Senate Economics Legislation Committee, , 1:33:20 to 2:20:14
ASIC addresses small business insolvency trends, credit card surcharge absorption, and the implementation of sustainability reporting.
Topics: Employment, Manufacturing, Privacy
Speakers: Speaker 4, Ms Sarah Court, Senator Maria Kovacic, Senator Matthew Canavan, Senator Tyron Whitten, Alan Kirkland, Interjection, Scott Gregson, Senator Lisa Darmanin, Senator The Hon Tim Ayres
>> Can Thank you chair. Uh just going back to the number of insolers I think you said in the last quarter the number was 4243. Do you have that as a proportion of the number of um uh registered companies?
the oh as a proportion uh yes I think I provided that to you as 0.39 let me just
>> that's for the last quarter
>> uh let me see ah forgive me that's the 12 month look back
>> that's what I thought so yeah 39 was the 25 26
>> no it's from 30 September to 30 September 1 October to 30 September So
>> what was the last quarter? Do you have
>> I don't. I'm sorry. >> Okay.
>> Yeah. >> Uh I believe
>> the comparative I gave you was to the similar period the year before that was the 40. Yeah.
>> Moving I've got figures on a financial year basis. Uh the ratio was 041 I think in 2425.33 and 23 24 and 0.25 and 22 23. There's quite an upward trend there. Uh have you looked at why this is happening?
>> So I think the number that you missed there was 25 26 which was 38. So um
>> well yeah that was the I was taking the 39. I don't have that figure but okay so you've got sorry >> 38 for 2526.
>> Yeah. So I think just I I mention it because it does it's a the trend is the opposite way. So I think it's you're
right it would be something like 60 70% higher than 22 23. >> so there's a slight reduction. It's a leveling out perhaps but it's very very elevated relative to 3 years ago.
>> Yes.
>> So I'm just wondering why why that's the
>> Uh I don't have additional information from what we discussed earlier.
>> So you haven't been asked to look at this. This is pretty a concerning trend to me notwithstanding a uh roughly eight or nine well not even that very small reduction the last um uh year but it is up about 67% from 3 years ago. You haven't been asked to look at why the number of insolvenies as a proportion of registered companies are up so much.
Senator Canavan, it might just be um worth I mean we don't have a a role to look at the reasons for insolvenies in a sort of broader economywide sense. You know, our job is very much we get the statistics in, we get the information from the liquid oats and the insolveny practitioners and we we our job is to publish the data and uh and we do do the kind of surveillances that Commissioner O and yourself, Senator, were talking about earlier from time to time, but we certainly haven't done looked at why those numbers are um going up or down.
>> Okay. Um can I quickly turn to given the time I'm going to rush through but um obviously we've had uh been through the uh a a ban on passing on credit card searchcharge fees. I understand ASC will be absorbing these costs. Is that correct?
>> Um uh Mr. Griggs will answer that.
>> Okay. Okay.
>> Senator ASC's practice is to be absorbing those costs um previously and we'll continue that practice.
>> Right. Okay. So, you weren't charging a search charge prior to that's correct >> the change. How much does that cost you per year roughly?
>> Well, I don't have that exact amount broken down. Our annual report does um disclosed um the the full amount of bank fees, but um I [clears throat] don't have that number broken down, Senator.
>> Okay. Could you take that on notice?
>> Thank you.
>> Then um might let put those ones on notice. I just wondered one thing I wondered uh with the changes in the budget there may be a lot more uh small businesses converting to a company structure if [clears throat] they do that to change out of a trust structure at the moment the tax changes does that bring them into assets reporting regime and the like but becoming a company
>> uh so whether or not they prepare reports uh depends on the size of the company and you will have seen that there's a proposal to change the thresholds for when um companies need to prepare financial reports and then um so That's um depending on the size of them possibly. But um they do
>> what's that threshold at the moment?
>> Uh the threshold uh I think is 50 million revenue but I will confirm that for you. I think it's proposed to be doubled to the 100 million. >> Um that announcement was made I think Monday this week as part of a um so it's being consulted on. I know the Treasury >> consultation um web page has information on that if it's of interest. to your question about whether it comes with the NASIC, we administer the company registers. So if a a a business that's being run through a trust and does not have a company associated with that and seeks to convert to that then they would um become they come to us in the sense of being but the reporting aspect of it is a different threshold.
>> So under 50 million is there any
obligations on them? Um so for companies um in terms of >> it well director's duties and the other aspects of the corporations act that apply to companies apply regardless of size. Um so we've got plenty of information. We've recently um refreshed all the work that um the support that we provide to small and other companies um including when you become a company if you become a director of an existing company. So there's plenty of information that we've made available to assist people who are becoming a company for the first time um or have becoming a director or if companies, you know, there's
>> are they obligated to do even if they're not obligated to report to you, are they obligated to do certain things like risk plans?
>> Uh so risk plans is something that's more associated with a financial services license or credit or other licensing process. There's no statutory requirement on a company to prepare a risk plan. There's general um responsibilities in terms of um like I said the corporations act applies if you're a company if you're a director regardless of size there are some thresholds in there for example what sort of change of control provisions apply for takeovers and things so there are things that in there that are size dependent but there are some base requirements that apply to all we do have an annual review process that is more administrative for companies so that makes sure that we've got the right you know information around the company that's displayed on the regist We're doing work associated with uplifting that information. Um there'll be some director ID linking that's going to start next year. So there's aspects of being a company that apply to all companies.
>> What about um carbon emission uh um measurement reporting? Yeah. >> Do any of those requirements apply to companies below $50 million?
>> No. there the statutory um the framework that applies to sustainability reporting has been um built on to chapter 2 which is the reporting chapter of the corporations act to match the thresholds in terms of reporting. So um they're staged in groups. The largest group of companies who have the obligation to prepare sustainability reports are much bigger. Um the second group are funds and some medium or not medium large ones. Group three which matches those that um obligation hasn't started yet. Um so that was that phased introduction of sustainable.
>> So they will have to the group three eventually
>> the um yeah so that was announced um and commenced a couple of years ago in that staged amount. So um the the second the third stage has not yet started.
>> So a trust at the moment would not be in
probably not if it's trust alone um
>> but if they become a company they will be eventually captured by this client
>> depending on the depending on the size of the entity. Yeah. And some I mean some trusts have >> some of the entities in group two are um managed investment scheme. So it depends some people use that framework. So it's not only >> companies there are some other structures that do have to pre prepare sustainability reporting but again it depends on the size. >> It's a size based model.
>> That's what our economy needs more red tape. Thank you.
>> Thank you very much. Uh the committee will now suspend for a short break and resume at 10:45 with um a seek to >> Okay, we are jumping back in. So I welcome back representatives from the Australian Securities and Investment Commission and we are going to Senator
approached by a small business owner in Western Australia. um he come to me with his ASIC review notice that's threatening threatening him with a $1.6 million fine if he does not have a director ID. He runs a single small business and he has privacy concerns over the the level of detail be provided and is concerned about ramifications and I think he's um rightly so given the recent data breaches. Um I'm sure this isn't the first complaint that you've had regarding um this. With the reporting rules for companies to report director IDs coming in from the 1st of July 27, will ASIC be committing resources to prosecuting these sorts of
>> Thank you for the um question Senator. So, um, Commissioner Rook is, uh, can answer in in some more detail. The director ID regime came in, um, a couple of years ago, as I recall. Um, and we recognize that for a number of small business owners and small business directors. Um, there has been a and we are in the middle of a transition period. So we've been taking um very much the approach senator uh of trying to educate, engage and make it easy for as easy as we can for people to get their director IDs. The policy reason for the um director ID changes uh is to deal with another issue that small businesses were raising with ASICH and and with government over many years which is about phoenixing and about small business creditors with small businesses not being properly paid by other small business creditors um and so companies being the like. Um so we've taken very much a um facilitative approach to trying to encourage director small business directors to get their director IDs. Um I don't have the precise numbers of prosecutions that we have taken. Um but it's in a small it's a small number and senator it's only been in relation to those um directors who have not um not acquired a director ID despite sort of an extensive period of engagement with us. So we we write to them we say look you haven't you need to do this you need to comply you haven't done it yet. Um if we don't hear from them we write to them again we try to contact them. So, we're really doing everything within our power that we can to encourage people to um register for a director ID without taking any sort of formal prosecution action. Um, and while I don't for a minute want to suggest that in relation to your um constituent that we would um but you did reference a very significant figure, I think maybe there's a maximum penalty of 1.6 million from recollection. um the penalties that have been imposed on those few uh people that have had prosecutions, it's been more in the $5,000 uh range.
>> Um and I might just add um to the chair's response in the Ford I think you in your question you alluded to new the changes that are coming. So you're right that um we're in the so the director ID requirement was introduced for people to get the number and that's um that we were just discussing. But what's coming next is linking the director ID numbers to the companies for which they are a director. So at the moment we administer the company's register and on that register is the name of a director but not their director ID number. And unless you've got that link, then the the benefits of tracing that our chair referred to in terms of if you're a small business creditor and you're trying to work out who the person is that is the director of a company who hasn't paid you, then unless you've got the linking and the capacity to see which person that is, then the benefit of um that side of the benefit of director ID isn't realized. So we are from 1 July next year starting that linking process and we're going to use the full year because there's a lot of companies that we need to um to do that linking with and there's an annual review process by which on the anniversary of a company being registered for the first time they get a letter from ASICH and at that point we'll ask them to provide to us the director ID number and we're going to do a verification step to make sure the number matches the so the ATO administers the director ID register. So we'll do that check but we're also proposing to do a check with the company director itself because a second problem that we see is that people are appointed as directors and they don't even know or they haven't consented. And so that's a separate problem that this um reform that was introduced a few years ago now will address in the sense that we'll do that confirmation check and people who whose names are proposed to be linked as a director um can let us know we didn't I I didn't provide that. I have not nominated and that then empowers them to take action privately with the company on that separate question. But the reason I mention that because um for companies who haven't got a director ID that will be apparent on the register from after that um process ends. So then your your constituents company's record will um display after August 2028 whether there is a director ID number whether that director ID number's been conf um verified by us and whether it's been confirmed by the director. Um so that will affect their business. So are keen for them. We're really keen. We've started talking about it and proposing to have much more widespread communication so directors really [snorts] appreciate these changes both the why but also what it means for them in terms of what information will be available about their companies.
>> Yeah, I mean it seems like a very big stick approach. Um you can understand a small business where the owner operators working 80 hours a week. Um it's a huge imposition to have to do this and I know you know people sitting around this room probably don't think so but if you um didn't do a lot of schooling and don't know how to use a computer or you know you've kept your your account and set up your company >> and now you're required to do this. So, putting the um the concerns about privacy aside, um have you thought about maybe using a carrot where you say, "Listen, we'll we'll wave your fees this year if you go and get it set up to give them some some sort of reason to want to do it because like I said, small business are hurting at the moment and they >> they just see this as another government big hand coming in and threatening with a $1.6 million fine. They don't know they might only get 5,000. all they see is that number and the stress that that puts on people.
>> Now, I do rec I do recognize um and we've recently done some work to improve the materials we have to support small business. I'm not sure if if you were in the room when I was describing that, but we recognize for small businesses when people create a small business or through the life of it, finding information about what the what applies to them, what the requirements are, um, it we need to make that as the corporate regulator as accessible and and digestible as possible because we do recognize and have done research that confirms it. I mean, we already knew it, but confirms that, you know, how time poor people are. A lot of this work is done either, you know, in the evenings or on the weekends. And so making sure to the best we can we provide educational orformational resources um with absolutely doing that. I think that question about fee waiver unfortunately we don't have that lever the fees are set by government rather than asich um so I I understand whether you describe it as a carrot or a facilitative approach of explaining what the changes are why they're coming when they're coming with people having as much notice as possible is our intention um so that we can support transition to the framework that will permit more information that's relevant like our chairs said to small business creditors or to directors who didn't consent to being a director.
>> But but can I just add Senator um I mean it's a helpful thing you've raised in a sense and I you know we've been really concerned to um make our approach to helping compliance with this obligation not using a big stick and your um observation about the impact of the maximum penalty in our communications. I think that's helpful for us to have a think about. So we certainly will do so.
>> Yeah. Um, look, my experience in small business, um, ASIC ATO, no one ever knocked on the door and said, "Good day. Good on you for having a go. Um, here's some advice." Um, but everyone was very quick to put their hand out with, "Give me my money."
>> Yeah. When we um released the new materials that I just described for supporting small business in sort of anformational, educational sense, one of the things we have really been trying to improve is how well we can get that to people. So it's not quite a congratulations, but it is a here's something that's helpful like slightly different. Acknowledge that.
>> Should be a good on you for having a go,
but >> okay. Um so yeah, but we do you know try and maximize to the extent that we've got networks through um Cosboa or other small business the small business association of Australia. have connections through to people who then have a good network and absolutely take advice on how we can communicate continue to improve our communications with small business because it's so important. Yeah.
>> Yeah, just one more question. Um uh of the discussion this morning about 900 companies opening a day, is that 900 companies or 900 ABNs? Uh so
the the statistic that was described earlier um we administer the company register not the the ABN is the ATO that's business number um and as I think implicit in your question that doesn't just include companies that might be a a soul trader or a partnership or otherwise so we were sharing the information we have which is company information. >> Yeah that's the company registers. I'm sorry. I think the stat was um that number I think I was quoted by your senator colleague. Uh we were giving information about the um monthly or quarterly number. I'm sorry. So I'm not sure if we did the per day piece. I I heard it but I'm not sure that was came from
>> Sorry. I thought the minister had said 900 a day companies being open. Did I miss? >> Did I miss here? >> So 900 companies per day.
>> Sorry. Could we just clarify chair? I'm not sure.
>> I think it was Senator that made
>> Oh, I wasn't sure. Commissioner had referred to 900 companies a day. I'm not sure we have that information.
>> Yeah,
>> Well, that's all right then, Senator. [laughter] I'll leave that with you.
>> All right. Thank you. Um over to Senator Kassich.
>> Thank you and thank you for your time um this morning. My questions relate to private credit and I note your comments in the opening statements about a requirement for strong governance, effective oversight, clear disclosure um and accurate valuations and I guess my questions relate to concerns where in increasing manner um those aren't um present. Um initially I want to turn to I partners a licensed private credit investment platform. It raised capital for Salt and Lime which collapsed within weeks. Um and then Market Lend where underlying loan records could not be subsequently verified. Um and Wool and Gaba where concerns have been raised about related third-party interests taking priority over existing investors. Um, these allegations have been raised publicly, including in the New South Wales Parliament some seven months ago. I was curious whether ASICH has assessed whether any of these allegations warrant um regulatory action.
>> Um, thanks for the question, Senator. I'm afraid I don't have that in whether whether or not those particular entities have been referred to us or the subject of um inquiries or investigations. I'm afraid I don't have that information. Could you provide that on? >> We can absolutely um take the the names of the three. Yes, it was three that you
wrote. >> That's correct. That's right. Um so then to follow on from there um with some more general questions and I do have some others that I'll pro provide on notice in relation to those specific entities um and the directorships. Um, listed companies have a continuous disclosure obligation. Yet, investors in private credit often can't independently verify an operator's history of defaults and losses. Um, is any work being done or perhaps to the minister, will the government require private credit operators to publicly report significant defaults, misinterest payments, and investor losses through a searchable register um to minimize the impact to investors?
Perhaps I could start Senator and then if um Senator wants to add anything from the government perspective. The issues that you have just outlined are um some of the issues that concern us in relation to the uh transparency of private credit. So obviously private credit by its nature is private and that means that both we as a regulator but also for investors and the market um really do have a lack of information and insight about um what is going on. We have um been talking about these issues for the last 18 months or so. Um, we put out a report towards the end of last year that set out what we call our sort of 10 principles of private credit done well. And the the intent um for us in putting that information out was really to look at things um like you've raised in your question about um opacity, valuations, liquidity, you know, do do investors know what they're getting? do they know that their investments um can be gated that they can be um redemptions can be frozen and the like. So we're seeing um increased retail investor exposure to p private credit as well. We we think there's some of that in the um bar group collapse as I referred to earlier. And so while you know we we want to be careful to say that um private credit is a um an important part of our capital market and um the economy relies on it. We do though need to see it done well and we want it done within those um 10 principles that that we have um outlined and we are sort of continuing um our work to call these issues uh to call these issues out.
>> Yeah. And and I guess the concern that seems to be increasing is and I I noted your um description before around a predict around the prediction markets where it's a bet. These are meant to be investment vehicles as opposed to something where people put their money in and they may or may [clears throat] not get it back. No. >> Which is becoming an increasingly um common occurrence it appears.
>> Yeah. And I think the other issue um is that a lot of the private credit funds are you know promoting reasonably attractive returns. um on those investments which can obviously make them attractive for retail investors and that's one of the reasons that we are calling out these these very issues that things like transparency you know what what is disclosed do retail investors understand um the way in which their uh money may be used do they know that it um they may not be able to get it back um there's a whole range of issues for retail investors I think to be aware of um we're not suggesting >> regulation of private credit in the same way that public markets for example are regulated. We're not suggesting uh that but we are wanting to increase the flow um of information uh both to investors and also um so that the market and the regulators can see what's going on. And
Senator, just to add to the chair's question on your answer about reforms, the government has announced it'll be consulting on enhanced data collection in relation to managed investment schemes. And many private credit funds are managed investment schemes, either registered schemes available to retail investors or wholesale schemes. >> Um, and so um, yeah, the government said there will be some consultations around potential reforms to enhance data collection. I don't think there's any suggestion they would go as far as the chair has said as the requirements that that apply to um to listed companies but um they might mean if implemented that there would be more um information that's provided ultimately to ASICH on a regular basis that we would then be able to publish and it would mean um there would be greater transparency around what's happening in that sector and um also mean that we're in a better position to understand where there might be issues we need to look at.
>> Yeah. the the and and I note the consultation and and what you're speaking of, but does that um go as far as reporting obligations? My understanding is that it doesn't that's a separate matter
>> as I think both the chair and I have said I don't think there's any suggestion it would go as far as the obligations on listed companies. It would be more about uh more likely to be regular reporting requirements greater than what we see at the moment in terms of frequency but also what's required to be reported. Um so some improvement but not as far as what?
>> Sure. Minister, are you aware of any moves to look at um reporting obligations in relation to private credit?
>> Well, I don't want to add anything to the excellent outline that the chair and commissioner Kirkland have just given
>> Okay. Thank you. Um the financial accountability regime holds senior executives of banks, insurers and superanuation funds personally accountable for how they manage risks, oversee conduct and ensure compliance with regulatory obligations. Um, have has ASICH looked at or is the government considering extending the regime to directors and senior executives of major private credit operators?
>> Uh, no, Senator, that I I can't and unless Commissioner O corrects me um or Commissioner Kirkland for that matter. Um, no, I I don't recall conversations um about extending the financial accountability regime uh to the private credit sector. I think that would be a fairly dramatic um change in in regulatory uh in the regulatory settings.
>> Sure. Do you have concerns though and obviously I um noted an example of I partners earlier. Are you are you familiar with any of the um issues relating to that entity at all?
>> I'm sorry Senator sitting here now. No, I'm not. But I'm very happy to take that um to take that on notice. And perhaps I should add also that we have as a um current enforcement priority uh misconduct in the private credit sector and we have a number of um investigations that are underway and they certainly can include um individuals so not with not through the opaces of the financial accountability regime but through for example breaches of director's duties
>> and that's where my concern is around director's obligations and whether there is you know in some circumstances um you know related party interests of directors taking priority over existing ex investors as an example like that in most circumstances would be entirely unacceptable.
>> Yes. So certainly the whole issue of conflicts um and related entities is something that we have raised concerns about previously in relation to private credit entities.
>> Yeah. Sure. Um, one of the concerns that I've had raised with me is that um, a breach of an AFS licences general obligations um, doesn't itself give investors a direct right to damages um, given and my understanding is only ASICH can prosecute um, on that or or take action on that given the increasing pressure on ASICH to investigate misconduct. um have you um considered or has the government considered allowing investors who suffer losses from such breaches and and you know they're pretty clear breaches um to pursue compensation directly.
>> Yeah, thank you Senator. Um I confess it perhaps should have occurred to me before but I hadn't I'll just check with Mr. Sterland. Is that right about 912? >> 9128. It's only as >> Yeah. Yeah. No, thank you Senator. I hadn't thought about it through that um through that lens before. Um certainly that's not something that we have um taken up with government recently to to change or or perhaps ever to to change that. Um but I understand the point.
>> Yeah. Wouldn't it be a simple mechanism though to take some stuff off your plate and allow impacted investors to be able to take action themselves because at this point in time unless you can do it um there is no there is no avenue for them to um seek relief for that.
>> Yeah. in if if the question relates to I mean I'm speculating here Senator but predominantly uh private credit related misconduct I'm not sure that 912A would be the main provision that we would take action um in any event but I I understand the the point
>> I think it might be the simplest avenue for an investor because it's the the easiest one for them to perhaps prove than some of the others I guess is my >> breach of the AFSL
Yeah, even that. Yes, without being sort of argumentative, Senator, I mean even that um we have we with all of our the powers of at our disposal um have difficulty establishing breaches of 912A against large institutions. And one of the things I've learned in this job is that um things that look pretty clear um can be very difficult to um to prove in court. But I I understand the point.
>> Yeah. Okay.
>> You're at 10 minutes.
>> How many?
>> You're at 10.
>> 10. Oh, okay. Do I have scope for one more quick question? Thank you. >> Um, and if the answer is quick, too, that's handy as well. >> We'll do our best. >> Okay. [laughter] Um, in September, ASC declared that the private credit sector was well beyond warnings and obviously you mentioned it in your opening statement um, and should prepare for enforcement action. How many private credit investigations has ASIC commenced this year and how many have resulted in enforcement proceedings?
Um, I might I can be quick because I might take that on notice, Senator. Um, uh, if you're comfortable with that. Um, we've had a number of, uh, enforcement related outcomes that have a private credit um, component and we have more on the way and I'm very happy to um, get those numbers for you um, precisely and to let you know of the ones that are already in the public domain.
>> That would be wonderful. Well and minister just very quickly to close off is the government looking at any um additional work in relation to um private credit.
>> So there's a a range as has as been identified a range of consumer protection measures been announced across the financial system and I think a consultation paper on um managed investment scheme data collection which has just closed I think a few days ago. Um, and we we'll consider the outcomes of that and and its relationship to the issues that you've raised over the coming weeks and
>> Thank you. Thank you, Shar.