Experts hunt for value in call for reform
Academics have expressed their views on the final report of the Financial System Inquiry, handed down last weekend.
The so-called Murray Inquiry made 44 recommendations to fix the state of Australian finance service, which has seen its reputation battered by scams and scandals in recent months.
Bank competition, increased capital levels and poorly designed taxes, such as capital gains tax and negative gearing, were held up as clear candidates for reform.
The recommendation that got the most coverage this week was a call for Australian banks to hold more capital to survive future financial crises.
Among its suggestions, the report from the committee chaired by Commonwealth Bank chief executive David Murray backed a new regulator, the “Financial Regulator Assessment Board”, as well as more routine reviews of competition in the sector.
It also repeated the call for minimum education standards for financial advisers and the introduction of an “innovation collaboration committee” to ensure policy and regulation keeps pace with technological change.
Professor Stephen King, from Monash University’s Department of Economics, said it was an “important” though “predictable” result.
“The two big areas for the inquiry are the resilience of the Australian banking system and superannuation,” he said in an article for The Conversation. [http://theconversation.com/financial-system-inquiry-expert-reaction-35043]
“The report recognises that increased capital requirements are not costless... but this cost really reflects the political reality that a large bank cannot be allowed to fail. It simply has Australia following the rest of the world.
“Where the report is less successful is in relation to regulatory structure and accountability.
“[It] does not want a major change in the regulatory structure for the financial sector but would like to establish a new Financial Regulator Assessment Board to assess the performance of the regulators.
“The financial regulators would be accountable to this board and the board would report to parliament. At the same time the report recommends the Australian Prudential Regulation Authority and Australian Securities and Investments Commission receive funding for three years so they have more autonomy.
“In other words, the financial regulators have less direct accountability to the parliament... This is poor regulatory design. ASIC and APRA need to be directly accountable to parliament.” he said.
Professor Deborah Ralston, Executive Director at the Australian Centre for Financial Studies, said “technology has emerged as the inquiry’s handmaiden”.
“In addressing the on-going dilemma of finding an appropriate balance between stability and efficiency across the financial sector, the inquiry has turned to the use of technology,” Dr Ralston said.
“As the inquiry stated from the outset, price signals should be encouraged rather than impeded. For the most part, the report’s recommendations are based around the use of technology to promote competition, encourage transparency and innovation, to ensure a better outcome for consumers and business.
The Final Report itself states; “technology driven regulation is transforming the financial sector”.
Dr Ralston expects that recommendations from the inquiry will drive further growth in the area.
“Increased information flows to consumers on retirement projects, a register of financial advisers, greater information on small and medium-sized enterprises for alternative credit providers, and improving guidance and disclosure in general insurance will all contribute to a more efficient and competitive financial sector,” she said.