The next few months provide a crucial opportunity for participants in the Australian financial services industry to influence the final report of the Australian Financial System Inquiry, headed by David Murray.

The Interim Report has generated a lot of debate around the role of vertically integrated groups, the favourable funding and regulatory position of the big banks, the quality of financial advice, the high cost of superannuation and whether the regulators should be given more powers and higher penalties to protect consumers.  The increasing use of technology, big data, market disruption and international integration are also themes that have attracted media attention and public debate.

The Final Report is due to go to the Federal Treasurer in November, with submissions on the Interim Report due by the end of August.

We provided a detailed analysis of the Interim Report when it was released.   Among the highlights of the Report were the following observations on the effectiveness of the current financial services regulatory framework in Australia:

  • Stability and the prudential framework:  No need for radical reforms or regulation of the financial system.  However, a refresh of the current regulatory framework is needed in order to meet future challenges. 
  • Regulatory architecture:  There is room for improvement in the way the regulators operate.  This could be done by re-examining regulatory perimeters, increasing the regulators’ independence and accountability, enhancing transparency, better defining competition mandates (particularly for the Australian Prudential Regulation Authority) and plugging the gaps in the Australian Securities and Investments Commission’s enforcement powers.  
  • Planning for the next crisis:  The Report cautions about powers that would allow regulators to go beyond the “prudential perimeter”.  Rather, the Report observes that “Australia has effectively navigated systemic risk without the kinds of tools being introduced in some countries”.   
  • International integration:  Given the economic benefits of financial integration with the rest of the world, there is an increasing need for  improvements to domestic regulatory processes to allow for better international integration.

It seems that the Inquiry is somewhat satisfied with the current regulatory framework, especially given that the financial services industry remained relatively unscathed during the Global Financial Crisis, compared with other economies. 

However, that is not to say that the regulatory framework cannot be improved.  It is widely agreed that the financial services industry in Australia will need to prepare itself for future financial crises, emerging risks, and international integration.  The release of the Final Report in November will be of significant interest to all players in the financial services industry – watch this space.