Introduction
Thank you for your kind welcome. It is a pleasure to be in Hobart again.
I'd like to thank Peter Johnston for providing me with the opportunity to speak at the AIOFP National Conference.
I recently outlined the agenda that I will be pursuing in relation to some key areas within my portfolio responsibility – which are of relevance to you all here I am sure. The Future of Financial Advice (FOFA) and superannuation.
My office has been undertaking targeted consultation on FOFA within the financial services sector, including discussions with the AIOFP. I want to recognise the importance of independent practices in helping to create a competitive financial services market.
Today, I'd like to focus on the Coalition Government's agenda on FOFA the Financial System Inquiry, MySuper and on deregulation. I hope that, as I talk about this, you'll get a better sense of what lies over the horizon and I look forward to hearing from you after this session.
FOFA
I know that one of the things that you are particularly focussed on is FOFA. That's just one of many interests we share.
You will know, then, that the Government continues to support the underlying goals of the FOFA reforms.
We recognise that the financial services industry required change in order to restore the faith of retail investors and to allow them to access quality advice at an affordable price.
This meant moving the industry away from conflicted remuneration models, which the FOFA reforms were designed to address.
But we believe that the FOFA reforms went too far in imposing red tape and additional costs on businesses.
We want to make it easier for businesses to operate by cutting red tape and reducing the administrative burden that has been imposed on the industry.
We are as committed to these reforms as we were during the election campaign, but that doesn't mean that we'll rush into implementing change in the industry.
That's why the Government has been working with stakeholders, including the AIOFP, and is listening to the views and concerns expressed by all stakeholders.
Let me briefly go through some specific concerns related to FOFA.
Opt-in requirement
One part of FOFA that's drawn industry criticism is the opt-in requirement. The Government agrees with industry's concerns and places a high priority on removing it.
We recognise that the opt-in requirement adds a burdensome layer of red tape, and we don't think that it adds any significant consumer benefits beyond those already offered by other measures, like the best interests duty.
So removing the opt-in will be an important step in winding back unnecessary administrative impositions on industry.
Fee Disclosure
Fee disclosure is another area where FOFA went too far, and we are planning to streamline its requirements so that the imposition on industry becomes less onerous.
When you consider that the fee disclosure requirement to provide statements to existing clients has been estimated to cost around twice as much as it costs to provide to a new client, it's clear that excessive red tape must be cut out of the industry.
Vertically integrated firms
The structure of the financial advice industry is changing. I understand that the AIOFP has raised concerns about the ability of independent financial planners to compete with vertically integrated businesses and is seeking to reclassify platforms as administration services rather than as financial products.
As you're no doubt aware, platforms are regulated as financial products, meaning that they are subject to the same important consumer protection provisions as other financial products. This means that obligations like the best interests duty, remuneration flows free from conflicts of interest, and appropriate disclosure to consumers, apply to platforms as they do to other financial products.
It is important that all financial advisers – from a one-person financial advisory practice in Hobart to an authorised representative of a large vertically integrated institution operating in Sydney – can compete on a transparent basis, within a common framework.
As you can appreciate, the Government's immediate priority is to implement its announced amendments to FOFA. The Government, including the corporate regulator, will continue to monitor the industry to ensure that there is a strong, competitive financial advice sector – including on the issue of platforms.
As Assistant Treasurer I am happy to listen to you further on this issue.
Grandfathering
Change can bring uncertainty and the Government takes very seriously the industry's transition to the new regulatory environment. We understand that this can take time. And we understand that it is important for firms to have the time to adjust their business models in line with any changes flowing through the industry.
We are also well aware of industry's concerns with the current grandfathering arrangements. Concerns around grandfathering provisions both when an adviser moves licensees, and when a financial services business is sold, are being reviewed.
Let me assure you that the Government will continue to work with the industry, including the AIOFP, to ensure that sufficient grandfathering arrangements are in place to facilitate the industry's transition.
Concluding remarks about FOFA
Before moving onto the Financial System Inquiry, let me offer some concluding remarks about FOFA. As I noted at the outset, the Government will continue to support the principles of FOFA. In particular, we consider that eliminating conflicts of interest will be critical in ensuring the smooth and efficient operation of the financial services industry.
In saying this, we understand the significant transition going on in the industry and hence the importance of working alongside stakeholders to ensure that this occurs as seamlessly as possible.
The Government will continue to work to restore confidence and certainty to the industry and we will also continue to update all stakeholders on our progress. We recognise the detrimental effect poor policy can have on an industry, and we will take the necessary steps to implement the required changes.
I have implemented a straightforward process to achieve this. As I mentioned earlier, my office has been undertaking targeted consultations with key stakeholders in the financial and wealth management industry on the Coalition's election commitments on FoFA and a range of other issues raised directly with us by industry. These consultations will be completed tomorrow. Immediately following this I will be seeking to bring a package of amendments to Federal Cabinet before the end of this year. Following Cabinet consideration of the package I will make a public announcement which clearly outlines what changes to FoFA the Government will be implementing to enhance the current regulatory framework. This will provide industry with certainty before the end of the year on what the Abbott Government will be implementing.
Time sensitive amendments will be dealt with through regulations and then locked in to legislation. I want to have legislation drafted by early February 2014, introduced into Parliament in the autumn sittings and passed during the 2014 winter sittings. This process will provide certainty.
Financial System Inquiry
Ladies and gentlemen, the financial system must meet the needs of consumers. That's why the Treasurer, Joe Hockey, announced the Financial System Inquiry as one of his first priorities, it will be a 'root and branch' inquiry into the financial system.
In addition to undertaking a general health check on the financial services industry, this once-every-fifteen-year review will help to fashion the future of our financial services industry in a positive and co-operative environment.
We know and appreciate that the Australia's financial system has served us well, and nowhere was that more apparent than in the immediate aftermath of the Global Financial Crisis.
But it has also been transformed by forces such as international economic and financial crises, a substantial regulatory reform agenda, the growth of superannuation, changes in industry structure, new competitive dynamics, technology, innovation and broader macro-economic trends.
With that substantial panorama before it, the inquiry will chart a course for the financial system over the next decade. Above all, it will be an agent for growth — not a vehicle for more regulation.
It will interest you to know, if you don't already, that the Government has committed to releasing the terms of reference by the end of the year and will commence the inquiry itself shortly afterwards.
Moratorium
There has been a lot of regulatory change in the financial industry over recent years and there are understandable concerns around more change. We understand that reforms have placed significant adjustment and compliance costs on the industry, and we want to allow industry the time to bed them down.
And so, while the Financial System Inquiry is underway, the Government will place a moratorium on new significant regulation. Legislation and regulation will continue where it is necessary to provide certainty to industry, where there is an overwhelming case for urgent action, or if needed to implement our election commitments.
The moratorium won't affect instances where industry has already made significant investments to prepare for the completion of major reforms.
MySuper
Australia's superannuation system is strong and is expected to grow even stronger over the next few decades, from around $1.6 trillion today to around $8 trillion in nominal dollars by 2039-40; or from just over 100 per cent of GDP to around 145 per cent of GDP.
The Coalition Government fundamentally believes that such a strong system should ensure the interests of fund members – indeed, that those interests are paramount.
Restoring stability and certainty to our superannuation system is a key aspect of the Government's agenda to build a strong and prosperous economy.
We therefore support greater competition in the superannuation sector through increased transparency, because a more informed market will lead to better outcomes for fund members.
We will take a considered approach to reform and the implementation of all of our election commitments. That means there will be no unexpected or detrimental changes to the superannuation system under our Government, with any final changes to settling recent reforms carried out in a fully consultative manner and with a view to minimising imposts on the industry.
I have already announced that the Government will issue a discussion paper before the end of the year which will contain outstanding issues from the previous government on MySuper, including the product dashboard, investment statements and it will canvass the issue of governance of super funds.
Deregulatory focus
Before closing I would like to cover the Government's focus on deregulation.
Our commitment to reducing regulatory burdens, as a critical step towards improving Australia's productivity is well known. Our goal is to restore certainty, predictability, and effective and meaningful collaboration so that policy can boost confidence, promote investment and encourage employment.
As part of our deregulation agenda, we will overhaul the process for creating, implementing and reviewing new regulations, which includes implementing a process within Government whereby the costs and benefits of additional regulation are carefully balanced.
It means driving cultural change throughout Government, including the Cabinet and Parliament, as well as the public service.
Our regulatory reforms involve a series of new measures, which will hold both Ministers and the public service to greater account. It's quite a list, so bear with me. I'll go through all of it not to bore you but to show you that we're serious:
- We will repeal or amend costly and excessive regulation wherever possible;
- We've established a red and green tape reduction target of $1 billion per year in compliance costs and committed to requiring agencies (including the Treasury portfolio) to identify (in dollar terms) measures that offset the cost impost to business of any new regulations;
- This will be supported by requiring agencies to quantify the compliance costs of existing and any new or repealed regulations;
- Cabinet submissions proposing legislative changes with a significant regulatory impact can no longer be exempted from the regulatory impact process;
- We are establishing Ministerial Advisory Councils, with business representation, before the end of the year. These bodies will assist Treasury Ministers to identify and prioritise deregulation opportunities, as well as provide engagement and policy consultation opportunities;
- A Deregulation Division has been established in the Treasury portfolio to drive red and green tape reduction, with similar units being established across all portfolios;
- Senior public service executives will have their remuneration directly linked to their performance;
- Two parliamentary sitting days will be set aside for repealing legislation each year;
- The Hon Josh Frydenberg, Parliamentary Secretary to the Prime Minister, has overall responsibility for the deregulation agenda within the Prime Minister's portfolio. Treasury's role, both as a central agency and as a portfolio with significant regulatory responsibilities, will be critical to achieving the Government's goals.
Regulators like ASIC, APRA, the ACCC and the ATO will also be subject to the new deregulatory approach. To that end, the Government is instructing the Productivity Commission to prepare a framework for auditing the performance of regulatory agencies.
Importantly, Ministers will issue Charter Letters to regulators outlining the Minister's broad policy intent and expectations with respect to their policy and administrative powers.
Conclusion
The importance of the financial services sector to Australia is unquestioned. A strong financial services sector helps us build a strong economy. To allow it to flourish, we need an effective and practical regulatory environment.
This Government is committed to helping that happen and we want to join you, to paraphrase the title of this conference, on that road to success.
Thank you for your time and I look forward to discussing these issues further with you.