On 15 July 2014, the Interim Report of the Financial Systems Inquiry (or ‘Murray Inquiry’) was issued. Overall, the Murray Inquiry’s initial assessment is that, to date, the Australian financial system has performed reasonably well in meeting the financial needs of Australians and facilitating productivity and economic growth.  Many areas of the financial system are operating effectively and do not require substantial change.

However, the Murray Inquiry acknowledges that there is no room for complacency and that the Australian economy will face a number of opportunities and challenges in the coming decades which may have implications for the financial system, including future financial crises; fiscal pressures; productivity growth; changes in technology; and international integration.

The Interim Report covers banking, asset and wealth management, insurance, regulatory architecture and international integration. This blog entry focuses on financial services generally.

Financial services aspects

The inherent shortcomings of the mandatory financial services disclosure regime is a recurring theme in the Interim Report and the Australian Securities and Investment Commission’s call for higher penalties, banning orders and more regulatory intrusion into product development and distribution appears to be gaining traction given the availability of these “regulatory tools” to overseas regulators.

Many of the observations relating to the shortcomings in the superannuation and wealth management sectors were made as part of the Cooper Review in 2010, which led to the significant StrongerSuper and Future of Financial Advice reforms. Given the recent implementation of those reforms, the focus appears to be on fine-tuning the new regulatory settings. The one exception is income products, which were put in Cooper’s “too hard basket”, as both compulsion and tax concessions were seen as unpalatable by the community and government for different reasons. Cracking this chestnut is the Inquiry’s biggest wealth management challenge given retirees’ preference for lump sums on retirement.

In relation to technology in this space, the Interim Report echoes the global trend to encourage product issuers to use big data and technology to build and distribute more “suitable” financial products, improve financial literacy and develop interactive tools to enable financial advisers and consumers to test the suitability of financial products. In this regard, all stakeholders are seeing technology as providing an opportunity to develop more effective consumer centric engagement strategies to address some of the inherent shortcomings of the current financial services regulatory regime.

We have prepared a briefing note on the report which can be found here.