The release of the Government's response to the Murray Inquiry recommendations is a very positive development providing both a roadmap for regulatory action affecting the sector over coming years and much needed certainty for industry.
The Government has given a strong endorsement of the Inquiry with 39 of 44 of its recommendations being supported fully or without significant qualification.
It is particularly welcome to see Government endorsement of the following recommendations:
- Crowd funding
It is positive to finally see action on this with a framework for equity funding proposed to be implemented as part of the 2016 budget.
- Streamlining of regulation
The Government will change the law to facilitate the retail bond market, technology neutrality and innovative product disclosure (although this will not occur until after the conclusion of ASIC's current process in 2017).
- Removing superannuation from enterprise agreements and workplace determinations
- Legislated framework for professionalisation of financial advice by mid 2016
- Endorsement of need to promote retirement income products and options with consultation on trustee pre-selection by the end of 2016
- Development of national digital identity strategy
This will have a significant impact on the ability of businesses to transact electronically and boost the capacity for innovation in the sector. However, it is not clear whether the Government has adopted the Inquiry's federated model or is willing to consider a Government mandated approach – and no time frame has been set.
- Increasing access to government data
This provides significant opportunities for product development innovation.
Banking capital and related recommendations have all been endorsed by the Government and all have been passed over to APRA, as expected.
Areas that will be more challenging include:
- Impact on M&A activity
ASIC's new powers, in particular the requirement for approval of change of control of Australian financial services licensees, will it a new role in overseeing and approving transactions in the financial sector, adding to existing regulatory approvals potentially required from APRA, Treasury and FIRB.
- Imposing additional liabilities on superannuation trustee directors, already held to a higher standard
- Product design and distribution duty and product intervention power
We agree that these changes require detailed consultation to ensure they are workable without restricting innovation and competition in the market. It is positive that the Government has recognised this by noting the need to strike the right balance and not impose an undue burden on industry. The Government proposes to develop legislation by the end of 2016 but it may be difficult to achieve this while also meeting the commitment to consult properly. In any case, legislation is unlikely to be introduced into Parliament before 2017. There will need to be a proper transition period of at least 2 years so the legislation may not be fully in place before 2020.
- Allocation of default superannuation contributions
The Government has agreed that the Productivity Commission should develop alternative models for allocating default contributions, implementation of which could have dramatic implications for the industry.
- Life insurance remuneration reforms
The Government has still not decided on the best way to introduce the Life Insurance Framework ensuring that the 1 January 2016 start date cannot realistically be achieved.
- Regulatory funding
The Government has only agreed to consider the Inquiry's recommendations on a 3 year funding model and removing operational and staffing restrictions. This is disappointing as the ability of regulator's to operate free of the budgetary cycle and public service restrictions is critical to a well-regulated financial system to ensure consumer and investor confidence.
The Government has deferred, potentially indefinitely, the implementation of the following recommendations:
- Reviewing use of leverage and risk in superannuation in 3 years time
We agree that an across the board ban on limited recourse borrowing is not appropriate.
- Social impact investment
The Government's support is welcome but there is no time frame for any Government action.
- Product rationalisation
There is a crying need to eliminate the inefficiencies and impediments to innovation caused by legacy products. While the Government has supported the need to address this, the time frame proposed is 'beyond 2016'. Furthermore, the critical tax aspects of these reforms are deferred to the Tax White Paper and risk getting lost in that process.
- Managed investments
The endorsement of the CAMAC recommendations is positive but there is no time frame for any action which is critical to enable the Australian industry to compete in the region and globally. Again, the tax aspects of these reforms are subsumed in the Tax White Paper process.
- Reviewing the enforcement regime such as penalties has been deferred to 2017
The Government has also indicated it will review the breach reporting framework which was not part of the Inquiry's recommendations.
- Graduated payments regulation
This recommendation has been handed over to ASIC, APRA and the Reserve Bank without any time frame for action.