Turnbull's huge financial system overhaul

Photo: Stefan Postles / Getty Images

The biggest overhaul of Australia’s financial financial system in two decades means increased protections for consumers for both their day-to-day transactions and their long term investments including superannuation.

It also seeks to make the system more resilient to any future financial crisis such as the the GFC and makes it easier for non-bank crowd-sourced funding systems to work in Australia.

“Australia can now be confident that our financial system remains the best in the world,” says prime minister Malcolm Turnbull.

Financial planners, whether they work for the big banks or at suburban offices, will now need to be properly qualified and monitored.

And credit card fees will be regulated to ensure merchants don’t slap on high and unfair card surcharges. Their fees can no longer be more than the cost to store of accepting payment by card.

The competitiveness and efficiency of the super system will be investigated by the Productivity Commission with emphasis on the fees paid.

David Murray, the former Commonwealth Bank CEO who headed the inquiry, pointed out that many pay too much to have their retirement nest eggs looked after.

The idea is to improve after-fee returns. There’s a big spread of fees charged by those, including banks, who manage super funds in Australia. There’s a difference of 1.36% between the fees charged by funds: from 0.48% to 1.84%.

The Turnbull government backed most of the recommendations of Murray’s financial system review. One not accepted was stopping super funds from borrowing to buy property. This will continue.

However, there are sweeping proposals for changes to the financial industry, including tighter training restrictions for financial advisers and increased powers for the corporate watchdog, ASIC.

There’s also a proposal for a Productivity Commission review of competition in the financial sector but this won’t happen until next year.

“Australia weathered the last financial crisis well, but this does not guarantee immunity from future shocks,” the government says in its detailed response to the 44 recommendations of the Financial System Inquiry.

“We cannot be complacent.”

The government has drawn up a list of actions to be taken to implement the key measures from the inquiry:


“Our financial system is strong, stable and well regulated, but has a number of systemic features which represent potential vulnerabilities,” the government says.

The government will develop legislation so Australian companies can take part in international derivative markets and better protect client money.

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 (Australian Prudential Regulation Authority) 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.


“It is critical that the superannuation system is competitive, efficient and transparent and has the highest standards of governance. Australians must have confidence to invest in this system and plan for their retirement,” the government says.

Legislation will be developed to improve governance and transparency in superannuation.

The Productivity Commission will be asked to immediately develop and release criteria to assess the efficiency and competitiveness of the superannuation system and to develop alternative models for allocating default fund members to products.

By end-2016: 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: Director penalties. Monitor leverage and risk within the superannuation system.


“Innovation in the financial sector is always transforming the financial system and this is likely to continue. New payment methods, innovative funding sources, better use of customer information and deeper cross-border linkages promise enormous opportunities, if properly harnessed. Our policy settings must facilitate entry of these disrupters rather than acting as a blockage,” the government says.

Legislation to support crowd-sourced equity funding.

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.

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.


“While consumers are responsible for the consequences of their financial decisions, they should be treated fairly. The financial services and products they purchase should perform in the way they are led to expect,” the government says.

Develop measures to address the misalignment of incentives in life insurance.

By mid-2016: Legislation for 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: DGive 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.


“Businesses have told us that they are not given sufficient time to implement regulatory changes, which are often complex. This represents a significant and growing compliance cost for them. In response, we will work with regulators to give businesses appropriate time to implement regulatory changes,” the government says.

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 develop legislation to enhance operational capabilities of regulators.

By end-2016: Introduce competition into ASIC’s mandate.

Beyond 2016: Start a review of ASIC’s enforcement regime. The Productivity Commission to review the state of competition in the financial system.

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