All but one of the Murray Financial Systems Inquiry have been accepted by the Government. The report, released today says that this is to ensure the Australian Financial Services system remains safe and secure.
This is an important step forwards in the development of the finance sector, and to ensure the interests of consumers are safeguarded. Importantly, the journey towards higher capital requirements will continue, with potential consequences for banking competition and product pricing. The obligations of financial advisors will be strengthened. Superannuation system to be reviewed to ensure efficiency, transparency and consumer choice. Excessive credit card surcharges to be banned. Leveraged superannuation borrowing will not be banned.
From the introduction:
The financial sector is the largest in our economy, having contributed $139 billion over the past year and employing around 400,000 Australians.
The financial system has a vital role in commercial activity across the Australian economy, contributing to productivity and growth. The biggest decisions Australians make in life — buying a home, providing for their retirement, or starting a business — are all supported by our financial system.
As the attached response details, the Government has accepted the overwhelming majority of the Inquiry’s recommendations. Our response also includes six additional measures that are consistent with the Inquiry’s underlying philosophy.
The Government’s response sets out an agenda for improving our financial system that builds on existing Government policy. The Government’s financial system program will be implemented in stages over the coming years. The Government’s program will position Australia to respond to the challenges and opportunities of the future.
Our financial system program is made up of five distinct strategic priorities that deal with each of these challenges.
• The resilience measures aim to reduce the impact of potential future financial crises by ensuring we are better able to weather them and lessen their cost to taxpayers and the economy.
• The superannuation and retirement incomes measures aim to improve the efficiency and operation of the superannuation system and in doing so boost retirement incomes.
• The innovation measures will unlock new sources of finance for the wider economy and support competition.
• The consumer outcomes measures are designed to give consumers confidence to participate in the financial system and the confidence that they are being treated fairly.
• The regulatory system measures aim to make regulators more accountable for their performance, more capable and more effective.
Highlights include:
- a focus on driving competition within the finance sector
- continued lifting capital reserves (which APRA has already started)
- a ban on credit card surcharges greater than the cost of processing the payment by the merchant, enforced by ACCC
- confirmation of review of interchange fees
- a review on the superannuation system by the Productivity Commission to ensure efficiency, transparency and consumer choice. Superannuation is about income in retirement, not generic investment
- improved governance for superannuation boards
- raise the competency of financial advisors, including professional qualifications and code of ethics
- rename ‘general advice’ to improve consumer understanding of financial advice
- financial advisers and mortgage brokers to adequately disclose their relationships with associated entities
- a focus on innovation (e.g. crowd sourcing equity funding) in the financial sector
They did not accept the proposed ban on leverage superannuation investment.
You can read DFA’s earlier analysis of the FSI report from last December.
Some of the small print areas of disagreement with Murray include:
- Direct borrowing by superannuation funds – does not agree with the Inquiry’s recommendation to prohibit limited recourse borrowing arrangements by superannuation funds. While the Government notes that there are anecdotal concerns about limited recourse borrowing arrangements, at this time the Government does not consider the data sufficient to justify significant policy intervention. The Government will however commission the Council of Financial Regulators and the Australian Taxation Office (ATO) to monitor leverage and risk in the superannuation system and report back to Government after three years. This timing allows recent improvements in ATO data collection to wash through the system. The agencies’ analysis will be used to inform any consideration of whether changes to the borrowing regulations might be appropriate.
- does not support the creation of a new Financial Regulator Assessment Board.
- Conduct post-implementation reviews of major regulatory changes more frequently – does not agree to conduct more frequent post implementation reviews (PIRs), as it has already implemented changes to strengthen the review regime in 2014
- Align the interests of financial firms and consumers – agrees more can be done to better align the interests of financial firms and consumers. However, we intend to take a different approach to that recommended by the Inquiry for retail life insurance.
Three additional recommendations were also added in by the Government:
- Ensure participation in international derivatives markets – The Government will develop legislative amendments to clarify domestic regulation to support globally coordinated policy efforts and facilitate the ongoing participation of Australian entities in international capital markets. We will develop legislative amendments in the second half of 2015.
- Enhance retail consumer protections for client monies – The Government will develop legislative amendments to improve protections for client monies held in relation to derivatives. These improvements are needed to ensure that investors’ monies are adequately protected when held by intermediaries.
- Clarify the definition of basic deposit products – The Government will develop legislative amendments to amend the definition of a basic deposit product in the Corporations Act 2001. These amendments will provide certainty for businesses and consumers by clarifying how certain term deposit products are treated under the law.
