AWBA Submission – COAG RIS Consultation

27 May 2013

Assistant Secretary

Water Policy Branch

SEWPAC

GPO Box 787

Canberra ACT 2601

Dear sir / madam

RE: SUBMISSION – DRAFT COAG RIS FOR CONSULTATION ON THE REGULATION OF WATER MARKET INTERMEDIARIES

This submission is on behalf of the Australian Water Brokers Association (AWBA).

By way of background the Australian Water Brokers Association was established in 2007 to represent the interests of water brokers and other participants of the water markets throughout Australia. The Associations primary objective is to set and maintain the highest standards of professional practice, education, ethics and professional conduct for it members and the broader water broking industry.

The AWBA sets out to achieve this objective by mechanisms such as:

-  A membership entry process which includes documented experience requirements and a panel interview to ensure individuals applying for membership have a requisite level of experience, knowledge and skill;

-  A continuing professional development (CPD) program to ensuring existing members are keep informed and up to date of industry and professional practice matters;

-  A code of conduct to provide a common set of “rules” for members in respect of issues such as managing clients funds, professional indemnity, professional conduct, managing conflicts of interest, trade facilitation, complaints handling, compliance, systems and training.

A copy of a recently updated code of conduct for the AWBA is attached as an appendix to this submission. It is anticipated that this code will be adopted by members of the 18 June 2013.

The AWBA currently has 33 individual members which represents a very large proportion of the total number of active brokers throughout Australia.

The AWBAs preferred option to address stakeholder concern in respect of the conduct of intermediaries is Option 3 utilizing the AWBA as the industry body to implement and administer the VAS. Given the AWBA has already made significant progress in developing a self-regulation model we believe this option would provide the highest level of benefits for a sensible and acceptable cost for the industry.

The AWBA believes Options 1 and 2 would not address stakeholder concern which would be a missed opportunity. Members of the AWBA would prefer to see some level of accreditation / regulation so as to create a foundation for the broking industry to continue to develop from and eliminate any stakeholder concern.

Option 4 is clearly far expensive for such a small industry. The costs associated with implementation and ongoing compliance would ultimately be passed through to brokers and clients which would significantly restrict the functioning and development of the water markets.

In response to the specific questions raised in the paper we submit the following:

Question 1 / In your experience how many brokers are operating in Australian water markets?

We would estimate that there would be 40 to 60 active brokers in Australian water markets. An active broker could be described as receiving client instructions and performing a broking function on a regular or semi-regular basis. This is distinct from an individual (or organization) that simply refers a client to an active broker in return for a share of the fee.

Question 2 / Are you aware of other water exchanges operating in Australian water markets?

A number of broking firms provide “exchange” type functions such as matching buy / sell orders and automated lodgment of trade forms in addition to, or as part of their broking services.

This is somewhat distinct from an independent exchange which solely provides a matching and lodgment service. The independent water exchanges currently operating include National Water Exchange and Murray Irrigation Exchange.

Question 3 / In your experience does the number of intermediaries operating in Australian water markets change year to year?

Yes the number of intermediaries does vary from year to year. Obviously market factors such as water pricing and activity from buyer and sellers affects the viability and profitability of providing broking services. This in turn leads to new entrants or an exit from the industry.

Question 4 / Do you consider that there has been any intermediary misconduct? If so, what is the nature of this misconduct? Do you consider it to be widespread? What is the basis for this view?

Since the development of the water markets and the associated emergence of the water broking industry in the early 1990’s there has been isolated cases of misconduct. The AWBA believes such instances are becoming fewer as the industry matures, brokers become more professional and users of broking services become more educated.

Our basis for this view includes the numerous studies, surveys and research referred to in the paper which have investigated this issue and found few if any credible complaints. Since the inception of the AWBA only a small number of potential cases of misconduct have been referred to the AWBA.

Question 5 / Do you consider intermediary misconduct is likely to increase in future? What is the basis for this view?

No – the AWBA believes the potential for misconduct will decrease in the future. The AWBA has taken a leadership role in the industry and our initiatives such as CPD training and the code of conduct will play an important role in minimizing the potential for misconduct.

The AWBA believe the users of broking services are becoming more educated and are more likely to choose brokers who have a sound professional record of service.

Question 6 / Do you have any concerns in relation to intermediaries holding client funds? If so, what is the nature of this concern?

The AWBA does have concerns that some brokers may not provide appropriate management of clients funds. This includes adequate records and management of any interest accrued from such funds. Accordingly the AWBA has developed a strong set of rules and procedures within the code of conduct in respect of this issue to ensure clients funds are managed appropriately.

Question 7 / Do you have any concerns in relation to the conduct of intermediaries when providing services? If so, what is the nature of this concern?

As with any industry the quality of service can vary from broker to broker. This is obviously an issue common to all service industries.

However the AWBA has implemented a series of measures to protect against incompetent or unethical service provision. This includes specific rules in respect of dealing with conflict of interest issues.

Question 8 / Do you have reason to believe that the majority of intermediaries will take action to deal with the matters of stakeholder concern under the status quo? / p.21

Yes – over recent year the industry has been proactive with the ongoing development of the AWBA to try and address the matters of stakeholder concern.

Question 9 / What do you consider should be included in an industry code of conduct? / p.21

The AWBA believes the code of conduct attached is appropriate for the industry. This code has been developed with input from members, Government, industry groups and independent legal advice.

Question 10 / What existing intermediary industry bodies could be involved in theVAS?

Obviously the AWBA is the most appropriate industry body to be involved in the VAS. The AWBA would be open for members of other relevant industry bodies (eg NFF, NIC) to have representation on committees associated with the monitoring and compliance of the VAS.

Question 11 / What other industry bodies might be able to perform this function?

The AWBA does not believe there would be any other industry body which would have the support of the broking community to perform this function.

Question 12 / Do you consider there are ways in which government could be involved in the VAS? If so, what are these?

The government could be involved in the VAS by proving support to the AWBA to assist with its role of managing the VAS. This support could be in the form of funding to assist with the initial development and implementation.

The Government could also be involved by ensuring that the providers of broking services to Government bodies are compliant with the VAS and / or members of the AWBA.

Question 13 / When using an intermediary do you seek assurances that the intermediary:
a)  maintains an audited trust account for holding client funds;
b)  holds professional indemnity insurance (and if so the premium and extent of coverage); and
c)  implements arrangements to disclose conflicts of interest to clients

The general view from AWBA members is that clients generally so not seek such assurances. Accordingly should a VAS be adopted further marketing would be beneficial to assist clients in understanding the protections available from those operating under a VAS compared to those who do not.

Question 14 / The preliminary impact analysis contains many assumptions and estimates of the costs and benefits associated with the four options. Where you consider these assumptions and estimates could be improved, please provide additional information or details of alternative suggestions.

The AWBA does not have any additional comments in this area and assume that the estimates of costs have been researched appropriately.

Question 15 / Would additional information about intermediary best practice assist you when using intermediary services?
Question 16 / If additional guidance material were provided, what remaining concerns would you have about intermediary misconduct?
Question 17 / Would you be more likely to participate in water trading if you could use the services of an intermediary accredited under the VAS?
Question 18 / If a VAS were implemented, what remaining concerns would you have about intermediary misconduct?
Question 19 / If a licensing scheme were implemented, what remaining concerns would you have about intermediary misconduct?

The AWBA believes the above questions are best answered by other stakeholders and users of broking services.

Question 20 / For each option, do you consider the available benefit would exceed the cost?

The AWBA believes that given the current set of circumstances option 3 is the best solution to provide an appropriate level of benefits at a sensible cost. The AWBA believes that Options 1, 2 and 4 would not provide an acceptable level of benefits for the associated cost.

We trust the views presented in this submission are useful to the COAG in considering the issue of regulation on water market intermediaries. Should any reader wish to discuss any issue or require any further information in respect of the submission please contact the undersigned.

Phil Grahame

President

Australian Water Brokers Association

5 Short Street, Wentworth NSW 2648

T: 0408 596 679

Current Members as at 27 May 2013

Kristin Brennan, Janet Marion Leahy, Alister William Watt, Phillip Grahame, Michael John Downie, Timothy Robert Hutchinson, Konstantina (Dina) Drapaniotis, Matt Reginald Davis, Peter John Leahy, Robert John O'Brien, Rhonda E Risstrom, Thomas Anthony Wilks, Thomas Henry Rooney, John Patrick Conaughton, Simon Peter Hull Weatherald, Paul Andrew Crichton, Fiona Anne Crichton, Lauren Yvonne Marsh, Elizabeth Frances Johnston, Peter Lawford, Brue Diffey, Paul Smith, Adrian Peel, Duncan McDonald, John Dalton, McGregor Greer, Richard Carter, Brendan Boyd, Mathew Giffin, Lex Batters, David Barthold, Peter Robertson, Giannina DeAngelis, Hannah Kerrins

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