The Son of Wallis inquiry – the federal government's 'root and branch' review of Australia's financial system – is gathering pace. In December 2013, the Treasurer announced its final terms of reference, and the inquiry's panel is now seeking initial submissions.
The inquiry's purpose is to lay out a blueprint for the financial system for the next decade.
An interim report is expected mid-2014, with a final report due by November 2014.
In November 2013, the federal government appointed David Murray AO - former Commonwealth Bank CEO and Future Fund Board of Guardians Chairman - to chair an inquiry into Australia's financial system.
The inquiry's broad purposes are to:
- examine how the financial system can be positioned to meet Australia's needs and support economic growth
- make recommendations to foster an efficient, competitive and flexible financial system, consistent with financial stability, prudence, integrity and fairness
- provide a blueprint for the financial system for the next decade.
Why 'Son of Wallis'?
The inquiry's official name is the (rather prosaic) 'Financial System Inquiry'.
It has been dubbed 'Son of Wallis' as it follows two previous inquiries into the Australian financial system – being the review chaired by Sir Keith Campbell in 1981, and the review chaired by Stan Wallis in 1997 (itself known as 'Daughter of Campbell').
Why call and inquiry?
The last review of Australia's financial system – the Wallis review in 1997 – is now out of date (its final report was titled 'The Financial System: Towards 2010'). Calls for a fresh review of the system have been made by Treasury, academics and business groups as far back as 2009.
The calling of the inquiry:
- continues the review-and-reform tradition of the 1981 and 1997 inquiries
- fulfils a Coalition election commitment for a comprehensive review of the financial system.
Who is conducting the inquiry?
The inquiry is being conducted by a panel of five members, being Murray and:
- Professor Kevin Davis, a University of Melbourne Professor of Finance
- Craig Dunn, former AMP CEO and Managing Director
- Carolyn Hewson AO, an investment banker, Billiton, Stockland and BT Investment Management Ltd board member and Westpac Foundation chair
- Brian McNamee AO, the former CSL CEO and Managing Director.
Biographies of the panel members are available here.
What are the Inquiry's terms of reference?
The final terms of reference, released on 20 December 2013, are extremely broad. They direct the panel to:
- cover the consequences of developments in the Australian financial system since the 1997 Wallis review and the GFC
- refresh the philosophy, principles and objectives underpinning the development of a well-functioning financial system, including the management of risk and the role of government
- identify and consider opportunities and challenges likely to drive change in the financial system (both domestic and global), including:
- the role and impact of new technologies and payment systems
- changes in the way Australia sources and distributes capital, including the intermediation of savings through banks, non-bank financial institutions, insurance companies, superannuation funds and capital markets
- recommend policy options that, among other things, promote a competitive and stable financial system that contributes to Australia's productivity growth and meet the needs of users of financial services and products
- take account of the regulation of companies and trusts
- examine the taxation of financial arrangements.
The full final terms of reference are available here.
The inquiry's draft terms of reference were released on 20 November 2010, and consultation was sought until 5 December 2013.
Seventy six submissions were received for the consultation, including from the ASX, banks, consumer groups, industry and professional associations, superannuation funds, accountants and service providers (Mastercard, VISA and PayPal). These submissions can be viewed here.
Initial submissions on the final terms of reference are currently open and due by 31 March 2014. Submission instructions are available here.
The inquiry is due to release an interim report mid-2014, to be followed by a second round of submissions.
The final report is expected to be delivered by November 2014.
What might happen?
Whether the Son of Wallis review will be as much of a game-changer as the 1981 and 1997 reviews remains to be seen. The terms of reference are extremely broad, and the inquiry is expected to target the whole system. In terms of review, nothing is off the table.
That said, given that the inquiry is part of the government's self-described 'deregulation agenda' – and the terms of reference direct the inquiry to consider policy outcomes promoting competition, with no reference to consumer protections – any recommendations the government ultimately adopts will likely target reducing the regulatory burden on industry. We can expect the government to take a similar approach to that it has taken with the Future of Financial Advice reforms.
One thing to watch will be how the inquiry deals with the market share of Australia's big four banks. While the Treasurer's public announcements on the topic as far back as November 2010 suggest the government is concerned that the banking sector is too concentrated, there has already been some criticism that the inquiry will be too major bank-friendly, given the chair's previous role as Commonwealth Bank CEO.