1 October 2018
Transcript - #2018024, 2018

Interview with Ticky Fullerton, Your Money, Sky News Business

Subjects: Banking Royal Commission interim report; ASIC; APRA; MYEFO; economic outlook; and foreign investment.

TICKY FULLERTON:

Treasurer welcome there and thank you very much for joining us of our first outing of 'Your Money'.

JOSH FRYDENBERG:

Good afternoon Ticky, nice to be with you.

TICKY FULLERTON:

I know you have been out and about on the Royal Commission today and that interim report. Were you surprised that the bank shares went up so strongly on Friday? I mean it didn’t’t even include what Commissioner Hayne thought about super or insurance and it was just lending and financial advice and the banks all seem pretty happy with the fact that there is not likely to be any new regulation?

JOSH FRYDENBERG:

Well they must have had pretty low expectations as to what was in the report, because I think it  was a frank scathing assessment of the conduct and the culture and the compliance of the sector and Commissioner Hayne sent a very strong message that the status quo is not good enough and while he was careful about the need for more regulation, because we already have a complex regulatory environment, he was very clear that more enforcement and better enforcement needs to take place and he directed as you know his attention at ASIC, in respect to the way they preferred negotiation over litigation.

TICKY FULLERTON:

Well a lot of blame put on to ASIC and indeed APRA. Do you think ASIC and APRA suffered from what is called ‘industry capture’ at all?

JOSH FRYDENBERG:

Well certainly they have been close to industry and from what has come through in the report its clear that perhaps too close because what we know is that ASIC has had a high success rate with the cases that they have taken through the courts, more than a 90 per cent success rate, but they preferred to negotiate or to put in place infringement notices or to issue a press release rather than take the necessary next step which is to prosecute. It is something they no doubt will work closely the Commonwealth DPP on.

TICKY FULLERTON:

Do you think that there is a chance that they were looking at the chances of them being successful? I mean I am looking at that recent Bank Breach Report that ASIC put out, and I spoke to James Shipton about it, five years to report a significant breach to rectify it, an average of five years the banks. It turns out that actually it is pretty impossible to criminally charge because the standard of proof of what is a significant breach is too subjective. Now have we got the regulations right, the law right?  

JOSH FRYDENBERG:

Well Commissioner Hayne would indicate that the laws are there, but they just need to be properly enforced and while you can’t legislate morality, what you can do is properly and effectively enforce the laws that we do have. And I know that James Shipton and ASIC are currently looking at their internal processes and the management of these cases and Daniel Crennan who we have appointed as effectively a special prosecutor within ASIC and Daniel Crennan QC will have primary responsibility for this internal review, improving the practices when it comes to taking enforcement action. 

TICKY FULLERTON:

What about the carve-up between the regulators, because it seemed before that APRA was in charge of the credential side, now the Government has given APRA for BEAR, the Banking Executive Accounting Regulation. Professor Alan Fels says the Government might need an Inspector-General like it has got for the ATO to supervise ASIC and ARPA because the Government really lacks expertise in this space. Would you look at that?

JOSH FRYDENBERG:

Look there are a lot of ideas that are swirling around. Let’s what and see what the final recommendations from the Commissioner look like when we expect them in February of next year. But quite clearly we have regulators whose job it is to hold people to account and if you are not holding people to account then you can’t create that culture, Ticky, of compliance, which has obviously been lacking.

TICKY FULLERTON:

It is very tricky though because on the other hand you have got the possibility that if you go too hard you might undermine your banking system, you are watching rate rises presumably in the US, you are watching the wholesale funding situation?

JOSH FRYDENBERG:

Well certainly we are when it comes to out of cycle rate rises and you know a number of the banks did recently move in that direction and we said it was incumbent on them to explain to their own customers as to why that was the case, because we are not happy when rates rise in that respect. But when it comes to the future regulatory structure, when it comes to the responses of the Royal Commission let’s just wait and see for their final report.

TICKY FULLERTON:

So Treasurer, when you look at the Labor attack ads on the Prime Minister at the moment, again and again refusing to look at a Royal Commission, and you have got an election coming. From the banking community’s side there is a worry that there might be a lot of brinkmanship leading to a government needing to appear even tougher that what Labor might have been in a way, as has happened with energy you actually gave Rob Sims more power than he was even asking for to break up the Gentailers. Is there a worry you might go too far and actually risk the financial system?

JOSH FRYDENBERG:

Well Ticky, this report made it very clear that the banks were putting profits before people. That there was greed as the prime motive here, that the focus was on selling products and services, and we need to get back to producing products and services that are fit for purpose, that they need to be delivered with reasonable care and skill and that those who are practicing in the financial sector need to obey the law and not mislead or deceive. That’s what Commissioner Hayne has said.

So we will do everything that is necessary to restore the public’s trust and confidence in the financial sector which is such a strong and vital part of our economy, but I am too am conscious of implementing the recommendations out of the Royal Commission next year. We need to pay particular focus to ensuring that credit continues to be provided in a cost effective way to businesses and to households and that we preserve competition, because competition is good for consumers.

TICKY FULLERTON:

Alright. Just moving to the final budget numbers that you put out the other day. Very good set. You got strong commodities and jobs numbers. Any chance that this MYEFO, this midyear outlook will turn into a mini budget. Do we think in December?

JOSH FRYDENBERG:

Ah, look. The MYEFO will come out as expected and as is traditionally the case in December after the December national accounts numbers, but you're right to point to the strong economic performance. We had national accounts which show the economy was growing at 3.4 per cent through the year, which was faster than any time since the height of the mining boom in 2012. We had S&P reaffirm our AAA credit rating and now we've had the smallest budget deficit in a decade.

TICKY FULLERTON:

So you've got the revenue coming in. Can you clear up for me Treasurer the, the rules on government revenues and budget spending, which as I understand it was as far as possible being matched. The Prime Minister seemed to indicate there were exceptions and he would have discretion. Chris Bowen the Shadow Treasurer come out today say "The new Prime Minister's confirmed the Liberal's fiscal and budget repair strategies completely meaningless, and while fiscal rules remain, they're there to be broken".

JOSH FRYDENBERG:

I wouldn't pay too much attention to a Chris Bowen press release. That will be fish and chip wrapper tomorrow. I mean, the Labor Party talking about budget surpluses. I mean, the last one they delivered was in 1989 when the Berlin Wall was still standing. So, you know, having.

TICKY FULLERTON:

Well they promised big surpluses but bigger taxes, bigger spending.

JOSH FRYDENBERG:

Well this is not the comedy show. This is a real life discussion about the economy and those sorts of promises from Labor are not worth the paper that they're written on. I mean the reality is we have put in place budget rules where new spending is offset by savings, where Ministers are expected to bring that to the table. Our rules have not changed but as the Prime Minister said on the 'Insiders' program on Sunday, there continues to be some discretion there, but the real focus for us is on fiscal discipline.

TICKY FULLERTON:

Okay.

JOSH FRYDENBERG:

Our rules have not changed and our fiscal discipline has produced the good numbers that we've got at the moment.

TICKY FULLERTON:

Finally, can I just move to, to the area of foreign investment because the Treasurer does have a role there, sometimes. Now we've got APA, this enormous pipeline company, you know, under offer from CKI, the Hong Kong company. That FIRB is considering that. Now if FIRB give this deal the green light, would you knock this back, I mean as a former Energy Minister would you knock this back on the basis of national interest given quite how much sight you have on the whole energy sector if you own APA?

JOSH FRYDENBERG:

Look I'm not going to comment on the specifics of particular deals that that may be going through that process, but what I will say is that foreign investment has served Australia very well. We do have a savings gap when it comes to the infrastructure needs and we would never have developed the Pilbara or the North West Shelf or indeed a few golf courses across the Sunshine or Gold Coasts without foreign investment, but what we do need is to continue to put all such proposals through a strict national interest test. The public would expect that of us and that is what governments of both political persuasions have done in the past and will continue to do so in the future.

TICKY FULLERTON:

And so finally do you have a specific public interest test which is related to Chinese investment as opposed to other foreign investment at the moment, given Huawei?

JOSH FRYDENBERG:

We have we have a broad national interest test and it doesn't matter from which country or from which organisation the proposals come. They go through the same national interest test.

TICKY FULLERTON:

Josh Frydenberg, Treasurer, thank you very much for coming on the show and the first day of 'Your Money'. It's greatly appreciated. Thank you.

JOSH FRYDENBERG:

Always good to join you and happy to do so in the future too.

TICKY FULLERTON:

Good on you. Thank you Treasurer.