The Financial System Inquiry says the Australian
financial system is operating effectively and not requiring broad
systemic change, but does need a refresh to allow it to continue to
meet future challenges.
The Commonwealth Government's Financial System Inquiry
(FSI), chaired by former Commonwealth Bank chief executive David
Murray, today released its Interim Report.
The FSI was set up in 2013 as part of the Commonwealth
Government's deregulation agenda and was asked to report on
four key considerations:
the efficient allocation of Australian sourced capital to
minimise exposure to volatile global markets;
balancing competition, innovation and efficiency with stability
and consumer protection;
the role and impact of new technology, innovation and changing
consumer preferences; and
international integration, in particular international
After seven months of deliberations and considering submissions,
the Report has identified a series of challenges which the
Australian financial sector will need to confront in the future in
order to grow, remain productive and continue to meet the
Australian public's needs in the wake of a changing financial
climate. These challenges include:
future financial crises;
technological advances in financial services;
pressure on the budget as a result of Australia's ageing
ensuring that higher productivity growth is facilitated through
funding the economy more efficiently, finding new business and
using new technology.
Priority issues identified by the FSI Interim
Nine priority issues relating to how well the Australian
financial system is prepared to meet the challenges outlined above
have also been identified:
competition and contestability;
funding Australia's economic activity;
superannuation efficiency and policy settings;
stability and the prudential framework;
consumer outcomes and conduct regulation;
retirement incomes and aging;
technology opportunities and risks; and
As noted above, one key area of focus identified by the FSI was
the Australian superannuation sector, suggesting this could be an
area where greater efficiencies could be achieved. Three key
matters the FSI addressed in the Report were fees charged by
superannuation funds, retirement savings risk and borrowing by
The Report states that Australia's financial system has
grown significantly since the Wallis Inquiry was released in the
1990s, largely as a result of the growth in the superannuation
Despite this growth, the FSI observed that superannuation fees
remain high, due in part to the Australian superannuation sector
having the highest operating costs of any member counties of the
Organisation for Economic Cooperation and Development.
While the recent MySuper reforms are tipped to lower
superannuation fees, this will nevertheless need to be assessed
further in the coming months and years.
The FSI has also questioned the borrowing permission of
superannuation funds saying that, the growth in self-managed
superannuation funds has advanced the historically limited practice
and opened the superannuation system to new vulnerabilities. Though
the Report stopped short of suggesting a prohibition on borrowing,
it seems that the FSI may be considering this as a possibility.
Lastly the Report suggested that the retirement phase of
superannuation remains underdeveloped and does not meet the risk
management needs of many retirees. Though there are regulatory and
other policy impediments to developing income products that benefit
retirees, this remains a key area for improvement.
Going forward: submissions sought on the issues in the
While the FSI made a series of policy selections for
consultation in respect of the Report, these are only draft
recommendations and the FSI is now seeking submissions in order to
prepare its final report.
For those wishing to make submissions, they can be made online,
with the closing date for submissions being 26 August 2014.
The FSI is expected to release its final report in November of
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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