The Turnbull government has announced a raft of changes in response to the financial system inquiry led by former Commonwealth Bank chief David Murray, but what does it mean for you?
Credit card holders
Undoubtedly the measure the government wants to put up in lights is the planned law banning surcharges that are above the reasonable costs faced by merchants in accepting cards. The Australian Competition and Consumer Commission (ACCC) would be put in charge of enforcing the ban.
It would not end surcharges altogether, but would aim to increase pressure on businesses – including retailers, hotels and airlines – not to slug customers with surcharges at the point of sale that go well beyond the actual cost involved.
It’s not the first time action has been promised on credit card transaction fees. In March 2013, the Reserve Bank allowed card schemes such as MasterCard, Visa, American Express and Diners Club to limit surcharges to “the reasonable cost of acceptance” – but consumer groups argue this has proved ineffective. Matt Levey, director of campaigns for Choice, said: “We were hopeful initially but it quickly became clear that it needed a cop on the beat.”
The Murray report found that the existing rules were “difficult for system providers to enforce, potentially complex for merchants to comply with and can cause frustration for consumers, as evidenced by the more than 5,000 submissions the inquiry received on the matter”. The proposed legislation is yet to be developed, but the government is working to a timeframe of mid next year.
People with home loans
The big-picture recommendations in the Murray review included tougher capital standards for banks so that the institutions are “unquestionably strong” and better able to withstand the next financial crisis. There are also changes to mortgage risk weights, which are being overseen by the Australian Prudential Regulatory Authority (APRA).
While these measures are intended to improve the resilience of the banks, people with mortgages might see an increase in their historically low interest rates. Westpac last week announced it was raising its home loan rates by 0.2 percentage points from 20 November, citing regulatory changes that would increase the amount of capital to be held against mortgages.
But there are other options. Numerous banks, including Westpac, have also announced plans to raise billions of dollars of capital from investors.
The government played down suggestions the changes should lead banks to increase interest rates, although the prime minister, Malcolm Turnbull, said it was “ultimately a matter for them and of course for the market”.
The chief executive of the Australian Bankers’ Association, Steven Münchenberg, said the costs associated with keeping the banking system safe would be “shared amongst shareholders and customers”.
“I know people sitting around the kitchen table won’t buy this but if we have a strong banking system when the next crisis hits, people won’t lose their jobs and so you can see these additional costs as an investment in a more secure future,” he told the ABC.
Workers with superannuation accounts
Workers might have to pay more attention to their superannuation accounts, with the government promising to increase “choice” in the system.
Specifically, the government wants to open up choices for employees by targeting the deemed choice of fund which may be specified in enterprise agreements and workplace awards. The Productivity Commission will also be asked to look at “competitive processes” for allocating default fund members to products.
Industry super funds are raising concerns about the government’s push. David Whiteley, the chief executive of Industry Super Australia, said the Coalition was also trying to change governance arrangements for industry super funds, whose boards typically included an equal number of employer and employee representatives.
“Industry super funds look at the governance changes and the bank lobbying on default super as a concerted effort to dismantle the industry super fund model –industry super funds who have achieved superior returns to their members over the long term,” Whiteley said.
Superannuation funds
Super funds face changes mentioned above, but they will not face a clampdown on their borrowings at this stage.
This is because the government rejected a recommendation that the Murray report said would “prevent the unnecessary build-up of risk in the superannuation system and the financial system more broadly”.
The report raised concerns about the emerging trend of superannuation funds using so-called “limited recourse” borrowing arrangements to buy assets, which increased the risk to taxpayers who underwrote adverse outcomes through the provision of the age pension.
Such borrowings increased from $497m in June 2009 to $8.7bn in June 2014, the report said, arguing the global financial crisis highlighted the benefits of Australia’s relatively unleveraged super system.
The government said there were “anecdotal concerns” about the borrowing but “at this time the government does not consider the data sufficient to justify significant policy intervention”. It pledged to continue to monitor the situation.
Innovators
The government is drafting legislation for crowd-sourcing funding, saying this will help start-ups secure cash to finance their business in the early stages of development.
The Murray report noted the global rise of projects or businesses raising small amounts of money from the ‘crowd’ via an online platform. “The risks associated with crowd-funding investments would require some adjustments to consumer protections, including capping individuals’ investments and clearly communicating the risks,” the report said.
The government is due to consult on the legislation by the end of the year. Labor said it had already indicated it would support urgent passage of such legislation but the Coalition kept “re-announcing” the plans.
The government is also planning to clarify regulatory powers for new payment systems, such as the digital currency Bitcoin and others systems as they emerge.
Financial planners
Financial advisers will be required by law to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year. The use of the term “financial adviser” and “financial planner” will be restricted to people listed on the recently established register of financial advisers.
The government is also planning to provide the Australian Securities and Investments Commission with the power to intervene “to modify, or if necessary, ban harmful financial products where there is a risk of significant consumer detriment”.
But the government stopped short of fully embracing the inquiry’s recommendation for particular changes to better align the interests of financial firms and consumers. It will instead support the retail life industry’s proposed reforms pending a government review in 2018, at which point it will consider further changes.
