Murky market: Plibersek makes bid to clean up $1.8 billion Murray-Darling Basin trade
New market reforms will force water brokers to comply with a new mandatory code of conduct.
The Albanese government has accepted 23 reforms to bring greater transparency to the Murray Darling Basin’s murky water markets, including a mandatory code of conduct for water brokers and a national water data hub on which all buy and sell offers are listed.
The reforms are outlined in the Water Market Reform: Final Roadmap Report, which was initiated by the former Coalition federal government last year, and released by Labor Water Minister Tanya Plibersek this week.
Under the code, which is due to come into effect in 2024, all brokers in the basin would be forced to disclose when they were receiving multiple fees and commissions in relation to a single irrigators’ trade, always act in the best interests of a client and reveal if they have a personal interest in a trade.
The code forms part of new basin-wide legislation that Ms Plibersek has promised to deliver that also prohibit price manipulation and insider trading.
Brokers will also be required to register all their buy and sell offers on a national data hub by 2026, which will be run by the Bureau of Meteorology and made publicly available.
“Currently, our water markets are poorly regulated, lack data and accountability and are difficult to navigate for everyday farmers and irrigators,” Ms Plibersek said.
“This has to change. Unlike in financial markets, for example, brokers do not have to abide by mandatory codes of conduct or integrity standards. These reforms will fix this – introducing trust to the system.
“We want to ensure that the markets are fair for buyers and sellers, that there is clear information, and that water is going where it should be – that the market is not dominated by speculators buying up water in the hope of making a quick buck.”
The report was put together by independent principal adviser Daryl Quinlivan and an eight-member advisory group of technical experts and stakeholder representatives, in a bid to implement most of the recommendations that came out of Australian Competition and Consumer Commissions 2019 to 2021 inquiry into the basin’s water markets.
But Mr Quinlivan’s group abandoned one of the ACCC’s key recommendation on establishing a new independent basin-wide water markets agency.
In his executive summary to the report Mr Quinlivan said “there was little support from the Basin states or other stakeholder groups for this proposal.
“Instead, the roadmap supports ongoing collaborative efforts across existing regulatory and policy agencies – including the ACCC, Inspector General of Water Compliance, BOM and the proposed new National Water Commission – to take on the functions proposed by the roadmap.”
Australian Water Brokers Association president Duncan McDonald said the roadmap was heading in the right direction, although would have preferred a licencing regimen be established, not just a code.
“It’s an opportunity lost to make radical reforms incorporating the whole of Australia in a licensing regimen,” Mr McDonald said.
He said licencing brokers was a more powerful tool than a code, given any breach of the rules could result in the loss of licence.
Mr Quinlivan’s report says that “in time, the reforms should apply nationally wherever possible to ensure that participants in water markets throughout Australia have the same assurances about integrity, professionalism and modern regulatory supervision”.
THE PROPOSED MANDATORY CODE FOR WATER BROKERS
ACT in the best interests of a client when providing services typically provided only by brokers
PROVIDE the following information in writing to a client at the outset of each engagement:
– the services being provided by the intermediary
– the obligations owed to the client by the intermediary
– the fees/commissions to be charged by the intermediary
INFORM the client in a timely manner of any reasons for a trade approval authority rejecting or delaying the processing of an application
IMPLEMENT a complaints-handling process, including obligations to keep records relating to complaints or resolution of complaints
HOLD written authorities to submit trades for approval on behalf of clients
HOLD written authorities to act as an agent on behalf of clients, when providing services typically provided only by brokers
ACT in accordance with client instructions, when providing certain services typically provided only by brokers
COMMUNICATE all buy and sell offers to clients in relation to the proposed trade, when providing certain services typically provided only by brokers
DISCLOSE to the client when receiving multiple fees/commissions in relation to a single trade, when providing certain services typically provided only by brokers, excluding trades matched through an exchange platform
DISCLOSE to the client when an intermediary or a related entity has a personal interest in the trade, and that the water rights they have a personal interest in are to be transferred to or from the intermediary’s or related entity’s trading water account (that is, not the intermediary’s broking water account which is used to hold client water rights).
The intermediary should then set out the client’s options, including:
– Seeking their own legal advice
– Using another broker to complete the trade
– Proceeding with the trade as private parties, noting the trade would not be regulated by the code.
– If the client decides to proceed with the trade as private parties, then the intermediary should: » not be permitted to charge a fee or commission. » should get written confirmation from the other party before going ahead with the trade that they understand that the intermediary will engage in the trade as a private party and that the trade will not be regulated by the code. » keep records to show they have met these requirements.
DISCLOSE to the client when water rights are to be transferred to/from the intermediary’s broking water account which holds client water rights
COMPLY with client funds management and accounting obligations such as annual auditing (under statutory trust accounting framework for client funds) and accounting practices
PROTECT third party tradeable water rights by holding those rights in an account (a broking water account) that is separate from the intermediary’s personal tradeable water rights and ensure an independent audit of that account is undertaken once a year
HOLD professional indemnity insurance
KEEP records of client instructions, trade details (including strike date) and client details for the period of time (five years) required under Australian Tax Law
DISCLOSE which method the intermediary is using to allocate successfully transferred volumes following an inter-valley trade opening (for example, in chronological order or pro rata).
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