Public policy – financial services regulation –
final report of Financial System Inquiry – impact on
The Federal Government's long-awaited response to the final
report of the Financial System Inquiry (FSI) was
released on 19 October 2015. The ministerial reshuffle brought
about by Malcolm Turnbull's appointment as Prime Minister
delayed the release of the response; but the newly appointed
Treasurer, Scott Morrison, and the Assistant Treasurer, Kelly
O'Dwyer, did not veer from the expected course. The Government
has backed all but one of the FSI's 44 recommendations across
five distinct strategic priorities, namely:
The resilience measures, which are aimed at
reducing the impact of potential future financial crises by
ensuring Australia is better equipped to weather them and lessen
their cost to taxpayers and the economy.
The superannuation and retirement incomes
measures, which are aimed at reducing the costs of the
superannuation system to consumers.
The innovation measures, which are aimed at
unlocking new sources of finance for the wider economy and
supporting competition and the facilitation of technology-led
The consumer outcomes, which are aimed at
providing consumers with confidence to participate in the financial
system and confidence that they are being treated fairly.
The regulatory system measures, which are
aimed at making regulators more accountable for their performance,
more capable and more effective.
For the insurance industry, the Government's endorsement of
the FSI's recommendations will ultimately lead to some
significant changes to regulation, particularly in the areas of
consumer outcomes and innovation.
In the area of consumer outcomes, the Government has agreed
create a targeted and principles-based financial product design
and distribution obligation. This will see organisations taking
greater responsibility for ensuring that products are only designed
for, and sold to, customers for whom the product is
provide ASIC with a product intervention power to enable it to
modify, or if necessary, ban harmful financial products where there
is a risk of significant consumer detriment. These powers are
proposed to be based on similar powers granted to the UK's
Financial Conduct Authority in 2012;
remove regulatory impediments to innovative product
develop legislative amendments to raise the professional,
ethical and educational standards of financial advisers by
requiring advisers to hold a degree, pass an exam, undertake
continuous professional development, subscribe to a code of ethics
and undertake a professional year;
support industry-led initiatives to increase guidance and
disclosure in general insurance;
take steps to more clearly differentiate financial products.
The Government has given its support to APRA in improving product
differentiation for retail consumers; and
rename 'general advice' to improve consumer
understanding. The Government will consult with a wide range of
stakeholders and conduct consumer testing before finalising the
name of the new term.
In the area of innovation, the Government has agreed to:
establish a permanent public-private sector collaborative
committee (the Innovation Collaboration Committee) to facilitate
financial system innovation. The committee will be linked to
ASIC's Digital Finance Advisory Committee;
improve the use of data. The Government proposes to task the
Productivity Commission with reviewing options to improve
accessibility to data, taking into account privacy concerns and
other existing Government processes; and
amend priority areas of legislation and regulation to be
technology neutral so as to prevent technology-specific laws and
regulations from impeding innovation.
Where to from here?
2016 will see Treasury embark on a range of consultations with
stakeholders in respect of the recommendations. Implementation of
any changes to financial services regulation is not likely to be
seen before January 2017. There will be a Federal election before
then (possibly early in 2016) which may disrupt this process.
Insurance industry reaction
The insurance industry has so far reacted positively to the
Government's response. The Insurance Council of Australia has
stated that general insurers are "pleased" with the
response, but that further detailed consultation is required to
address the extent to which the recommendations should apply to the
insurance industry, as opposed to the banks and superannuation
funds to which they appear more relevant. However, given global
regulatory trends in these areas, particularly around product
governance and intervention powers, the expectation is that any
changes to financial services regulation will apply equally to
insurance issuers and distributors.
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