20 Oct 2015

Major shakeup of Australia's financial services sector on the way

The Federal Government has accepted the vast majority of changes recommended by the Financial System Inquiry headed by David Murray, and set out a roadmap for the biggest reforms in 20 years under five themes.

While superannuation will be the most obviously affected area, the changes range across the whole financial sector, and will affect capital raising (simple corporate bonds and derivatives), retail banking, e-banking, insurance, regulation and enforcement.


The Government says that Australia's banking market has a certain concentration of risk, and therefore needs greater mortgage risk weights.

By end-2015: Develop legislation to facilitate participation of Australian entities in international derivative markets and better protect client monies.

By mid-2016: Consult on measures to ensure financial regulators have the tools they need to manage any future financial crisis.

By end-2016: APRA to take additional steps to ensure our banks have unquestionably strong capital ratios.

Beyond 2016: APRA to ensure our banks have appropriate total loss-absorbing capacity and leverage ratios in place.


The biggest change will be moving towards giving workers under industrial awards more choice in their superannuation funds by reviewing the default funds system.

The Government will also clarify the purpose of superannuation, which will then guide further reform, and further down the track introduce director penalties.

Legislation will be developed to allow superannuation trustees to provide pre-selected retirement income products, including through increased private retirement incomes, and better protection against longevity risks. The Government will continue to work to remove impediments to product development.

Although the Government has rejected the recommendation to ban limited recourse borrowing arrangements by superannuation funds, there will be increased monitoring of this area.

By end-2015: Develop legislation to improve governance and transparency in superannuation. Progress the Retirement Income Streams Review. Task the Productivity Commission to immediately develop and release criteria to assess the efficiency and competitiveness of the superannuation system and to develop alternative models for a formal competitive process for allocating default fund members to products.

By end-2016: Develop and introduce legislation to enshrine the objective of the superannuation system. Consult on legislation to facilitate trustees of superannuation funds providing pre-selected comprehensive income products for retirement.

Beyond 2016: Implement legislation to introduce director penalties. Consult on legislation to improve member engagement, consistent with the recommendations in the Inquiry. Monitor leverage and risk within the superannuation system. 


The Government has committed to some reforms, but otherwise has not grappled too much with emerging products such as Bitcoin, with the biggest change under this heading being the curb on credit card surcharges.

It has however flagged changes which could benefit capital raising.

By end-2015: Consult on legislation to support crowd-sourced equity funding. Consult on crowd-sourced debt financing. Task the Productivity Commission to review access to and the use of data.

By mid-2016: Develop legislation to ban excessive card surcharges and better protect consumers using electronic payment systems. Develop legislation to reduce disclosure requirements for issuers of simple corporate bonds. Establish the Innovation Collaboration Committee.

By end-2016: Give legal effect to the Asian Region Funds Passport initiative. Consider technology neutrality in financial sector regulation.

Beyond 2016: Facilitate rationalisation of life insurance and managed investment scheme legacy products.

Consumer outcomes

Financial advisers will become more professional under this set of reforms. In addition, issuers of financial products will be more accountable for them, and ASIC more able to intervene in respect of those products.

By end-2015: Develop measures to address the misalignment of incentives arising from conflicted remuneration in life insurance, stockbroking and mortgage broking.

By mid-2016: Develop legislation which provides a professional standards framework for financial advisers. Consult on development of accountabilities for issuers and distributors of financial products and ASIC product intervention powers.

By end-2016: Develop legislation to give ASIC the power to ban individuals from managing financial firms. Consult on strengthening ASIC’s enforcement tools in relation to the financial services and credit licensing regimes. ASIC will review remuneration arrangements in the mortgage broking industry.

Beyond 2016: Consult on and develop legislation to enable innovative disclosure for financial products and to improve the regulation of managed investment schemes. ASIC will review stockbroking remuneration arrangements.

Regulatory outcomes

There's a greater emphasis on competition in financial services. ASIC’s mandate will also now include competition, and competition in the sector as a whole will be the subject of a Productivity Commission inquiry.

In addition, all regulators will have new KPIs, and their operational capabilities will be reviewed.

By end-2015: Complete a capability review of ASIC. Complete consultation on industry funding arrangements for regulatory activities undertaken by ASIC. Appoint new members and revise the Terms of Reference of the Financial Sector Advisory Council.

By mid-2016: Update the Statement of Expectations for APRA, ASIC and the Payments System Board to provide additional guidance about the Government’s expectations for their strategic direction and performance and improve regulator accountability. Consider ASIC capability review and, as appropriate, develop legislation to enhance operational capabilities of regulators.

By end-2016: Introduce competition into ASIC’s mandate.

Beyond 2016: Commence a review of ASIC’s enforcement regime. Task the Productivity Commission to review the state of competition in the financial system.

Murray recommendations rejected by the Government

Importantly, although it will make changes to regulators' powers and KPIs, it has rejected the recommendation to create a new Financial Regulator Assessment Board.

Other rejected recommendations are:

  • prohibiting limited recourse borrowing arrangements by superannuation funds but the Council of Financial Regulators and the Australian Taxation Office will monitor leverage and risk in the superannuation system and report back to Government after three years; and
  • more frequent post implementation reviews, as it has already implemented changes to strengthen the review regime in 2014.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.