Ladies and gentlemen, thank you for inviting me here today.
Thank you to Chairman Jim Freemantle and to the Association's executive director Jim Larkey, who I understand, is the longest-serving executive director of any financial sector group in Australia.
It's a great pleasure to be speaking to the Australian Association of Permanent Building Societies, particularly at this time of tremendous change in the financial services sector.
At the last conference, this time last year, I was overseas spruiking the merits of Australia as a global financial centre.
On this trip, my message was simple: Australia has an story to tell.
I said that Australia has one of the most robust economies in the world.
I said that Australia has a regulatory system the envy of many nations, and I said that Australia has an enormous amount to offer international financial institutions.
But I told my American audience that these achievements only came about because Australia had done the hard yards and undertaken major structural reforms – budgetary reforms, banking reforms, industrial relations reforms and importantly, reforms to our taxation system.
Today, I want to speak about the reforms the Government is undertaking and why we think they are in the best interests of the nation as a whole – including our building societies.
These reforms include the transfer of responsibility for the regulation of building societies and credit unions from state-based regimes to the corporations law; the Corporate Law Economic Reform Program; the financial sector levy review and the GST treatment of building societies.
I'll come to those issues later.
But first, I want to talk about the provision of financial services in the bush.
Ladies and gentlemen, the Government is concerned about the withdrawal of banking services from the bush. We believe that financial institutions have responsibilities to all their customers, whether they live in cities or the country.
We believe that people in the country should have access to basic banking facilities as well as access to electronic commerce – especially in a world that within 10 years is going to be dominated by the Internet.
And this highlights the underlying environment facing the entire financial services industry.
Like it or not, the financial services landscape is going through profound change.
And from this change there are many real benefits for consumers. Thanks to technology, consumers have much more choice.
For instance, back in 1989 there were around 38,000 points of access to financial institutions. To access your money you had to visit your bank or building society usually between 10am and 4pm, Monday to Friday.
Today, consumers can access their cash 24-hours a day, at more than 300,000 points right across the country – in fact, right around the globe.
But for country people these positives might not be immediately obvious or immediately available.
So the Government is putting in place initiatives that will ease this transition and maintain service to people in country areas.
One such initiative is our $70 million Rural Transaction Centres Programme, funded from the sale of the second tranche of Telstra. It's providing personal banking and elements of business banking services to the country.
To date, more than 70 communities around Australia have been awarded funding under the program.
The Prime Minister opened the first RTC at Eugowra, New South Wales, last October. Since then a further 5 have opened and another 4 are expected to open shortly.
As I look around, I see representatives of some of our oldest and most-established building societies, with histories stretching back to the 19th Century.
Most building societies have developed strong, local profiles in their regions and offer customers a solid prudential base for savings and loans.
They provide competition to banks, particularly outside the capital cities. That is exactly what building societies are good at.
And now, in line with the recommendations of the Wallis Inquiry, the Government is moving to harmonise the regulation that covers banks, building societies, credit unions and friendly societies.
1999 was a big year for the country's building societies with Y2K and the move from State to Federal regulation.
This regulatory transfer on 1 July 1999 involved about 20 building societies, 237 credit unions and 85 friendly societies.
The transfer has proceeded well. The Australian Prudential Regulation Authority has tried to make the transition as smooth as possible by adopting the prudential rules which had previously been applied in state jurisdictions.
Although there have been some teething problems, in the long term I think bringing institutions into the mainstream of financial markets through the corporations law will boost their competitiveness and let them better adapt to changes in the financial system.
The Government is now considering a second set of regulations to further help in the transition.
Treasury recently issued a discussion paper, which drew on representations from your Association and other interested parties.
Two matters of particular concern to the AAPBS have been the provision of annual reports to members and the sending of notices of meetings to members.
The arguments in favour of providing relief are finely balanced. On the one hand, the requirement to provide financial reports to members and to notify them of meetings are important accountability mechanisms for directors and managers of institutions.
It is important to ensure that providers of financial services are subject to a similar degree of regulatory oversight.
On the other hand, the cost of complying with new requirements can represent a considerable cost burden.
The Government is carefully considering responses to the discussion paper.
However, my personal early opinion is that while I am a fierce proponent of corporate governance, I recognise that building societies are different organisations.
And as such, I don't think we should have regulation for regulation's sake. Providing financial reports to members and notifying them of meetings is important, but I think we should explore other forms of communication to ensure this happens.
In the age of the Internet, we should not be shackled to a 19th Century form of technology – surface mail – and the costs that go with it.
So, my early feelings are that I am prepared to look at a range of solutions.
However, draft regulations will be prepared soon and we aim to have the new regulations in place by July.
Another issue that has attracted a lot of interest recently is the financial sector levy review.
The levy review is looking at ways of accessing more detailed information to help with setting levies that are more reflective of the costs of supervision.
The review is progressing and we hope to soon have an outcome that addresses all the often-competing industry concerns that have been raised.
The Government is pushing on with regulatory change. Last month I released the Financial Services Reform Bill – the successor to CLERP 6.
The FSR Bill represents the next stage in the development of a world-class regulatory framework for the financial services industry.
It will facilitate innovation and promote business, while at the same time ensuring adequate consumer protection and adequate market integrity.
The Bill is the outcome of extensive consultation, and now in its draft form, is open until May 11 for public input. So far, I am glad to say the response has been very positive.
Treasury will also be holding round-table discussions with key stakeholders in Sydney in mid-April.
An invitation has already been sent to the AAPBS. I urge you to consider the draft Bill and commentary and I am looking forward to receiving further submissions.
One of the key features of the new regime is that it applies harmonised regulatory requirements across all financial products but has in-built flexibility.
This will ensure that the appropriate regulatory intensity is applied to take account of the different complexity across a differing range of financial products as well as differing levels of consumer knowledge and participation.
The regime has been designed to cover existing products, business structures and markets, as well as taking into account how the financial sector will look in the future.
We want to build a regime that will work over time; we don't want to have to tinker with the regime every few years to make sure it can cater for the new products, services and methods of distribution that might develop.
For example, on the issue of product disclosure at point of sale, these requirements will apply where products are offered to retail clients, including traditional deposit products.
The aim is to give consumers enough information to make informed decisions when they are buying financial products.
The level of detail required will depend on the complexity of the product.
There will be a number of mechanisms for fleshing out the detail of the disclosure obligations including regulations, ASIC policy documents and industry codes of practice.
Appropriate transitional provisions will apply and these have been discussed in the commentary.
As part of the reforms, all product issuers must be a party to an external alternative dispute resolution (ADR) scheme approved by ASIC and have in place internal dispute resolution procedures.
The CLERP 6 reforms will in large part remove the legislative and regulatory segmentation that saw the explosion of ADR schemes in the financial services sector.
Cutting back the huge range of ADR schemes will bring big benefits for consumers and industry alike, by making dispute resolution more accessible and less confusing. It will also mean considerable cost savings for industry.
Finally, to the New Tax System and the issue of the GST treatment of building societies and input tax credits. This is an issue in which the Association has shown great interest.
The Government has been keen to limit any adverse impacts of the insourcing bias, especially for smaller financial providers.
We think that the reduced input tax credit approach deals more comprehensively with the insourcing bias and the impact on smaller players than the general approach adopted overseas.
This is due to the large number of supplies that are either input taxed or taxable and subject to a reduced tax input.
The regulations of A New Tax System (Goods and Services Tax) Bill were the result of extensive consultation with industry, including both building societies and credit unions.
The regulations specify a range of products – such as cheque clearing, transaction processing, credit assessments, the provision of account information by call centres and debt recovery services – that are eligible for a reduced input tax credit when bought from any supplier.
This means that building societies that need to outsource services like these won't be disadvantaged under the GST.
Ladies and gentlemen, we are committed to developing a world-class financial services sector that is accessible to all Australians, whether they live in the city or in the country.
Today I have outlined some of the regulatory reforms we have undertaken -- and continue to undertake -- to achieve this goal.
At a time of such enormous change, these reforms will lead to stronger growth in the financial sector, and that is good for everyone in the industry.
And I know that Australia's building societies are well-placed to share in that growth.
Thank you