Government takes action in reaction to Financial System Inquiry

PRIME Minister Malcolm Turnbull has announced the Federal Government is taking six new actions in its response to the Financial System Inquiry (FSI) – including a vital extension to consumer unfair contracting protections for small business.

Mr Turnbull has announced legislation covering unfair credit card surcharges, and through the Australian Prudential Regulation Authority (APRA) is driving banks to measure up to changes in security and behaviour.

Of great interest to small business is the following up on Senate amendments to extend unfair contract term protections to small business. 

“These changes will cover standard form contracts where at least one of the parties employs less than 20 people and where the upfront price of the contract does not exceed $300,000, or $1 million for contracts longer than 12 months,” Mr Turnbull said.

The final report of the FSI, led by former Commonwealth Bank chief executive, David Murray and released on December 7 last year, satisfied an election promise made by former Prime Minister Tony Abbott and former Treasurer Joe Hockey.

“The financial system affects all Australians,” Mr Turnbull said. “It plays a vital role across the Australian economy, contributing to productivity and growth.

“The biggest decisions Australians make in life – buying a home, providing for our retirement, or starting a business – are all supported by our financial system.

“The government has accepted the overwhelming majority of the inquiry’s recommendations,” Mr Turnbull said.

“The response also includes six additional measures that will help to deliver a financial system that is efficient, resilient and fair.”

The Prime Minister said the government’s response would improve the financial system and builds on existing policy. The government’s financial system agenda will be implemented in stages over several years, “helping Australia respond to the challenges and opportunities that the future brings”.

Measures the Federal Government is implementing include:

CARD SURCHARGING

The Federal Government will legislate to ban merchants from imposing “unfair card surcharges that are greater than the cost to them of accepting payment by card”. The government will work with stakeholders on the legislative response and phasing of the implementation.

“We will make the Australian Competition and Consumer Commission (ACCC) responsible for enforcing these surcharging regulations, to ensure consumers are treated fairly and not over‑charged when they pay using a card,” Mr Turnbull said. “We also endorse the Payments System Board’s ongoing review of interchange fees.”

This refers to the contentious valuing of fees the banks charge each other for handling transactions.

SUPERANNUATION

The new financial system agenda includes a number of measures aimed at improving the level of competition, efficiency and transparency in the superannuation system. Mr Turnbull said this would improve after-fee returns for fund members.

The Productivity Commission has been directed to develop criteria and then assess how efficient and competitive the superannuation system is and develop alternative models for allocating default fund members to products.

“We will also work closely with industry to provide retirees with more flexible and reliable retirement income products and move to extend the choice of fund arrangements to more employees as recommended by the Inquiry,” Mr Turnbull said.

“We have introduced legislation to enhance superannuation governance arrangements and require that at least one third of all Australian Prudential Regulation Authority-regulated superannuation fund trustee boards are comprised of independent directors, including the chair.”

INNOVATION

Mr Turnbull said innovation was a key driver of productivity and growth in the financial system and the government was looking at ways for new finance methods to boost the economy including crowd funding models.

“The government has consulted stakeholders on a regulatory regime for crowd-sourced equity funding and will negotiate draft legislation to implement before the end of 2015,” he said. “We will soon begin consultations to facilitate crowd-sourced debt funding.”

FINANCIAL ADVISERS

The government is stepping up its scrutiny and methods of recourse for consumers in the financial advice sector – and introducing new standards to raise its professionalism.

“Measures will also ensure that consumers receive professional and fair treatment from advisers and financial product and service providers,” Mr Turnbull said.

“More needs to be done to make the issuers and distributors of financial products accountable for their offerings.  We will consult extensively about product design and distribution obligation and a new product intervention power for Australian Securities and Investments Commission.”

The Federal Government plans to raise professional, ethical and education standards for financial advisers. It has announced that subject to transitional arrangements, advisers will be required to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year before they can advise clients.

“These higher standards will, for the first time, place financial advising on a similar footing to other professions and in doing so increase consumer trust and confidence in the sector,” Mr Turnbull said.

“The Coalition Government will soon hold a roundtable with key stakeholders to discuss the implementation details of this important reform.”

LIFE INSURANCE

In June, Assistant Treasurer Josh Frydenberg announced reforms to improve remuneration practices in the life insurance industry. Mr Frydenberg has announced it will adopt the industry’s proposals.

BANKS

The Federal Government is supporting moves by APRA to boost banking security in Australia through various measures including raising the capital requirements of the major banks.

“Australia’s banks are at the core of our stable financial system and fundamental to the broader economy,” Mr Turnbull said. “The government endorses APRA and the steps it is taking on capital requirements to ensure our banks are unquestionably strong.”

FINANCIAL REGULATORS

A key part of the government’s reform agenda is to “strengthen the accountability and capabilities of APRA, ASIC and the Payments System Board” according to Mr Turnbull.

“Strong and accountable regulators underpin the smooth operation of the financial system,” he said. “We will be further informed by the findings of the ASIC capability review.”

IMPLEMENTATION

The Prime Minister has reinforced the rapid roll-out of the measures being made in reaction to the FSI.

On September 1 the government announced it would not proceed with the previous Labor Government’s Financial Stability Fund levy.

On September 9 the government passed legislation to fix the publicly criticised unclaimed moneys process also introduced by the previous government. The change meant bank accounts could be inactive for seven years instead of three, before they are transferred to the government. “This reversed the previous Labor Government’s decision and protects Australian savings accounts,” Mr Turnbull said.

The Federal Government has also agreed to Senate amendments to extend unfair contract term protections to small business. These changes will cover standard form contracts where at least one of the parties employs less than 20 people and where the upfront price of the contract does not exceed $300,000, or $1 million for contracts longer than 12 months.

“The government sets out a blueprint for an efficient and resilient financial system, characterised by fair treatment of users,” Mr Turnbull said.

“Australians can now be confident that our financial system remains the best in the world.”

The Federal Government’s detailed  response to the Financial System Inquiry can be found at www.treasury.gov.au/fsi

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