney-General’s Department.

The inquiry is considering ways to improve public awareness about the Australian Constitution, community consultation when amendments are proposed and current arrangements for the conduct of referendums. The Committee is inquiring into the conduct of referendums, rather than specific proposals for constitutional change.

Chair of the Committee, Andrew Wallace MP said, "The last referendum to change the Australian Constitution was held in 1999. This fresh look at the process of constitutional reform in Australia will ensure that the conduct of referendums remain suitable for contemporary Australia.

‘The Committee looks forward to discussion with expert witnesses to hear their ideas on how the conduct of referendums could be modernised."

Further information about the inquiry, including the terms of reference, is available on the inquiry webpage at www.aph.gov.au/constitutionalreform.

Public hearing details

Date: Monday, 20 September 2021
Time: 9am to 12.45pm (Canberra time)

A full program for the Committee’s hearing is available on the Committee’s website here.

Due to Covid-19 restrictions, Committee proceedings held in Parliament House are not currently open to the public. The hearing will be broadcast live at aph.gov.au/live.

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MORE THAN 500 farmers, landholders and Indigenous representatives will gather virtually for day two of the Carbon Market Institute’s 5th annual Carbon Farming Industry Forum today (Friday).

They will discuss how to maximise employment, environment and Indigenous benefits as well as how to maximise impact for farmers and agricultural exporters.

Speakers include Tony Mahar, CEO National Farmers’ Federation, Gillian Mayne, director Land Restoration Fund, Jason Strong, managing director Meat and Livestock Australia, Elizabeth O’Leary, head of agriculture for Macquarie Infrastructure and Real Assets, and Charlie Prell, chair of Farmers for Climate Action.

John Connor, CEO of the Carbon Market Institute said, “By working with landholders, farmers and Indigenous communities we can get a broad range of benefits into regional communities, including environmental and social impacts. Farmers will be able to access international markets and carbon money for their hard work.

“Together, we can boost supply and engagement in a way that ensures the product is fair dinkum for everyone - investors, consumers and the landholders themselves.

"Carbon farmers are involved in trying to stop emissions of heat-trapping gases into the atmosphere, as well as drawing them down into vegetation and soils. It's something we’re going to need a lot more of to get to net zero emissions. 

“It’s a win for farmers because it’s a stream of carbon revenue that can build resilience to some of the climate shocks, and it’s a win for those farms and the environment because you build up the health of the ecosystem more generally.”

Nadia Campbell is a cattle farmer who has one of Queensland’s biggest carbon farming projects on her property Goondicum, near Monto.

She is taking part in the forum in Friday afternoon’s session, in conversation with other carbon farmers.

Ahead of the forum Ms Campbell said, “Since going into carbon we’re seeing an improved environment in which we’re producing better quality beef and have less wear and tear - less erosion - on our property.

"It’s also given us a diverse income stream. In times of drought when you're running lower numbers of stock it is certainly comforting knowing you’ve got another form of income coming in through carbon. It’s also allowed us to invest and put in improved water infrastructure and fencing on the property.

"I really can’t fault it. It’s dovetailed perfectly into our business, it’s enhancing our ecological health, it’s enabling us to help the environment. It’s improving the quality of land for our cattle as well.

"We provide protein to the world and are paid for that but now we can also be paid for the carbon we sequester. My message for other farmers and especially graziers is to make hay while the sun shines."

A Farmers for Climate Action report released this week has found farmers can earn $34.4 billion to $43 billion by 2040 from carbon related projects. 

Friday’s forum comes at a critical time for the industry as Australia celebrates key carbon market milestones this year: the 1000th registered emission reduction project; 100 million Australian Carbon Credit Units issued by the Clean Energy Regulator; and the 10th anniversary of the Carbon Farming Initiative Act.

The Carbon Market Institute is the independent industry association for business leading the transition to net zero emissions. Its over 100 members include primary producers, carbon project developers, Indigenous corporations, legal and advisory services, insurers, banks and emission intensive industries developing decarbonisation and offset strategies.

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TODAY'S unemployment figures mask the true impact of COVID lockdowns on jobs, and an urgent boost to income support is needed to help people survive the downturn while the economy recovers, the Australian Council of Social Service (ACOSS) warned.

While the headline national unemployment figure fell to 4.5 percent, total employment fell by 146,300 jobs, vastly more than had been predicted. This means that some people have simply given up looking for work because of the economic conditions, ACOSS said in a statement.

This true impact of COVID  is reflected in the data for NSW and Victoria. Both states have weathered the lion’s share of lockdowns and are where underemployment and withdrawal from the labour market indicate how difficult it is going to be to get everyone back into jobs after the lockdowns.

The rate of underemployment is evident in the hours worked data for both NSW and Victoria where – since the lockdowns first hit back in July – a total of 102 million hours of paid work have been lost since May.

In NSW the underemployment rate increased to 10.2 percent and 9.3 percent in Victoria. But ACOSS CEO, Cassandra Goldie said the underutilisation rate told the whole story because it showed how many people "want more work than they have". In NSW this increased to 15.1 percent and 13.2 percent in Victoria, with Queensland coming in 13.9 percent.

Dr Goldie said more action was needed to prevent long term unemployment and underemployment.

“The increased rate of underemployment should be a flashing siren for decision makers in government,” Dr Goldie said. “It reflects the fact that many businesses are in hibernation and propped up by disaster payments. 

“We need to be clear-eyed about this and begin confronting the likelihood of growing long term unemployment. We desperately need more robust income support.

“There are at least 755,000 people still in lockdown on income support who have missed out on disaster payments. For this group it has been much harder to survive a brutal recession without fear of losing their homes and compromising their health and welfare.

"As our own report Locked out in Lockdown has shown this has caused enormous psychological distress. The government could have avoided so much trauma if it had just extended the disaster payment to everyone who is looking for paid work.

“Australia needs to redesign its employment services and income support to help people overcome by investing in more strategies to create jobs for those who will be left behind as the labour market begins to recover. We need  to increase income support payments so that people looking for paid work can meet their basic costs, look after their health and improve their training and education.

‘’Under-investment in employment assistance such as quality vocational training and wage subsidies, is one of the main reasons that over 800,000 people have been languishing on unemployment payments for a year or more.

‘’Just yesterday, the OECD warned that Australia does not invest enough in training for people who are unemployed. Australian government spending on employment assistance is less than half the average OECD level, as a proportion of GDP. We can and must do better.”

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THE Parliamentary Joint Committee on Intelligence and Security (PJCIS) has recommended the Parliament pass, with amendments, a new Extended Supervision Order (ESO) scheme and interim supervision orders to better protect Australians from high-risk terrorist offenders (HRTO) who are due to be released into community after serving their custodial sentence.

In its Advisory report on the Counter-Terrorism Legislation Amendment (High Risk Terrorist Offenders) Bill 2020 tabled on Thursday, the PJCIS made 11 recommendations in relation to the Bill, including recommendations to improve clarity and guidance on the operation of the scheme.

The new ESO scheme would address the current interoperability between control orders and continuing detention orders by enabling a State or Territory Supreme Court to impose any conditions that are reasonably necessary, and reasonably appropriate and adapted, to protect the community from the risk of a serious terrorism offence.

The Bill has been introduced to broaden the tools available to address the risk posed by convicted terrorist offenders and strengthen Australia’s counter-terrorism framework.

There are currently a number of convicted terrorists due to be released into the Australian community between now and the expiry of their custodial sentences in 2025.

Chair of the Committee, Senator James Paterson, said, “The committee recognises that many high-risk terrorist offenders who are due to be released from prison may still pose an unacceptable risk to the community.

“The new Extended Supervision Order scheme and interim supervision orders will give law enforcement the tools to manage and monitor the ongoing threat that a terrorist offender may pose to the community following their release from jail,” Senator Paterson said.

Australia’s Terrorism Threat Level was raised to ‘Probable’ in September 2014. Social isolation during the COVID-19 pandemic and increased access to online material has increased the reach of extremist propaganda.

“An ESO scheme will enable law enforcement to tailor orders proportionate to the threat of each offender and should be swiftly passed by the parliament,” Senator Paterson said.

Further information on the inquiry as well as a copy of the report can be obtained from the Committee’s website.

A HIGH COURT legal challenge to Victoria's controversial electric vehicle tax by two drivers will argue that the State of Victoria lacks the constitutional power to levy a road user charge on electric vehicle drivers.

The case was filed today on behalf of the drivers by Equity Generation Lawyers. In July 2021, the Victorian Government introduced a new tax which charges electric vehicle drivers between 2 cents and 2.5 cents for every kilometre they drive.

Melbourne father and nurse manager Chris Vanderstock, one of the drivers bringing the case who uses his car for his daily work commute, said he had additional concerns to the constitutional validity of the laws.

“Instead of taxing clean technologies, the Victorian Government should be concentrating on getting dirty cars off the road,” Mr Vanderstock said. 

“Electric vehicles are cleaner and improve health and climate outcomes for everybody. Why is the Victorian Government taxing electric vehicles when they have a demonstrable health benefit?"

Melbourne mother and engineering consultant Kathleen Davies, the second electric vehicle driver mounting the High Court challenge, said she bought her first electric vehicle in 2012 to help reduce her family’s environmental impact. 

“Not only are electric vehicles better for the environment, they are also cheaper to run,” Ms Davies said. 

“Electric vehicles are becoming more affordable every year but this tax is a backward step for people wanting to transition to a cleaner and more economical car. 

“Victoria’s electric vehicle tax is fundamentally flawed and impractical. It punishes electric vehicle drivers and discourages the urgent need to decarbonise.” 

Jack McLean, lawyer for the drivers, said his clients would argue that the State of Victoria lacked the constitutional power to levy the tax.

"In addition to the validity of the tax, our clients are concerned it's also bad public policy,” Mr McLean said. 

“It discourages everyday Australians from switching to lower emission vehicles, prolonging our dependence on polluting oil. 

“It’s bad for Victorians, it’s bad for the climate and we will argue that it is unconstitutional”. 

Interested people can join a crowdfunding campaign to support the High Court challenge at: https://chuffed.org/project/evtax

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THE Smart Energy Council – an independent peak national body for the solar industry – has welcomed the Australian Government’s review of the Small-scale Renewable Energy Scheme (SRES) released today.

John Grimes, chief executive of the Smart Energy Council, said, “Australians love solar and have voted with their rooftops. They deserve good quality solar, installed by good quality installers.

“The reforms proposed by the Australian Government will help ensure Australian families are looked after as they slash their power bills with solar.

“The Smart Energy Council has long called for a single regulator for the Australian Government’s solar scheme. We totally support that recommendation.

“The Smart Energy Council also welcomes proposals for increased sampling and testing of solar PV components and increased accountability for solar retailers.

“The Smart Energy Council looks forward to working with the Clean Energy Regulator and the Australian Government in implementing these reforms.”

You can find the review report here and the government response here.

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