The Government has accepted all but one of the recommendations to improve the efficiency, resilience and fair treatment in Australia’s financial system proposed by the Financial System Inquiry late last year, and has set an agenda of specific measures to be implemented to the end of 2016 and beyond.
Following stakeholder consultation and engagement, the Federal Government has released its response to the recommendations proposed by the Financial System Inquiry to improve the efficiency, resilience and fair treatment in Australia’s financial system in its final report delivered in late 2014.
In summary, the Government has accepted all but one of the Inquiry’s recommendations (being the recommendation to prohibit limited recourse borrowing arrangements by superannuation funds). A summary of the 5 strategic areas comprising the Government’s response, together with an agenda of specific measures for each area, is set out below.
Resilience measures – 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 specific measures are:
- By end-2015: Develop legislation to facilitate participation of Australian entities in international derivative markets and better protect client monies;
- By mid-2016: Consult on measures to ensure financial regulators have the tools they need to manage any future financial crisis;
- By end-2016: APRA to take additional steps to ensure our banks have unquestionably strong capital ratios; and
- Beyond 2016: APRA to ensure our banks have appropriate total loss-absorbing capacity and leverage ratios in place.
Superannuation and retirement incomes measures – to improve the efficiency and operation of the superannuation system and in doing so boost retirement incomes. The specific measures are:
- By end-2015: Develop legislation to improve governance and transparency in superannuation, progress the Retirement Income Streams Review and task the Productivity Commission to immediately develop and release criteria to assess the efficiency and competitiveness of the superannuation system and to develop alternative models for a formal competitive process for allocating default fund members to products;
- By end-2016: Develop and introduce legislation to enshrine the objective of the superannuation system and consult on legislation to facilitate trustees of superannuation funds providing pre-selected comprehensive income products for retirement; and
- Beyond 2016: Implement legislation to introduce director penalties, consult on legislation to improve member engagement consistent with the recommendations in the Inquiry and monitor leverage and risk within the superannuation system.
Innovation measures – to unlock new sources of finance for the wider economy and support competition. The specific measures are:
- By end-2015: Consult on legislation to support crowd-sourced equity funding, consult on crowd-sourced debt financing and task the Productivity Commission to review access to and the use of data;
- By mid-2016: Develop legislation to ban excessive card surcharges and better protect consumers using electronic payment systems, develop legislation to reduce disclosure requirements for issuers of ‘simple’ corporate bonds and establish the Innovation Collaboration Committee;
- By end-2016: Give legal effect to the Asian Region Funds Passport initiative and consider technology neutrality in financial sector regulation; and
- Beyond 2016: Facilitate rationalisation of life insurance and managed investment scheme legacy products.
Consumer outcomes measures – to give consumers confidence to participate in the financial system and the confidence that they are being treated fairly. The specific measures are:
- By end-2015: Develop measures to address the misalignment of incentives in life insurance;
- By mid-2016: Develop legislation which provides a professional standards framework for financial advisers and consult on development of accountabilities for issuers and distributors of financial products and ASIC product intervention powers;
- By end-2016: Develop legislation to give ASIC the power to ban individuals from managing financial firms, consult on strengthening ASIC’s enforcement tools in relation to the financial services and credit licensing regimes. ASIC will review remuneration arrangements in the mortgage broking industry; and
- Beyond 2016: Consult on and develop legislation to enable innovative disclosure for financial products and to improve the regulation of managed investment schemes. ASIC will review stockbroking remuneration arrangements.
Regulatory system measures – to make regulators more accountable for their performance, more capable and more effective. The specific measures are:
- By end-2015: Complete a capability review of ASIC, consult on industry funding arrangements for regulatory activities undertaken by ASIC and appoint new members to and revise the Terms of Reference of the Financial Sector Advisory Council;
- By mid-2016: Update the Statement of Expectations for APRA, ASIC and the Payments System Board to provide additional guidance about the Government’s expectations for their strategic direction and performance and improve regulator accountability, consider ASIC capability review and, as appropriate, develop legislation to enhance operational capabilities of regulators;.
- By end-2016: Introduce competition into ASIC’s mandate; and
- Beyond 2016: Commence a review of ASIC’s enforcement regime and task the Productivity Commission to review the state of competition in the financial system.
See also media release dated 20 October 2015.