If the FSI has received anything like the 268 initial submissions received by the Wallis Inquiry, and the 76 submissions received on the draft terms of reference for the FSI suggest it will receive more rather than less, the FSI panel will have a lot to consider before delivering an interim report later this year.
While submissions are to be progressively released on the FSI website from 4 April 2014, we thought we would share a brief summary of the six legal and governance topics contained in our submission to the FSI.
- Improved access to financial products and markets
The Commonwealth should improve wholesale investors’ access to financial products and financial institutions’ access to financial markets through:
- Mutual recognition: The Commonwealth should accelerate the negotiation and effective implementation of arrangements with other countries (especially those in the Asia-Pacific region), whereby each country recognises that laws governing the provision of financial services of the other country can apply in particular circumstances, and vice versa.
- Unilateral recognition: The Commonwealth should expand the use of unilateral recognition to exempt the provision of financial products from the need to comply with Australian regulation where the provision of that product complies with an acceptable foreign legal framework.
The reduction of legal barriers to the provision of financial products across borders should facilitate greater access by Australian wholesale investors to foreign financial products and markets and, in the case of mutual recognition, easier access by Australian financial institutions to foreign markets.
- Infrastructure development and funding
The Commonwealth should develop a framework for the provision of a guarantee of the yield during the construction phase of major infrastructure projects so as to attract investment by superannuation funds and other investors.
- Identification and resolution of legal uncertainty
A Financial Law Advisory Committee (FLAC) should be established in Australia, which would consider:
- domestic and international legal issues which impact Australia’s financial system; and
- the extent to which legal uncertainties or misunderstandings can be addressed through both legislative change and other means available to our financial regulators.
- Improving the pace of financial reform
Australian governments, their agencies and instrumentalities should commit to a timely, transparent and effective process for the assessment of proposals and recommendations for reforms or changes in the laws and regulations relevant to Australia’s financial system which are made by, or set out in a report commissioned by, them.
- Independence in the governance of Australia’s financial system
The governing body for all Australian financial regulators should include a majority of non-executive (or independent) members. Independence allows a director or other member of a governing body to be objective and evaluate the performance of the organisation without any conflict of interest or the undue influence of interested parties.
This may provide a solution to “cognitive capture” of regulators both by industry and by the regulator’s own objectives, concerns and world views. A greater number of independent directors / members can enhance the diversity of perspective which can be applied to the governance of the relevant regulators.
- Instituting an exchange tradable fixed term deposit market
The Commonwealth should take steps to facilitate the development of a market in exchange traded fixed term deposit products issued by Authorised Deposit-taking Institutions (ADIs). The fixed term deposits should be given the protection afforded by the provisions of Division 2AA of Part II of the Banking Act (ie the Financial Claims Scheme). One of the primary benefits of an exchange tradable fixed term deposit market would be its impact on liquidity – liquidity risk would be transferred from ADIs to the capital market and would allow investors to seek liquidity from fellow investors.
The FSI panel have been asked to release an interim report in mid-2014, to allow a second period of consultation before delivering its final report to the Commonwealth Government by November 2014.