The first government review into the financial system in almost two decades, lead by former Commonwealth Bank chief David Murray, published its interim report on Tuesday. Here’s what it has to say about key issues affecting consumers and small-to-medium businesses.
SUPERANNUATION: There is not enough competition on fees, and scope for more efficiency. The report suggests introducing further policies similar to MySuper to push down costs and proposes reinstating a ban on super funds borrowing to invest.
CREDIT CARD FEES: The inquiry is considering changes to “interchange fees” – charges banks impose for card transactions, which have increased credit card fees or interest rates for consumers. The inquiry is considering banning the fees, and allowing merchants to work with real time pricing information to allow them to monitor fees.
RETIREMENT PRODUCTS: Retiring Australians are given little guidance on what they should do with their money and the types of investment products they should buy, the report says. The inquiry wants to explore whether rules should be introduced to encourage retirees to buy retirement income products, introduce a default ‘investments’ option for retirees or mandate the use of certain retirement income products such as annuities.
FINANCIAL ADVICE: The inquiry recognised the importance of good financial advice and the need for affordable, non-conflicted advice. It suggested that the minimum standards required to become a financial advisor be increased and that a public register should be introduced. One of the strongest recommendations was to rename general advice as ‘sales’ or product information so that savers could better distinguish whether an agent was selling or actually advising something.
BUSINESS ACCESS TO FINANCE: Small and medium-sized businesses face “structural” barriers in accessing finance, the report found. It is considering a new small and medium-sized enterprise database to address this. “The consideration of alternative approaches to capital requirements for lending could give the smaller banks a leg-up,” added PwC’s Financial Services leader Hugh Harley.
HOME LOANS: The inquiry does not support restricting higher risk lending for the sake of financial stability, which New Zealand, the United Kingdom and other countries have done.
DISCLOSURE OF INVESTMENT PRODUCTS: Current disclosure rules lead to “lengthy documents that often do not enhance consumer understanding of financial products and services,” the report finds. It suggests new ways of communicating with investors, including using technology.
TAXATION: The inquiry pointed out that the current tax system “distorts” household finances, encouraging families to concentrate borrowing on property purchases. Increasing house prices mean household debt has doubled since the Wallis Inquiry, creating a real threat to financial stability and growth as Australia banks hold most Australian mortgages.
*Original Article by Clancey Yeates: http://www.brw.com.au/p/business/what_david_murray_financial_system_EABsI8TaZGSbm4MCHeZgSM