Thinking | 28 October 2015
The Government’s response to the Financial System Inquiry recommendations
The Federal Government has released its much-anticipated response to the recommendations of the Financial System Inquiry (FSI) made in December 2014. In its response, the Government largely accepts the majority of the FSI recommendations and outlines its agenda for implementing the recommendations in stages over the coming years. The notable exception is the Government’s rejection of the proposal to prohibit limited recourse borrowing by superannuation funds, stating that it ‘does not consider the data sufficient to justify significant policy intervention’.
The Government’s response is based on the following broad agenda items:
- Strengthen the resilience of the financial system: the resilience measures aim 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.
- Improve the efficiency of the superannuation system: the superannuation and retirement incomes measures aim to improve the efficiency and operation of the superannuation system and in doing so boost retirement incomes.
- Stimulate innovation in the financial system: the innovation measures will unlock new sources of finance for the wider economy and support competition.
- Support consumers of financial products being treated fairly: the consumer outcomes measures are designed to give consumers confidence to participate in the financial system and the confidence that they are being treated fairly.
- Strengthen regulator capabilities and accountability: the regulatory system measures aim to make regulators more accountable for their performance, more capable and more effective.
|Measure||Action||Hall & Wilcox commentary|
|Resilience||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.
Beyond 2016: APRA to ensure our banks have appropriate total loss-absorbing capacity and leverage ratios in place.
|Superannuation and retirement incomes||By end-2015: Develop legislation to improve governance and transparency in superannuation. Progress the Retirement Income Streams Review. 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. Consult on legislation to facilitate trustees of superannuation funds providing pre-selected comprehensive income products for retirement.
Beyond 2016: Implement legislation to introduce director penalties. Consult on legislation to improve member engagement, consistent with the recommendations in the Inquiry. Monitor leverage and risk within the superannuation system.
|Innovation||To date: Passed legislation to extend the period before unclaimed banking monies in the banking and insurance sector are captured from three to seven years.
By end-2015: Consult on legislation to support crowd-sourced equity funding. Consult on crowd-sourced debt financing. 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. Establish the Innovation Collaboration Committee.
By end-2016: Give legal effect to the Asian Region Funds Passport initiative. Consider technology neutrality in financial sector regulation.
Beyond 2016: Facilitate rationalisation of life insurance and managed investment scheme legacy products.
|Consumer outcomes||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. 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.
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||By end-2015: Complete a capability review of ASIC. Complete consultation on industry funding arrangements for regulatory activities undertaken by ASIC. Appoint new members 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.
Beyond 2016: Commence a review of ASIC’s enforcement regime. Task the Productivity Commission to review the state of competition in the financial system.
Please click here for a PDF of this update.
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