Pressed repeatedly by Labor Senator Sam Dastyari, the chairman of the Australian Securities and Investments Commission Greg Medcraft nevertheless refrained this morning from criticising the federal government’s proposed rollback of the Future of Financial Advice reforms at a long-awaited economics committee inquiry into the performance of the corporate regulator.

Medcraft said the reforms would preserve key elements of the previous FOFA package — including a ban on conflicted remuneration for personal financial advice, and a test to ensure advisers were acting in their clients’ best interests.

As Crikey exposed last week, there are a raft of concerns about the FOFA rollback draft legislation released by Assistant Treasurer Arthur Sinodinos at the end of January.

Medcraft told the committee that financial advice worried him and remained one of the riskiest sectors that ASIC regulated. He argued consumer concerns about trust in financial advisers was limiting faster industry growth and higher standards were needed — including via the recently proposed national register for advisers and an obligatory national exam. Medcraft called on the industry to do whatever was necessary to increase investor confidence, so that one-in-two rather than the present one-in-five Australians would receive proper advice, and the debate was not about “how much you can divide up a 20% pie, it’s about how you can divide up a 50% pie”.

Dastyari said ASIC had been one of the strongest supporters of the former government’s FOFA reforms, and asked whether ASIC now had concerns they were being rolled back. Medcraft said the reforms “preserved the principles” that were within FOFA, including the removal of conflict in personal financial advice and preserving the best interests duty.

“We try and do the best with what we have. At the end of the day, regulation will exist but what’s really got to happen is that the sector has to change and win the confidence of australians. It’s not about sales, it’s about giving advice that people can trust.

“All I do is to appeal to the industry to really work really hard to win the trust of Australians, because with super we need an advice sector we all can trust. To achieve that they need to go way beyond the law.”

Committee members also pressed ASIC on its investigation into insider trading at David Jones in the wake of the resignation of chairman Peter Mason and directors Steve Vamos and Leigh Clapham.

After receiving Mason’s approval, Vamos and Clapham bought shares in David Jones a day after the company received a conditional, undisclosed merger proposal from rival Myer, and three days before the release of sales figures they were privy to, which saw David Jones shares jump 15%.

Commissioner John Price defended ASIC’s investigation, which resulted in the issue of a no-further-action letter, saying the quarterly sales figures were not market sensitive because they showed like-for-like sales had dropped by 0.3% compared with the previous corresponding period, and were gross figures that did not take account of costs.

He said the legal test as to whether the figures were market sensitive was whether “those bits of information alone, with nothing else happening, would impact the price of the company’s shares”.

The fact that the shares rose strongly on the day the sales figures were released was not relevant, he said, given there were a range of factors affecting the David Jones share price, including sharp falls from the earlier announcement of chief executive Paul Zahra’s intention to resign.

The committee hearing is continuing.

Peter Fray

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