Introduction
Thank you, it’s fantastic to welcome the Finance Brokers Association of Australia to my home town. If it’s been a while since your last visit, I’m sure you’ll agree the Gold Coast is a wonderful city.
This morning, I’d like to talk about the Morrison Government’s financial sector agenda specifically:
- The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and
- The Productivity Commission inquiry into competition in Australia’s financial system
- The Government’s broader agenda to improve consumer outcomes by increasing competition in the banking sector, as well as
- The Government’s commitment to ensure our financial regulators — the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority — have the resources and powers they need.
More jobs, guaranteeing essential services and a Government living within its means. That’s our economic plan, and we believe the finance sector is an important part of our economy. The coming months are an important part to your industry’s future and I eagerly await the aforementioned reports.
Whether it’s a city, the culture of an organisation or an entire industry, the process of change takes hard work. As you may’ve heard me say since my appointment to the role, culture eats strategy for breakfast. Change takes focus. It takes passionate people with a clear vision.
And the FBAA is certainly accustomed to that role having formed 25 years ago with a mandate for leading change.1
There are many dynamics for financial brokers to factor in — technology, regulation and changes in consumer behaviour, to name a few. And gatherings such as this are important in mapping the way forward.
1. Royal Commission
First, let me say, the Royal Commission’s Interim Report hasn’t made any recommendations at this stage. So, it’s too early to speculate on what the Government’s response may look like.
Yet, there is an opportunity for the financial services industry — including finance brokers — to use the Royal Commission as a catalyst for change.
The financial sector must take responsibility for the misconduct heard by the Royal Commission — primary responsibility for misconduct lies with financial firms, their boards and senior executive teams.
The Government established the Royal Commission to ensure that Australia’s financial system continues to work efficiently, effectively and in the interests of consumers.
And Commissioner Hayne has set out a number of key over-arching issues that emerged during the Commission’s hearings, for example:
- Financial institutions putting their short-term pursuit of profits over the duties they owe customers and basic standards of honesty and fair dealing.
- A sales culture, rather than a culture focused on good customer outcomes, which is driven by remuneration and incentive structures at all levels in firms and for intermediaries.
- That when misconduct was revealed, it either went unpunished or the consequences didn't reflect the seriousness.
- That more law is not the only answer: more often than not the misconduct was contrary to existing law.
- Complexity of the law may be part of the problem, and simplification may be part of the solution.
The Royal Commission is required to provide a final report to the Government by 1 February 2019. The Government will carefully consider the recommendations made by the Commission — and this will be done with the highest priority.
There is also an opportunity for your industry to consider what changes may be necessary, or opportune, to further improve the services you offer.
2. Productivity Commission Report
The Government is also considering the recommendations of the Productivity Commission’s inquiry into competition in the Australian financial system, whose report was released on 3 August.
The report makes 34 recommendations focusing on the home loan market; financial advice and general insurance; the payments system; and the regulators.
The PC Inquiry’s report raises a number of issues relevant to matters being considered by the Royal Commission, such as vertical integration, mortgage brokers, managing conflicts of interest, insurance and financial advice.
As with all recommendations of the PC, the Government is looking carefully at them, consulting and considering our response in concert with any further matters coming forward, in particular from the Royal Commission.
In the meantime, the Government is continuing to deliver better outcomes for consumers of financial services by focusing on improving competition in the financial and banking system.
The FBAA takes pride in the role brokers play in increasing competition between lenders and I know many of you have taken a wider interest in recent developments.
As always, I welcome your input as we seek to more fully respond.
3. Competition in the Banking Sector
Open Banking
The need for change often comes from many directions and the combination of technology and data is a particularly powerful force.
The Consumer Data Right — called Open Banking in the banking sector — will give individuals and businesses the right to access certain data about themselves and direct that their data be shared with accredited third parties of their choice, including to FinTechs and other banks.
We believe that by improving access to data, Open Banking will fuel data driven innovation and competition.
It will enable more efficient and convenient financial product comparisons for consumers, accounting for their individual circumstances; and will streamline switching between providers.
Furthermore, it will create opportunities for service providers to develop new products that are more tailored to the needs of specific customers; and to achieve efficiencies in product creation and delivery.
The Government is committed to a phased approach for Open Banking to ensure that its benefits may be realised as soon as practicable, while recognising the significance of the changes required by different participants to implement the regime.
For example, the major four banks will be expected to make available initial data sets by 1 July 2019. For each stage, the rest of the banking sector will be given an additional 12 months.
We’ve also put a strong framework in place giving customers choice, convenience and confidence.
The Australian Competition and Consumer Commission (ACCC) will be responsible for promoting competition and customer-focused outcomes within the system, while the Office of the Australian Information Commissioner (OAIC) will ensure that privacy protection is a fundamental feature of the system.
Data61, the data arm of the CSIRO, will be appointed to perform the role of a Data Standards Body, developing technical standards for the system in collaboration with industry, FinTechs, and consumer and privacy groups.
FinTech
More broadly, the Government is working with the FinTech industry and regulators to develop a strong and vibrant FinTech culture in Australia.
Our policies are delivering results for the Australian FinTech sector, with reports showing the strength of the sector — a sign Australia is punching above its weight on the global stage.
The EY FinTech Australia Census 2018 indicates the Australian FinTech sector continues to mature and grow. The number of FinTechs in Australia is now approaching 700.
The levels of capital available to startups in Australia continues to rise, with FinTechs securing the most funding of any category in 2017-18 and average annual capital raised trending upwards.
More than half of the firms surveyed are looking to expand overseas in the next 12 months and around 60 per cent consider that Australian FinTech companies will be able to compete internationally. Furthermore, 1 in 5 FinTechs reported that they are profitable, up from 1 in 7 last year.
The Government will continue to work with the industry to progress measures to support the FinTech sector.
For example in March, we signed a FinTech Bridge with the UK, providing for closer policy and regulatory cooperation between the UK and Australia and easier access for Australian firms to the UK.
We are also establishing an enhanced regulatory sandbox to enable businesses to test financial services without facing the full suite of requirements and costs of regulatory licensing.
Comprehensive Credit Reporting
In a further measure, the Government is committed to increasing competition in the lending markets by reducing the credit data advantage held by the major banks.
Participation in the comprehensive credit reporting system will give new entrants and smaller lenders access to a deeper, richer set of data, enabling them to better serve customers and assess borrowing capacity.
Following the Government’s commitment to legislate a mandatory comprehensive credit reporting regime, all four major banks have now begun participating in the CCR system.
Their participation is encouraging other smaller credit providers to also participate in the system.
This is a good outcome that will lead to better credit opportunities and more responsible lending decisions.
Removing banking barriers
As part of our agenda, the Government is making it easier for new entrants to the banking sector, to obtain a banking licence and relaxing Financial Sector (Shareholding) Act 1998 (FSSA) ownership requirements.
To further increase and encourage competition, we also lifted the prohibition on the use of the word 'bank', so all banking businesses with a deposit-taking licence will now be able to use this term.
Previously, only ADIs with more than $50 million in capital could call themselves a bank. This formed a significant barrier for new players who wished to enter the market.
We recognise that new players need to identify themselves as a 'bank' so customers can properly understand their product offering.
And finally, we introduced the major bank levy, helping to level the unequal playing field that results from the major banks’ significant funding cost advantages.
Cooperatives and mutuals
I also note the Government is reforming the cooperatives, mutuals and member-owned firms sector by allowing them the ability to raise capital so they can invest, grow and compete with investor-owned corporations.
The reforms are significant because cooperatives, mutuals and member-owned firms offer 8 in 10 Australians an alternative model to profit-driven enterprises.
The Government has consulted on draft legislation to provide a definition for a mutual entity in the Corporations Act and to clarify the uncertainty around the demutualisation provisions, allowing mutual ADIs the ability to raise capital so they can compete with the big banks.
The legislation forms the first phase of a two-phased approach to the implementation of the recommendations of the inquiry conducted by Greg Hammond OAM.
4. Regulators
At the same time, the Government continues to invest in our regulators — APRA and ASIC — to ensure they have the resources and the powers they need to enforce the law, improve community confidence and maintain the stability of the financial system.
Australia’s regulators are well regarded internationally, and the Government is building on their strengths as well as addressing areas of relative weakness.
APRA
We recently announced $58.7 million in new funding for APRA so that it can reinforce the resilience and soundness of our financial system, especially at a time of significant reform.2
We will provide the new funding over four years from 2018-19 to enhance APRA’s supervision by increasing the number of frontline supervisors for the largest and most complex financial institutions.
The funding will also bolster APRA’s ability to identify and address new and emerging risk areas, such as cyber, FinTech and culture. It will do so by building internal expertise and increasing access to technical specialists outside of APRA.
Furthermore, the new funding will improve APRA’s data collection capabilities to leverage the benefits of inter-agency intelligence sharing.
And finally, the funding will provide for a review of APRA’s enforcement strategy and use of formal enforcement powers across the industries it supervises.
I am sure many in this room have heard the news but we have reappointed Mr Wayne Byres as Chair for five years and appointed Mr John Lonsdale as a second Deputy Chair.
This will no doubt support APRA in developing a stronger focus on accountability and enforcement in the financial system.
ASIC
We have provided ASIC with an additional $70 million of funding, not to mention significant new powers and a second Deputy Chair with a key focus on enforcement.
The new ASIC Chair Mr James Shipton — who brings extensive regulatory and financial market knowledge to the role — is now backed by a new Deputy Chair, Mr Daniel Crennan, and two new Commissioners, Ms Danielle Press and Mr Sean Hughes.
And in the past month, we have introduced legislation to strengthen criminal and civil penalties for corporate and financial misconduct in response to the ASIC Enforcement Review Taskforce recommendations.
Thanks to our Bill, criminal penalties for corporate and financial sector misconduct are set to double in some cases and civil penalties will increase by more than tenfold for corporations and more than fivefold for individuals.
We will also expand the range of contraventions subject to civil penalties and give the courts the power to seek additional remedies to strip wrongdoers of profits illegally obtained or losses avoided.
The new penalty regime delivers many benefits, it will enable ASIC to more effectively deter, prosecute and punish those who do the wrong thing.
We are working on reforms that will strengthen ASIC’s licensing and banning power, and taking steps to modernise ASIC’s information gathering powers.
Parliament is also considering the Design and Distribution Obligations and ASIC Product Intervention Power reform package.
These reforms will reduce the risk of consumers acquiring or being sold products that do not meet their needs.
And the product intervention power, in particular, will enable ASIC to get on the front foot in proactively addressing the risks of significant consumer detriment.
ACCC
On a final note, the Government has also provided the ACCC with $13.2 million over four years from 2017-18 to undertake regular inquiries into financial system competition issues.
For example, the ACCC is currently examining the pricing of residential mortgage products, with an interim report already released in March 2018 and the final report due this month.
Closing remarks
Let me conclude by thanking you again for your invitation; it is great to see so many of you here on the Gold Coast.
As FBAA Executive Director Peter White said in Broker Magazine, ‘nothing is as constant as change’. And your industry has changed continuously over the past 25 years due to technology, regulation and customer behaviour.3 And will, no doubt, continue to do so.
In coming months, the Government will consider the Royal Commission recommendations together with those already put forward by the Productivity Commission inquiry— two major lines of inquiry that I suggest will usher in a new wave of reform, mostly led by cultural, rather than regulatory change.
We are also doubling down on our commitment to improve consumer outcomes by increasing competition in the banking sector. Most notably, Australia is about to start a new chapter of Open Banking fuelled by data driven innovation. This will take your industry into unknown waters with plenty of opportunity for the entrepreneurs amongst you.
There has never been a more interesting, exciting and opportunity rich time to be in your industry. I wish you all the best for the remainder of the conference.
Thank you.
1 https://www.fbaa.com.au/fbaa-history/
2 http://jaf.ministers.treasury.gov.au/media-release/044-2018/
3 http://issuu.com/auspublisher/docs/broker_oct_18_-_master_2nd_proofed_?e=26631857/64894978