Thank you Paul.
Good afternoon, ladies and gentlemen.
I would like to thank the FPA for inviting me to speak to you today and giving me an opportunity to update you on the latest initiatives of the Government's financial services reforms, in particular those which affect you, as financial planners and funds managers.
The work of the FPA - steering Australians through an ever more complex investment world - is a vital part of the financial community.
Government initiatives such our broad privatisation program, incentives for the development of the retail bond market and superannuation reform through the pending Choice of Fund legislation, have given Australians an incentive to invest in a range of products that were simply not available in the past.
As you may be aware, managing investments is more than a share certificate in the bottom drawer at home.
We all require an investment strategy that suits our needs,
that suits our wants and that answers our dreams.
Our initiatives such as the Corporate Law Economic Reform Program or CLERP - have this philosophy at their core.
In March this year, I released the CLERP 6 consultation paper - a major reform initiative which aims at building a regulatory framework for the financial services industry.
CLERP 6 will be a key tool in promoting innovation. It will promote business especially to new markets. It will protect and reassure consumers. And it will maintain the integrity of the Australian market for financial services.
Ladies and gentlemen, CLERP 6 strikes a balance between fostering innovation and protecting consumers.
Since the paper was released, we've received over 115 submissions from a wide range of industry participants.
We've also discussed CLERP 6 with industry associations, major financial institutions, individual intermediaries and we have , of course, discussed it with rewpresentatives of the key financial markets.
And this process included valuable discussions with the FPA.
So, now 6 months later, where are we up to?
The draft legislation to implement CLERP 6 will be released before Christmas for a 3-month public exposure period.
I am mindful of the other issues you have on your plates at the moment including Y2k, Leap Year 2000, the ANTS package and Ralph business tax review. My timetable responds to businesses concern about their existing workload and prospective workload over the next twelve months.
So after comments have been received, we will draft the final bill and I expect that the Bill will be introduced into the Parliament in the first half of next year.
After that it is up to the parliamentary process. But I think it will be necessary to allow some time between when CLERP 6 is enacted and when it actually starts to make sure the industry has to time to adjust to the reforms.
At this stage, I expect CLERP 6 will be effective from January , 2001.
I am aware that there have been calls for an earlier start, or for an earlier start for some aspects of the package - either those parts that affect formal markets, or those which affect wholesale transactions.
However, I want to say to you right now that I do not think it would be feasible to start some parts of CLERP 6 before others.
We are not going to cherry pick CLERP 6.
The CLERP 6 package is just that a package. And because it is a package, all its elements are inter- linked. As such any expedition of one part of CLERP 6 will significantly delay other parts of CLERP6.
To put this in some perspective, you should be aware that the scale of CLERP 6 is unmatched anyware in the world. The United Kingdom has used the Wallis report as its blueprint for the overhaul of financial regulation. However so far, their reform program has not gone as far on retail financial and wholesale products as does CLERP 6.
Therefore in a global market if we are going to have the best and most innovative regulatory regime it is important for us to meet the regulatory challenges of not only the Australian domestic market but also the global market of tomaorrow.
Information and the movement of money are the oxygen feeding the growth of new technology. What would the internet be if it couldn'6t handle e-commerce?
Therefore our regulation must be technology neutral. It must cope with face to face commerce, phone commerce, old mail technology and the new virtual world. Most importantly it must cope with technology that hasn't yet been developed.
This is the challenge for a reformist Government. We must be across technological development. Regulatory arbitrage will be a fact of life in the new vitual world. Consumers in Italy will want to purchase products over the net from a reliable and trustworthy financial provider. They want certainty that they will be protected and that the rule of law will apply if any problems arise with their contracts.
Similarly traders will look for liquid markets that have the lowest transaction costs but the maximum protection in case of default.
This is the CLERP 6 challenge and I am sending the Treasury team working on CLERP 6 to the USA and Europe to have a look at not only financial product development but , perhaps more importantly technological development.
So, what does the CLERP 6 regime mean for financial planners and funds managers?
Firstly, it means streamlined and efficient regulation.
For financial planners this will be a significant advantage. CLERP 6 should see fewer overlaps in regulation. For you, this means less compliance costs. It should also boost competition by reducing unwarranted barriers for current participants to trade across new products.
To achieve this, we are proposing a single regime for service providers now operating under the securities, superannuation, life insurance, general insurance and banking regimes.
So 1 regime replacing 5. Others like foreign exchange and derivatives will also fall under CLERP6.
This will deliver immediate benefits for any adviser who is now trying to comply with the raft of legislative and other requirements for instance, the Corporations Law, the Agents and Brokers Act; the Good Advice regulations and the Life Code of Practice.
Measures like these will be replaced by a single set of requirements - multiple licences will be replaced by a single licence. And this will deliver major benefits to your industry.
In a similar vein, there will be consistent disclosure about financial products at point of sale.
While the CLERP 6 consultation paper put two alternative models for disclosure, there was significant support for the modified targeted approach. As well there is strong support for bringing managed investments under this alternative.
At this stage I am still considering the impact of this and we are yet to make a final decision.
More generally, the CLERP 6 framework will provide certainty for industry players while being flexible enough to cater to a range of existing products and future developments.
The framework will set out minimum requirements that all players will have to meet.
This brings me to the second point which I want to emphasise today - the new regime's flexibility.
Ladies and gentlemen, I am convinced that flexibility is the key to creating regulation that can stand the test of time, and be workable even though the industry may develop in ways which we cannot foresee today.
During my recent trip to the US, I saw first hand where those developments are leading us and the need for the law to be flexible enough to cater for innovation in financial markets, innovation in financial services and innovation in product delivery.
But the CLERP 6 proposals are certainly not a 'one size fits all' solution. The differences between financial products must be recognised and cannot be ignored.
While CLERP 6 will require, for example, consistent and comparable disclosure, I fully recognise that the application of the disclosure requirements will vary according to the product being offered.
Recognising the different features of different products and recognising that some of the requirements in CLERP 6 will vary with these features, such as their risk profiles, is the type of flexibility we are seeking in CLERP 6.
Flexibility was one of the principles of regulation listed by the Wallis Committee - flexibility, competitive neutrality, cost effectiveness, transparency and accountability.
However, it clear from the submissions we've received that there is a tension between flexibility and between certainty - some players are keen on flexibility, while others think certainty is more important.
This is just one example of the issues with which we are grappling, and I am determined to achieve a workable and broadly acceptable outcome.
I am conscious that when it comes to the huge range of products that falls under CLERP 6 bailiwick, flexibility is crucial.
We are certainly not saying that deposit accounts are the same as derivatives and should be subject to the same requirements.
We are saying that both types of products can be accommodated under minimum requirements included in legislation.
Having set these minimum requirements, more detailed guidance on compliance can be provided in ASIC policy statements, regulations or industry codes of conduc
These mechanisms will set standards for complying with the law. In addition I envisage that industry codes of conduct will be able to flesh out requirements in areas not covered by the Law.
I consider that this approach will benefit the industry and will also bring major benefits to the ultimate users of financial products Australian consumers
This brings me to my third point - empowerment of consumers.
The purpose of the legislation is to give consumers with adequate information and avenues of redress, so that they can make informed decisions about how to handle their finances.
The aim is not to cosset consumers, but to empower them.
CLERP 6 will give consumers consistent and comparable information about:
- the services offered by financial planners and other financial service providers; and
- the products being offered.
It will also ensure that when consumers deal with service providers they are confident of their competence and that they at least meet minimum standards of conduct.
We will also foster consumer sovereignty by making sure that if something goes wrong consumers have access to an easy-to-use complaints resolution mechanism.
The proposals make a clear distinction between the obligations when advising a retail client and when advising a wholesale client.
Let me explain.
Regardless of whether your client is retail or wholesale - and that is a term which is defined in the consultation paper - if you are offering financial services, you will need to be licensed.
This means that you will have to satisfy ASIC that you meet certain basic criteria, such as appropriate financial resources and internal controls, competence, skill and experience and the systems for the training and representatives.
However, the consequences are very different depending on whether your client is retail or wholesale.
All financial service providers will be required to comply with certain general obligations such as handling client funds and making sure representatives are properly trained.
The consumer protection mechanisms included in the proposals apply only to dealings with retail clients.
And here I am talking about, for example, the compensation arrangements, dispute resolution and point of sale disclosure.
I have pointed to 3 themes in the CLERP 6 reforms streamlined regulation, flexibility and empowerment of consumers.
Obviously, I can't talk to a group such as yourselves without mentioning the Government's taxation reforms.
Firstly, the Review of Business Taxation.
This was announced on 14 August 1998, to make recommendations on various aspects of business taxation - the system, policy-making, drafting of the legislation and administration.
Among the aims are the improvement of the competitiveness and efficiency of Australian business, transparency and to cut the cost of compliance.
The Review has released two discussion papers, an international comparison and as you will be aware, has provided its report to the Government.
This is being considered by the Government. We expect to announce specific decisions soon Watch this space.
The second set of taxation reforms that I am sure you will be interested in is the GST and its application to financial services.
The Government announced in its August 1998 policy document A New Tax System that under the goods and services tax some financial services would be input taxed in line with international practice.
In August this year, the Government released a Consultation Document on the Application of GST to Financial Services.
I hope that you have all had a good look at this document.
It outlines the scope of input taxed financial supplies, and the list of services used to make financial supplies eligible for a reduced input tax credit.
While it's the result of broad industry consultation, we're seeking feedback from all parties by this Friday, 17 September.
It is on that basis that the regulations applying the GST to financial services will be based.
The benefits of the proposals are a cut in compliance costs, business paying less GST and addressing the bias between insourcing and outsourcing.
This is not the place to go into detail, but I urge you to get a copy of the Consultation Document and, if you have views on it, lodge a submission.
Ladies and gentlemen today I have spoken about many of the initiatives that we think will provide, I believe, the world's leading financial regulation infrastructure.
We want Australian investors to have access to the latest innovation..
But we recognise our responsibility to protect consumers as far as possible.
This is a job we cannot do alone. We need the co-operation of organisations such as the FPA to help guide consumers through the maze of new products by providing up-to-date and independent advice.
By working together I believe we can facilitate vibrant and efficient financial markets that investors can approach with confidence.
And that will benefit all of us.