Minister for Superannuation and Corporate Law
3 December 2007 - 8 June 2009
Australian Financial Markets Report Launch
2 October 2008
Acknowledgments (TBC) and introduction
I'm delighted to have been invited to speak at this double launch of the 2008 editions of the Australian Financial Markets Report and Austrade's 2008 Financial Services Benchmark Report: Australia A Global Financial Services Centre.
...to address a sector of the economy that takes high priority in terms of the Government's trade and investment policy.
I'd like to begin with a reiteration of the Government's position in relation to the turbulence in global financial markets.
You will be the first to know that we have maintained regular contact ever since the Government came to office with the banks, regulatory bodies and the Council of Economic Regulators, which itself has been in constant touch with all of Australia's major financial institutions.
The good news is that our major banks have been only modestly exposed to the factors that have enveloped US institutions and spread from there.
This draws attention to the fact that, although we are not immune from what is happening in international financial markets, we have a well capitalised and well regulated banking system, and we are better placed than many other countries around the world to weather it.
Changing nature of world trade
The changing nature of international commerce demands a new approach.
World trade has moved inexorably away from a containership and air cargo monopoly, into an era when financial transactions are flashed around the world at the speed of light.
Trading nations now transmit both goods and a vast array of professional services, transnational capital flows and investment.
We must adapt to be a step ahead of other markets increasingly seeking to position themselves in the region.
Asian capital has started to move beyond home countries, while improvements in technology, telecommunications and air travel are facilitating their capital flows.
For a decade or more, Hong Kong, Singapore, Shanghai, Seoul and Kuala Lumpur have all launched financial services initiatives.
I note also, that Australia's financial services benchmark report, which is being launched today and outlines Australia's key competitive advantages as a global financial centre in the Asian time zone, is now in its 8th year.
Australia has a service based economy with nearly 80 per cent of value-added in our economy generated by the services sector. Financial services is a major portion of this, accounting for 8.6 per cent of gross value added for 2007.
However services only account for 23 per cent of our exports.
Unless we adapt, Australia will be left behind as other financial centres emerge.
We acknowledge and recognise the special place that your industry has on offer to the region and the wider world.
Regional Financial Hub
In fact, there is every reason why Australia should be a regional financial hub, continuing to engage with greater vigour in the global marketplace.
What do you need to become a successful financial services hub?
We have what it takes:
- a solid legal and taxation regime;
- an effective, efficient regulatory environment;
- a skilled workforce;
- access to international markets;
- sophisticated and cost effective infrastructure; and
- an innovative streak.
That sounds to me very much like Australia, a country that is politically stable, multicultural, sunny and warmly welcoming to investors.
Australia's financial credentials
As a nation we add value in terms of some hard economic facts:
- Ours is a dynamic financial services sector which exists as part of one of the strongest economies in the world, in the world's fastest growing region.
- It is among the largest, fastest growing and most sophisticated in the Asia-Pacific region larger even than the booming mining sector.
- Australia has the fourth largest pool of contestable investment fund assets and the 7th largest stock market in the world.
- Australia is recognised as a global leader in funds management, infrastructure financing, securitisation, and a regional leader in alternatives, such as structured finance, private equity and real property.
- We also are a top-10 global player in mergers and acquisition, capital raising, initial public offerings (IPOs) and foreign exchange.
- Our industry manages more than $1.3 trillion in assets, having grown at an annual rate of around 11 per cent since the Hawke-Keating Government's introduction of the superannuation guarantee levy in 1992.
- And it is predicted that this figure will rise to more than $2.5 trillion by 2015.
These are only some of a long list of credentials underpinning Australia's financial industry's potential.
Let me assure you the Australian Government will be supporting you every step of the way.
By unshackling obstacles to your industry's competitiveness, we also seek opportunities for provision of skilled employment and infrastructure, while helping to reduce an unacceptable trade deficit.
Liberalisation of Trade
In order to reduce the obstacles to trade and investment, the Government will continue to push for liberalisation of markets at borders, as well as liberalisation of markets behind the borders what we call the ‘twin pillars' approach to our trade policy.
Multilaterally, we are relentlessly pursuing a successful outcome to the Doha round.
The Government recently concluded negotiations in Singapore on an ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), a big market of 570 million people with a combined GDP of US$1 trillion.
It's Australia's biggest FTA and ASEAN's most comprehensive.
It incorporates good outcomes on services, which go beyond what we've been offered in both the Doha round by ASEAN countries, including banking from the Philippines and insurance business with Indonesia.
Equally, Australia is committed to seeing a comprehensive, region-wide trade and economic agreement spanning both sides of the Pacific, and we welcome APEC's current discussion of an FTA for the Asia-Pacific.
Market access requests on services, including financial services and investment were exchanged at the sixth round of Australia-Japan FTA negotiations in Tokyo in late July.
In late May we concluded negotiations on a Free Trade Agreement with Chile. And the Prime Minister's visits to China and Korea earlier this year led to concurrence over accelerating preparatory talks on negotiating free trade agreements with both of those countries.
We are hopeful that the FTA negotiations will lead to better access to China's market for Australian financial service providers a priority objective for Australia.
Other Government action
In other activity conducive to enhancement of your industry,
The Government is setting up a long term initiative to further position Australia as a financial services hub in the Asia Pacific region.
Treasury has established a dedicated team to progress issues in relation to positioning Australia as a Hub. A panel of experts will be established to provide high level advice to the Government and a reference group involving industry representatives will also provide input and advice in the initiative.
The Government's Financial Sector Advisory Committee will provide advise to the Government on the Hub initiative and will liase with the Treasury Team in relation to any recommendations to Government.
And the Government will report back with an agenda for action by the end of the year.
The government has introduced globally competitive withholding tax rates for overseas investment funds doing business in Australia.
A discussion paper has been released on Australia's Future Tax System that includes arrangements applying to managed investment trusts.
In the Chinese market, the Government has gained approval under the Chinese Qualified Domestic Institutional Investor Scheme and other domestic initiatives.
The Government has signed a world-leading arrangement between Australia and the USA that will pave the way for easier access by investors and financial markets to each other's financial systems.
This was Australia's third mutual recognition arrangement after New Zealand and Hong Kong and covers securities offer documents.
As many of you may be aware, effective 1 July this year, Austrade assumed the foreign direct investment attraction responsibilities of Invest Australia creating a single agency with responsibility for assisting business on inwards investment, exports and outwards investment.
As part of this transition Austrade now has a dedicated financial services industry team in Sydney here to help promote Australian financial institutions and the country's financial sector as a whole.
Austrade continues to provided in-market support for individual institutions and major industry associations in the sector.
Assisting with the signing of MOUs such as that between AFMA and its Chinese equivalent organisation the SAC is an important part of this work.
The SAC has some 300 members, including 109 securities firms, 51 fund management companies, 92 securities investment consulting companies and other companies associated with the financial services industry. A fortuitous link indeed.
More recently, Austrade provided support for a Mission to China sponsored by the Investment and Financial Services Association (IFSA) including senior industry representatives and government officials.
The aim of the mission was to establish closer links between the Chinese and Australian financial services industries and to explore opportunities to cooperate and further strengthen existing industry and regulatory relationships.
A number of other financial services missions have been concluded in the Middle East, North and East Asia, and North America, and more are in the pipeline.
Austrade, with core strength in its overseas reach and market knowledge is also working with the banks and other professional firms including PWC, Deloitte and Minter Ellison through its Corporate Partnerships program.
Last financial year eleven Export Market Development Grants totalling $900,000 were provided to financial service companies.
A further 404 Export Market Development Grants, to a total of $21.8 million, were provided to technology and software companies, many of which provide financial services solutions.
From the inwards investment side, last year alone, more than 25 financial institutions acknowledged assistance in either entering Australia or expanding their footprint in this market.
Recent regulator action on short selling
I did just want to make a couple of further comments on market issues, namely short selling.
As most in the room would be aware, the last fortnight has been an extraordinary period on the Australian and global markets.
For example, our independent regulator ASIC, with the involvement of our independent supervisor, the ASX, have taken action on short selling.
ASIC and the ASX have made independent and prudent decisions, driven by quickly evolving international conditions and global cooperation between key regulators.
The regulator and supervisor have taken these steps because the last fortnight has seen great volatility in market conditions. They have assessed the situation and decided short selling, sometimes a mechanism for manipulation, was not currently in the interests of the Australian market.
These actions are a reflection of the events of the times and also the outcome of ongoing and intensive coordination with international regulators, including the SEC and the FSA.
Let me say this – Australia has a world-class regulatory system.
The actions of our independent regulators over the last fortnight has help ensure ongoing confidence in the operation of Australia's financial markets.
I am particularly thankful to the community of market participants who have worked so constructively and productively with the ASX and with ASIC to implement the decision and refine its operation.
As you would also be aware, last week I released the Government's promised Corporations Amendment (Short Selling) Bill for a four week exposure period.
This Bill establishes a disclosure regime for covered short selling in preparation for the possible future removal of the current halt on most types of covered short selling.
As we have always said, the Government has no intention of putting in place a permanent legislative ban on legitimate covered short selling, which in normal conditions can add to the efficient operation of the market.
The Reserve Bank supports this position.
When conditions calm, ASIC will assess the situation and may determine that it is appropriate to remove the current halt.
The Government is taking the responsible step of preparing for that outcome, with the release of a comprehensive covered short selling disclosure regime.
I encourage all those here tonight with an interest in this matter to review the Bill and make any comments to Treasury as soon as possible.
I see some symbolism in the fact that the ASX is the first major stock market to open for business every day.
The world's financial cycle begins here in Sydney.
As Minister for Trade, I seek a new dawning for the entire financial industry. The reforms Australia is introducing to our taxation and financial arrangements are designed to secure just that.
I wish you well and I look forward to working with you in meeting the challenges ahead.