COMMITTEES

Senator BRAGG (New South Wales) (17:57): I thank the good Senator Brockman for moving this important motion, because it's very important that we do our job here as parliamentarians and that we are able to inquire, from time to time, into great matters of community concern. I believe we are living through a period in Australian history where there is a huge concentration inside certain vested interests.

In this case, we're talking about the banking sector, which I believe has an undue level of influence over our society. One of the things that has characterised the Australian economy over the past 2½ centuries is the fact that we have been a nation largely of oligopolies, and the banking system, which has been particularly known through its four-pillars policy, is one such sector where this is very problematic.

What we have seen in recent times—given the context of this debate, we should remember that homeownership is harder than it ever has been. I avoid making all the routine and boring political points about the government's terrible tax policies, but, in effect, we end up with higher rents, fewer houses and fewer homeowners as a result of these policies. The context is important because, in this case, we are talking about consumers who have decided to take out a mortgage, and a mortgage is a hard, hard thing to get these days, given how expensive housing is and given the supply constraints that we see in the housing system.

The reason this inquiry has come up for debate is that there have been many Australians that have lost considerable sums of money as a result of the offset systems not working properly. What I mean by that is that, when a person establishes a loan, they may be given an opportunity to also establish an offset account. The money they hold in their offset account would actually reduce the amount of interest that the person needs to pay to their bank.

The general feeling and sentiment in the community has been that people would expect, perhaps naively in some cases, that the banks would try and do the right thing when those systems are set up so that the offset account is linked to the mortgage account and therefore the money that is held in the offset account would actually benefit the individual who holds the mortgage by reducing the amount of interest that they are required to pay.

But we have found, due to some important research by the financial regulators, that there have been many cases where that hasn't been true and that, in fact, many Australians have been ripped off by these major banks where they have not done the right thing and ensured that they had processes to protect their interests by always linking their mortgage offset account to their mortgage.

That is really the heart of this issue that we want to pursue, because it's not good enough for a major scandal like this to be unearthed by the financial regulators and for that to be the end of it. These are the most privileged organisations. They are protected with banking guarantees.

They are protected by the four pillars policy. They are protected by a range of other preferential rules. They operate in a very concentrated market.

They generate enormous, eye-watering profits. So it is only reasonable that the CEOs of these banks should be required to explain how it's happened that people's mortgage offset accounts fell apart. I think that is an eminently reasonable question for this chamber to ask, because the regulators appear to have done a report and that's been the end of it.

We hear nothing from the government. They're not interested in digging into this any deeper. But I would say that this is a good example of the executives of these banks, who are very well-paid people, establishing and presiding over regimes where people have been seriously damaged by virtue of the failure to link these offset accounts to mortgages.

So that is why I think it is very important that we have the opportunity to properly interview people and get to the bottom of this matter by bringing in the CEOs of these banks and understand exactly what systems worked, what systems didn't work, what implications that was going to generate for these customers, how much money they actually lost, what the processes are for remediation, what the processes are for compensation and what the overall impact is on their home-loan journey.

These are the basic questions that we need to ask. I think this is a very good example of how there is effectively an inertia tax here, where the banks just assume that you're going to set and forget. You set this up at the start and you make some changes midway through the loan.

You hope for the best that the banks will do the right thing by you. But we've found, again and again, that these institutions, if they can get away with it, will steal your money in the dark, where they there is no sunlight and no disinfectant. That is why there have been a series of banking inquiries over the last couple of decades.

There have been royal commissions. I question whether or not all of them have been able to actually get to the bottom of the issues. But this is a very targeted scope to look at the offset accounts and how that is tied back to senior management.

It is ultimately the senior management that should be on the hook for these important consumer judgements. We have more laws than you can poke a stick at in financial services regulation. We have the BEAR.

We have the accountability rules. But what we don't see is a mean, lean, hungry law enforcement agency. We see the financial regulators publishing reports which state that there are terrible consequences for people when these things happen, but what we don't see is prosecutions, incarceration or fines which are big enough to be more substantial than just speeding tickets for these institutions.

Again, I'm loath to be critical of the government, but it is also a fact that the government took 2½ years to respond to the ASIC inquiry and, when they did, they just rejected all the recommendations. I don't think you can seriously argue, when you look at the DPP figures and the number of referrals, where referrals from ASIC have almost halved over the past half decade, that the corporate cop is doing the work it should be doing.

There is no way that white-collar crime in Australia has just gone away. In the last parliament and a half we've seen the First Guardian, Shield and Lion collapses. All these people who have lost significant sums of money, often through fraud, thought they were living in a country where the rule of law would be strongly enforced and the regulator would come in quickly and act.

What we saw in these cases was the same thing we saw with Melissa Caddick and the other cases, where ASIC was given warnings in writing by organisations with standing saying, 'Someone over here is running an unlicensed financial services organisation,' and where ASIC loses the pieces of paper, brings the dogs in to eat the pieces of paper and fails to do anything for years and years.

The problem with this model is, if I'm given a warning about financial malfeasance and I take two years to do anything about it, in that period a lot of people will lose their money. They might lose their money and they might lose their mental health. That is the reality of the situation that we have today.

It's all well and good for the corporate cop to go and do research into offset accounts and put out papers and the like. That's helpful, but what really matters is establishing a precedent where, if you break the law and you damage consumer interests significantly, then you will be facing serious penalties—the executives of the banks will be facing penalties.

That is not the situation we have today. I think it is an important test case for this parliament to put these people in the dock and work out: 'What exactly did you do when it came to the offset accounts? What did you know about it?

What have you done to satisfy yourself that people are not going to be wronged?' The cascading effect of not aligning an offset account with a mortgage could be very significant over the life of a loan. These are the longest form transactions people will have in their whole lives. We're looking at 30- or 40-year mortgages in some cases that people will be taking out, so it is only reasonable, off the back of the failure to properly calibrate ASIC to become the lean, mean crime-fighting machine that we want it to be, that we look at this as a very important case in point.

I say to the Senate tonight that the people who've been wronged here are people living all across our country. They're people who took out a mortgage in good faith and established the mortgage with an offset account. They, perhaps naively, trusted that their institution would do the right thing by them.

They also trusted that they live in a country where there is a rule of law, and they imagined that all these laws we talk about here would be enforced. They imagine they're living in a serious country where they remunerate parliamentarians well to come to Canberra to make laws that the regulator will take seriously and enforce. That is their expectation.

In this particular inquiry, if it is supported this evening, I think we will be seeing a lot of individuals who have lost significant amounts of money and have lost trust in these institutions. What you'll be able to see, I believe, is the cascading effect of the failure to link these accounts over the long term, because a failure to link an offset account to a mortgage could mean many hundreds of thousands of dollars will be lost to that person, even on just an average loan at the average house value in this country.

This is a serious matter and a great opportunity for this Senate to do the best work that we do, in my view, which is the committee work. It's a great opportunity for us to properly interview the people who run these institutions to work out what went wrong and what they are doing to ensure that it doesn't happen again, and to consider whether or not the compensation and remediation that they say they have undertaken is appropriate.

I make the point that it is very important that we never give up on the idea that law enforcement is just as important as new laws. There is an addiction in Canberra to new laws being placed onto the books, with ministers from all different kinds of governments historically deciding: 'We will announce today that we are doing XYZ. We will pass these laws, and that will solve the problem.' The reality is that the law enforcement in this country is often porous, and it doesn't mean that the systems work any better.

There are many, many laws in this area of financial services, and I suspect that this committee, if it were to be established, will not recommend more laws, because more laws won't solve the problems when the existing laws are already on the books. All you need to see happen is the corporate cop actually do their job and rigorously enforce those laws. Until we see a few people be made an example, I don't believe there's a culture of fear that is needed to clean up this sector.

That's why I commend this particular motion to establish this inquiry to the chamber.