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The final report of the Financial System Inquiry is expected to be released in the next few days and speaking to us today about some of the issues around the report are Allens Partners Michelle Levy and Matthew McLennan.  Michelle and Matthew thanks for joining me.

Thanks Kate.

Thanks Kate.

Now Matthew last week the Chairman of the Financial System Inquiry David Murray gave a speech in which he discussed organisational culture and the need to re-establish trust in the financial services industry.  Do you think Mr Murray was sending smoke signals about a theme that we can expect to see in the final report of the Financial System Inquiry?

Going off what was said in the Inquiry’s interim report the short answer is no.  The overall picture in the interim report was of a financial services sector that it weathered the global financial crisis very well.  Having said that the interim report contained elements that could have implications for culture.

Yes I think a really good example of that are the suggestions and discussion in the report around product intervention powers for regulator in particular ASIC and they’re a really good example of how you might be able to influence culture, so they’ve allowed ASIC to stop a product issuer issuing a product if they thought it was inappropriate or unsuitable and so indirectly that’s going to require product issuers to be thinking whenever they design a new product is this something that’s going to be suitable for our customers.

And Michelle I understand Mr Murray also asked whether Financial Services businesses were different to other business, what did he say?

Well very clearly yes he says – focussed on how systemically important financial institutions in particular were and how important it was that the community be able to trust them; so that was the first reason.  The second was their complexity and so you have vertically integrated businesses which include life companies and wealth managers and banks and he said that of itself causes real issues around clarity of roles and responsibility and how important they were and also for a purpose, so because of the complexity purpose can often get lost and this is a real focus I think in England and Europe this whole idea about responsibility and role.

Well just on England I understand that you and Matthew were recently in London looking at trends in financial regulation in that jurisdiction in what way is the regulation of financial institutions different in the UK?

Well I think there’s a much greater focus on the interests of customers on product suitability and on managing conflicts.  At the moment we have that but it’s more confined to specific kinds of institutions, so superannuation funds for example, whereas I think you go to the UK it’s much more widespread applying to all financial institutions and I think that’s something that we might see in Australia.

Another striking feature of the regulatory environment in the UK was the focus on individual management responsibility, so the Financial Conduct Authority has invented a creature called as attestation and it involves an individual attesting that a business is in compliance with it’s legal obligations.  And that might sound simple but the person who is putting his or her neck on the line will say otherwise.  Preparing attestations appears to involve a large amount of pain staking work.  The regulatory goal presumably is to encourage people to make the task easier by ensure that their systems and processes are working in the first place.  Australian regulators will definitely consider that an attractive proposition.

But didn’t Mr Murray also speak about the importance within financial institutions having very clear roles and responsibilities?

He did, he said this was really central especially around purpose so he starts with purpose, you need a clear purpose, and you get the sense that that’s not just a purpose about making money for your shareholders there’s a customer purpose and then underneath that you need a clarity, clarity of roles and responsibilities for everybody in the organisation and I do think that this is an area that we will see recommendations on in the report due out this week.

Well there are many people waiting to see what will come out in the report this weekend, thanks for giving us your thoughts on some of the important issues and hopefully you can join us to take us though the final report when it does come out, thanks so much for joining us Michelle and Matthew.

Thank you a pleasure.

That was Michelle Levy and Matthew McLennan, both Partners at Allens.  And of course if you have any questions you can send them through either using the panel on your screen or via email to law@brrmedia.com.

The final report of the Financial System Inquiry is expected to be released in the next few days and speaking to us today about some of the issues around the report are Allens Partners Michelle Levy and Matthew McLennan.  Michelle and Matthew thanks for joining me.

Thanks Kate.

Thanks Kate.

Now Matthew last week the Chairman of the Financial System Inquiry David Murray gave a speech in which he discussed organisational culture and the need to re-establish trust in the financial services industry.  Do you think Mr Murray was sending smoke signals about a theme that we can expect to see in the final report of the Financial System Inquiry?

Going off what was said in the Inquiry’s interim report the short answer is no.  The overall picture in the interim report was of a financial services sector that it weathered the global financial crisis very well.  Having said that the interim report contained elements that could have implications for culture.

Yes I think a really good example of that are the suggestions and discussion in the report around product intervention powers for regulator in particular ASIC and they’re a really good example of how you might be able to influence culture, so they’ve allowed ASIC to stop a product issuer issuing a product if they thought it was inappropriate or unsuitable and so indirectly that’s going to require product issuers to be thinking whenever they design a new product is this something that’s going to be suitable for our customers.

And Michelle I understand Mr Murray also asked whether Financial Services businesses were different to other business, what did he say?

Well very clearly yes he says – focussed on how systemically important financial institutions in particular were and how important it was that the community be able to trust them; so that was the first reason.  The second was their complexity and so you have vertically integrated businesses which include life companies and wealth managers and banks and he said that of itself causes real issues around clarity of roles and responsibility and how important they were and also for a purpose, so because of the complexity purpose can often get lost and this is a real focus I think in England and Europe this whole idea about responsibility and role.

Well just on England I understand that you and Matthew were recently in London looking at trends in financial regulation in that jurisdiction in what way is the regulation of financial institutions different in the UK?

Well I think there’s a much greater focus on the interests of customers on product suitability and on managing conflicts.  At the moment we have that but it’s more confined to specific kinds of institutions, so superannuation funds for example, whereas I think you go to the UK it’s much more widespread applying to all financial institutions and I think that’s something that we might see in Australia.

Another striking feature of the regulatory environment in the UK was the focus on individual management responsibility, so the Financial Conduct Authority has invented a creature called as attestation and it involves an individual attesting that a business is in compliance with it’s legal obligations.  And that might sound simple but the person who is putting his or her neck on the line will say otherwise.  Preparing attestations appears to involve a large amount of pain staking work.  The regulatory goal presumably is to encourage people to make the task easier by ensure that their systems and processes are working in the first place.  Australian regulators will definitely consider that an attractive proposition.

But didn’t Mr Murray also speak about the importance within financial institutions having very clear roles and responsibilities?

He did, he said this was really central especially around purpose so he starts with purpose, you need a clear purpose, and you get the sense that that’s not just a purpose about making money for your shareholders there’s a customer purpose and then underneath that you need a clarity, clarity of roles and responsibilities for everybody in the organisation and I do think that this is an area that we will see recommendations on in the report due out this week.

Well there are many people waiting to see what will come out in the report this weekend, thanks for giving us your thoughts on some of the important issues and hopefully you can join us to take us though the final report when it does come out, thanks so much for joining us Michelle and Matthew.

Thank you a pleasure.